Doepel & Associates Architects Pty Ltd v Hodgkinson
[2008] WASCA 262
•15 DECEMBER 2008
DOEPEL & ASSOCIATES ARCHITECTS PTY LTD -v- HODGKINSON [2008] WASCA 262
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2008] WASCA 262 | |
| THE COURT OF APPEAL (WA) | |||
| Case No: | CACV:14/2007 | 7 AUGUST 2008 | |
| Coram: | MARTIN CJ McLURE JA LE MIERE AJA | 14/12/08 | |
| 39 | Judgment Part: | 1 of 1 | |
| Result: | Appeal dismissed | ||
| B | |||
| PDF Version |
| Parties: | DOEPEL & ASSOCIATES ARCHITECTS PTY LTD (ACN 069 628 440) EDWARD WILLIAM HODGKINSON |
Catchwords: | Negligence Negligent misrepresentation Misleading or deceptive conduct Estimate of building costs Scope of the representation Reasonableness of the representation Causation Turns on own facts |
Legislation: | Fair Trading Act 1987 (WA), s 10(1) Trade Practices Act 1974 (Cth), s 52(1) |
Case References: | Bill Acceptance Corporation Ltd v GWA Ltd (1983) 78 FLR 171 Browne v Dunn (1893) 6 R 67 HL Gates v The City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 Havyn Pty Ltd v Webster [2005] NSWCA 182 J & J C Abrams Ltd v Ancliffe [1978] 2 NZLR 420 McBratney v Boston (Unreported, FCt of WA, Library No 940567, 14 October 1994); (1994) ATPR 41-355 Warwick Entertainment Centre Pty Ltd v Alpine Holdings Pty Ltd [2005] WASCA 174 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE COURT OF APPEAL (WA) CITATION : DOEPEL & ASSOCIATES ARCHITECTS PTY LTD -v- HODGKINSON [2008] WASCA 262 CORAM : MARTIN CJ
- McLURE JA
LE MIERE AJA
- Appellant
AND
EDWARD WILLIAM HODGKINSON
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram : SIMMONDS J
Citation : HODGKINSON -v- DOEPEL & ASSOCIATES ARCHITECTS PTY LTD [2006] WASC 237
File No : CIV 2698 of 2001
(Page 2)
Catchwords:
Negligence - Negligent misrepresentation - Misleading or deceptive conduct - Estimate of building costs - Scope of the representation - Reasonableness of the representation - Causation - Turns on own facts
Legislation:
Fair Trading Act 1987 (WA), s 10(1)
Trade Practices Act 1974 (Cth), s 52(1)
Result:
Appeal dismissed
Category: B
Representation:
Counsel:
Appellant : Mr P G McGowan
Respondent : Mr G R Donaldson SC & Mr J D Finlay
Solicitors:
Appellant : DLA Phillips Fox
Respondent : J D Finlay & Co
Case(s) referred to in judgment(s):
Bill Acceptance Corporation Ltd v GWA Ltd (1983) 78 FLR 171
Browne v Dunn (1893) 6 R 67 HL
Gates v The City Mutual Life Assurance Society Ltd (1986) 160 CLR 1
Havyn Pty Ltd v Webster [2005] NSWCA 182
J & J C Abrams Ltd v Ancliffe [1978] 2 NZLR 420
McBratney v Boston (Unreported, FCt of WA, Library No 940567, 14 October 1994); (1994) ATPR 41-355
Warwick Entertainment Centre Pty Ltd v Alpine Holdings Pty Ltd [2005] WASCA 174
(Page 3)
- MARTIN CJ:
Factual context
1 The factual context in which this appeal arises has been set out by McLure JA and need not be repeated by me.
The scope of the appeal
2 The issues raised by the appeal are much more confined than the issues ventilated at trial. There are three grounds of appeal. They are:
(1) The learned trial judge erred in fact and in law in finding that the appellant did not have reasonable grounds for making the representation in July 1999 that the house could be built within a nominated budget of $390,000 to $400,000 (the construction cost representation) and that as such the appellant's conduct was misleading or deceptive.
(2) The learned trial judge erred in fact and in law in finding that the construction cost representation was negligently made.
(3) The learned trial judge erred in fact and in law in finding:
(i) that the respondent had suffered loss or damage; and
(ii) that loss and damage suffered by the respondent was caused by the appellant's conduct.
4 The appellant made no complaints in the grounds of appeal, or in the written or oral submissions advanced in support of the appeal, as to:
(a) the findings of the trial judge in relation to the content of the representation made on 22 July 1999 to the effect that the house (which had been the subject of extensive negotiations and discussions between the parties, and was then depicted in drawings adequate for the grant of development approval) could be constructed within the nominated budget of $390,000 to $400,000 (excluding certain items);
(b) any 'ambulatory' finding in relation to the operation of that representation;
(Page 4)
- (c) the adequacy of the reasons of the trial judge.
5 Although the grounds of appeal are cast in broad and general terms, the written and oral argument advanced in support of those grounds was narrowly confined. The grounds of appeal do not identify any specific findings of fact made by the trial judge which are said to be erroneous. Further, with one exception, the written and oral submissions in support of those grounds of appeal did not identify any specific finding of fact made by the trial judge which was said to be erroneous. The one exception is that in support of ground 3, it is argued that the trial judge should not have found that but for the negligent and misleading representation with respect to the construction cost of the house proposed in July 1999, Mr and Mrs Hodgkinson would have entered into a contract with a project home builder for the construction of a predesigned home for a total cost of around $500,000.
6 Counsel for the appellant confirmed during argument that grounds 1 and 2 did not rely upon any assertion that the trial judge made any erroneous finding of fact. Rather, those grounds depend entirely upon the proposition that the findings of fact made by the trial judge compel the conclusion that there were reasonable grounds for making the construction cost representation in July 1999, so that the representation was not misleading and deceptive, nor was it made negligently.
7 Ground 3, as developed in written and oral argument, embraces only two propositions:
(a) the trial judge should not have found, as a fact, that Mr Hodgkinson relied upon the construction cost representation and that, but for that representation, he and his wife would have engaged a project home builder to construct a predesigned home; and
(b) because the partially completed house and land was sold for a price which exceeded the cost of acquisition of the land and construction up to the time of sale, thus realising a profit for Mr Hodgkinson, as a matter of law, no loss and damage had been suffered and damages were not recoverable.
Grounds 1 and 2
8 It is convenient to deal with grounds 1 and 2 together, because the process of reasoning adopted by the trial judge in relation to the statutory claim for misleading and deceptive conduct and the claim in negligence was identical. The appellant makes no complaint in that respect. In some
(Page 5)
- cases there may be a significant difference between the approach properly taken in order to evaluate whether there has been misleading and deceptive conduct, when compared to the approach properly taken to evaluate whether there has been a breach of a duty of care. However, in this case the trial judge found that the construction cost representation made in July 1999 was a representation of professional opinion as to a future matter, being the cost which would be incurred to construct the house in the future. During argument, counsel for the appellant expressly disavowed any complaint in relation to the conclusions of the trial judge in this respect. Accordingly, for the purposes of the claim for misleading and deceptive conduct, the question was whether the appellant had discharged the onus imposed by s 51A of the Trade Practices Act 1974 (Cth) by establishing that he had reasonable grounds for making the construction cost representation. For the purposes of the negligence claim, it was common ground at trial that the appellant owed Mr Hodgkinson a duty of care at the time the construction cost representation was made. At trial, various departures from an appropriate standard of care were alleged. Amongst them was the assertion that the construction cost representation was made without reasonable grounds. That was the basis upon which the trial judge found the appellant to have been negligent in making the construction cost representation. Accordingly, in the particular context of this case, the critical question in relation to each of the claims for misleading and deceptive conduct and negligence was identical – namely, did the appellant have reasonable grounds for making the construction cost representation at the time it was made in July 1999. In relation to that critical question, the only difference between the two causes of action was the onus of proof.
The findings made by the trial judge
9 Because of the confined way in which grounds 1 and 2 were advanced, it is appropriate to focus particular attention upon the findings of fact made by the trial judge. The relevant findings are as follows.
10 On 21 March 1998, Mr Hodgkinson and his then wife purchased at auction Lot 9 Blenheim Lane, Mt Claremont, for a price of $350,000 [15]. Shortly after the purchase of the property, in March 1998, Mr Hodgkinson contacted Mr Doepel (the principal of the appellant) to discuss the preparation of plans for a residence to be built on Lot 9 Blenheim Lane [17]. During March 1998, meetings were held at Mr Doepel's office in order to discuss the project. By 26 March 1998, Mr Doepel had agreed to prepare preliminary plans for the proposed residence [17].
(Page 6)
11 Mr Hodgkinson's evidence as to the substance of the discussions during those meetings included the following:
As to the March meetings, Mr Hodgkinson's evidence is that he had said what the Hodgkinsons wanted was a two storey residence on the property and he had indicated a budget for the residence. The residence was to include (his examination-in-chief, TS 156):
'During these early meetings with Doepel I stated to him words to the effect that I required the design to include a flat roof, external walls to be constructed in limestone and Donnybrook stone in some areas, the internal walls to be brick and plaster, triple rafts to be located at the front of the residence, a swimming pool to be built across the block and a cabana to be built as part of the residence, a rammed earth division wall on the ground floor.
Timber flooring of good quality would be installed in all areas except bedrooms 3 and 4, the TV room and the office. Indoor benches and cupboards, central airconditioning. Benchtops and splashbacks in the kitchen and cabana areas would be made of granite. There would be marble walls and floors in the main en suite, guest toilet and floor of the entrance to the house. All other bathrooms and the laundry would be tiled and wood be full height. There would be a security system.' [18]
…
'In March 1998 Ted said the house he wanted was to have a limestone exterior with some feature Donnybrook stone on the front entry with a brick inner loop, feature walls inside of either limestone or Donnybrook stone, a master bedroom, a double garage, a large office, because Ted works a lot from home, a kitchen, a meals room flowing into the family room, a formal sitting room and a cellar under the stairs. The first floor was to have three bedrooms, a rumpus room, an ensuite off one of the bedrooms, a bathroom and a balcony.
…
The main bedroom was to have an ensuite and a walk in robe. There was to be a powder room, a pool, an outdoor shower with hot and cold water and a garden shed. The house was to be two storey. All the bedrooms were to be double sized bedrooms. Double size bedrooms are a minimum of three metres by 3.6 metres so that a double bed can fit in the room.
Kelly's daughter was to have a bedroom located on the first floor of the house. It is the only bedroom on the first floor with an ensuite.
- There was to be reverse cycle airconditioning to both floors, a security system and a large capacity hot water system.
Ted said that he would organise the landscaping. He said he proposed to have Epcad Landscaping do this as he had used them on his other projects. Ted said that Epcad was a trade he used for his commercial developments. I did not know them. Ted said that he would be responsible for the pool, airconditioning, security system, landscaping, special equipment, fixtures and fittings which were not part of my brief. I was responsible for the hot water system, which is a standard inclusion in normal houses.
Ted said he also wanted the house to include special fixtures and fittings. However, Ted was to organise these items separately with the help of an interior designer. Ted said that the special fixtures and fittings would include all the appliances: the whitegoods, the light fittings, the door handles, the furnishings, floor finishes and window treatments.
Ted said that he wanted the external appearance of the house to be square and contemporary-looking with parapets. Ted and I did not discuss my fees to design the house at this time. I said that I would prepare some preliminary layouts and catch up with him and Kelly at a later date. Ted said that there was no urgency for the project.' [21]
13 In his reasons, the trial judge analyses the differences between the evidence given by Mr Doepel and Mr Hodgkinson as to their discussions in March 1998 (at [24] - [28]). Those differences are not of great significance. The evidence established, as the trial judge found, that the discussions clearly indicated that Mr Hodgkinson wanted an individually designed house, to suit the particular needs of his family, with a number of specific features and completed to a good standard of finish.
14 Between March and November 1998, Mr Doepel produced a number of sketch plans relating to the proposed residence [50]. Mr Doepel sent a set of plans for the proposed residence to Mr Hodgkinson under cover of a letter dated 30 November 1998 [54]. These were the first formal or full size plans [54]. The covering letter contained a 'budget breakdown based on an overall expenditure of $500,000 as confirmed by you' [55]. Under the heading 'Project Budget', various areas were set out, and costs per square metre applied to those areas to produce an estimate of cost [55]. In the case of the living areas (other than the balcony) a rate of $750 per square metre was used [55]. There was controversy in the evidence as to how the rate of $750 per square metre came to be used. Mr Doepel's evidence was that it had been suggested by Mr Hodgkinson [64]. He went on to say that before he adopted the rate, he consulted a document
(Page 8)
- published by quantity surveyors Ralph Beattie Bosworth known as the 'Pocket Compendium' which contained estimates of building costs and which was published in January 1999 [64] and [66]. Plainly, that particular version of the publication cannot have been relied upon by Mr Doepel at the time he wrote his letter in November 1998, although Mr Doepel's evidence was to that effect [66].
15 The Pocket Compendium contained three ranges of building cost for houses expressed in rates per square metre. They were [66]:
Speculative $500 - $600 low standard finish
Architect design $800 - $1,100 medium standard finish
Prestige executive $1,100 - $1,700 various levels - high standard finish
16 Mr Doepel's evidence was that he chose the rate of $750, being below the lowest point in the 'architect designed' range, because it had been suggested by Mr Hodgkinson, and he believed a lower than usual rate could be achieved because:
(a) there would be no builder's margin, because the work was to be contracted by Mr Hodgkinson himself; and
(b) Mr Hodgkinson was likely to achieve trade discounts because of his position. [77]
17 Despite the conversations which had taken place in March 1998 as to the nature of the project and the standard of finish required, Mr Doepel rejected any suggestion that the rate should be assessed as falling within the 'prestige executive' range [66].
18 The trial judge rejected Mr Doepel's evidence to the effect that the figure of $750 was suggested by Mr Hodgkinson [73]. As I have mentioned, the appellant does not challenge that (or any other) factual finding. The trial judge found that the figure was arrived at as a result of Mr Doepel's consideration of the range of figures in the Pocket Compendium, what he knew of the cost of construction of the predesigned house next door to the proposed residence by a project builder and an assumption that a cost of $750 could be attained after allowing for the removal of a builder's margin and trade discounts made available to Mr Hodgkinson [77]. The trial judge also found that Mr Hodgkinson did not say anything to Mr Doepel in relation to his capacity to achieve trade discounts [77].
(Page 9)
19 The trial judge found that further changes were made to the design of the proposed residence between December 1998 and July 1999 [81] - [85]. He further found that Mr Doepel and Mr Hodgkinson met to discuss the project prior to 22 July 1999 [89]. Mr Hodgkinson's evidence, which the trial judge accepted, was that at that meeting he requested and received confirmation from Mr Doepel that the costs of the work, with the exclusion of the cost for the swimming pool and landscaping, special equipment and furniture, would be between $390,000 and $400,000 [89] and [240]. Mr Hodgkinson's evidence was that he asked Mr Doepel to confirm that in writing [89].
20 Such confirmation was provided by a letter from Mr Doepel to Mr and Mrs Hodgkinson dated 22 July 1999 [90]. The letter commences:
Further to the completion of the previous sketch plans in December 1998 we confirm that the house budget is in the range $390,000 to $400,000 not including pool, landscaping, special equipment and furniture. [91]
21 At the time this letter was written, there were plans of the residence in existence which were of the kind that would be sufficient to secure the grant of development approval from the relevant local authority. Those plans showed that the living area of the residence proposed at that time was approximately 525 square metres [51]. The application of a rate of $750 per square metre to that area produces a figure of $393,750, which is within the cost range specified in the letter of 22 July 1999.
22 The trial judge found that at about the same time as the meeting and letter of 22 July 1999, another agreement between the parties for the provision of architectural services was entered into [103] - [113]. On 4 August 1999, Mr Hodgkinson submitted the plans which had been finalised prior to the meeting of 22 July 1999 to the relevant local authority in support of an application for development approval [116]. However, further amended drawings were provided to the local authority prior to the grant of that approval [116]. The development approval and a building licence were issued in late November and early December 1999 [124]. Construction of the residence commenced in February 2000 [125]. In September 2000, Mr Doepel sent a facsimile to Mr Hodgkinson advising that all work on the project had been suspended [181]. On 4 October 2000, solicitors acting on behalf of Mr and Mrs Hodgkinson wrote to Mr Doepel advising that the Hodgkinsons regarded his suspension of work as a repudiation of the architectural agreement, which they accepted as bringing the agreement to an end [182].
(Page 10)
23 Construction work proceeded using other consultants [185]. However, work stopped in approximately September 2001 [199]. The partially complete residence was sold in October 2003 for an amount which realised a small profit after the cost of the land and construction was deducted from the net proceeds of sale [202].
24 The trial judge made the following finding with respect to the representations made on 22 July 1999:
I have concluded on all of the evidence that the defendant did indeed provide a cost estimate for "the house" as referred to in the 22 July 1999 letters. That cost estimate was initially provided orally at the meeting the letters dated 22 July 1999 were meant to address. I also find that that the defendant provided a cost estimate as to the 'house areas' in the 30 November 1998 with respect to the same matters. The cost estimate, in the case of the 30 November 1998 letter, was more exact than the cost estimate in the meeting of July 1999 confirmed by the 22 July 1999 letters. However, I see no reason to conclude that the later estimate was other than that the 'the house' could be constructed within the $400,000 budget. This cost estimate was I find in the nature of a statement as to the feasibility of construction within that budget. [240]
…
I find that the cost estimates made related to the house except for a swimming pool, landscaping, special equipment and furniture. This was language both parties accept, and, as the evidence of the letter of 30 November 1998 and of the letters of 22 July 1999 indicates, was used over the period of the relationship between them to the latter date. In any event it is the language of the 22 July 1999 letters which is the source of the cost estimate on which for present purposes the plaintiff relies, and which led to the Agreement of July 1999 and preceded the application for development approval. There was also, as I have indicated, a measure of agreement between the parties as to what this language covered. [244]
25 The 'house' referred to in the letters of 22 July 1999, and which was the subject of the oral representation found by the trial judge to have been made on 22 July 1999, is the house depicted in the drawings which were in existence on 22 July 1999 and which were submitted to the local authority in support of an application for development approval shortly after that date. The appellant conducted the appeal on the basis that the representation found by the trial judge related to 'the house' identified in those drawings and addressed its argument to the question of whether there were reasonable grounds for making a representation in those terms as at 22 July 1999.
(Page 11)
26 The appellant made no complaint with respect to uncertainty or ambiguity in relation to the representation found by the trial judge, nor did the appellant assert that the trial judge treated the representation as extending to, and including, every variation made to the project between July 1999 and the cessation of construction activity in September 2001. The appellant’s argument with respect to the construction costs incurred after the construction cost representation went to 2 matters only:
(a) the unreliability of those costs as a basis for concluding that there were not reasonable grounds for the construction cost representation; and
(b) the challenge to the factual finding that Mr and Mrs Hodgkinson would have entered into a contract with a project home builder for a predesigned home but for the construction cost representation.
27 The argument advanced by the appellant in support of the proposition that the trial judge should have concluded that there were reasonable grounds for making the representation was quite straightforward. It was to the effect that Mr Doepel's choice of the rate of $750 per square metre was reasonable having regard to the rates published in the Pocket Compendium, the cost of the project home built on land adjacent to the project site, and the reductions from the rates published in the Pocket Compendium which could be achieved by not paying any builder's margin and obtaining trade discounts (appellant's submissions pars [28] - [45]; appeal transcript 6 - 7). The appellant's submission corresponds almost exactly with the findings made by the trial judge:
I conclude from this evidence that it is more likely the figure of $750 was arrived in the discussions between Mr Doepel and Mr Hodgkinson as a result of Mr Doepel's consideration of the publication (Exhibit D4) just referred to, and of what he knew of the cost of the house next door just referred to, which appears to have been a "project home", as well as of his assumption that a price of $750 could be attained after allowing for the removal of a builder's margin on the work, and for Mr Hodgkinson's contacts, at least in relation to limestone. I also conclude that it is more likely than not Mr Hodgkinson was aware that Mr Doepel had left the matter of limestone largely to him, but was not aware that Mr Doepel was relying on him obtaining a substantial trade discount in relation to the limestone. I do not find that Mr Hodgkinson indicated to Mr Doepel that he could obtain such a trade discount. [77]
28 In other words, in respect of grounds 1 and 2, the appellant's case comes down to the proposition that the trial judge should have concluded that the process of reasoning used by Mr Doepel to arrive at a rate of $750
(Page 12)
- per square metre disclosed reasonable grounds for making the construction cost representation.
29 The trial judge specifically rejected that proposition, relying in part upon the expert evidence given by a consultant architect, Mr Standen. The evidence relied upon by the trial judge is set out at [259] and [267]:
…
'In relation to the specifications of this house as explained to you by Phillips Fox - and again could you return to your report at page 1545? You see there at paragraph 7:
"The following features were to be incorporated into the design."
Do you see that?---Yes.
It says:
"Flat roof, external walls to be constructed in limestone with some Donnybrook stone, internal walls to be brick and plaster, a double garage, a swimming pool, rammed earth division wall, in built benches and cupboards, airconditioning, security system."
If I could also tell you that the original specification was that there were to be three double bedrooms upstairs, one with an ensuite, with a rumpus room, with an additional bathroom upstairs, downstairs was to have a kitchen flowing through to a family area, a lounge room, a study, another bedroom for the parents with an ensuite in addition to those materials, that's a high-quality or high specification house, is it not, as described?---Certainly sounds like it, yes. [259]
…
And so an architect at the initial discussion with the client about budget when working out an appropriate square metre rate would look to one of the higher rates, would a competent architect not?---For this kind of house, yes.' [267]
I have previously noted the band and the point in it, for a 'medium standard finish', to which the defendant resorted in this case on Mr Doepel's evidence. I consider that this exchange indicates the assumption as to the appropriateness of the point in the range chosen was not a reasonable one. I consider this is so even allowing for the likelihood of a saving of the builder's margin, to which Mr Doepel's evidence related, and which does
(Page 13)
- not appear to be contested. Mr Doepel's evidence also related to a potentially larger saving on trade discounts, at least on the brickwork and the limestone, as to which, however, I have previously found Mr Hodgkinson made no assurance. It seems to me that in the absence of such an assurance an assumption of such a discount would be an unreasonable basis for such a cost estimate. [268]
- The trial judge had previously foreshadowed a conclusion to the effect that the evidence of Mr Standen indicated that Mr Doepel's 'location of the house in the cost per square metre bands was too low' [68].
31 On the findings of fact made by the trial judge, there were essentially four matters relied upon by Mr Doepel in order to arrive at the construction cost estimate of $750 per square metre which was impliedly embodied in the oral and written representations made on 22 July 1999. The first was the range of costs published in the Pocket Compendium. Given the findings made by the trial judge with respect to the terms of the conversations between the parties as to the nature of the project which was to be constructed and the evidence of Mr Standen, the only reasonable conclusion open on the evidence was that a rate of $750 per square metre could not be justified by reference to the Pocket Compendium. It was below the bottom end of the range specified in that publication for architect designed houses, notwithstanding the nature of the project and the standard of finish which had been identified in the discussions between the parties. On the evidence, Mr Standen's view that the higher rate, being the range of $1,100 to $1,700 would have been appropriate was entirely justifiable. It was open to the trial judge to accept that evidence.
32 The next matter relied upon by Mr Doepel in order to arrive at the rate of $750 per square metre was the cost of constructing the project home on the adjacent block. However, the evidence established unequivocally that predesigned project homes are generally constructed at a significantly lower cost than houses designed by architects for the specific requirements of a client.
33 The third matter relied upon by Mr Doepel was the lack of a builder's margin because of the unusual contracting arrangements that were to be utilised for the construction of the house. As the trial judge found, this was a matter legitimately taken into account by Mr Doepel, but could not, of itself, justify the rate adopted by Mr Doepel.
34 The fourth matter relied upon by Mr Doepel was his assumption that Mr Hodgkinson would have trade discounts available to him. However, the trial judge found that Mr Hodgkinson did not say anything to
(Page 14)
- Mr Doepel which would justify that assumption. That factual finding has not been challenged.
35 The trial judge also relied upon the actual costs incurred in constructing the house as modified during construction for his conclusion that were no reasonable grounds for the construction cost representation. There is force in the appellant’s criticisms of that process of reasoning, because the costs actually incurred do not, as a matter of logic, provide a basis for assessing the reasonableness of the estimate made in July 1999 unless all cost escalations after that time, whether due to price escalation generally or modifications to the structure and finishes, are identified and costed. This was not done. However, given the findings made by the trial judge as to the manner in which Mr Doepel arrived at his cost estimate, and which are not challenged but relied upon by the appellant, the process of reasoning used by the trial judge to conclude that the chosen rate of $750 per square metre was too low is quite sufficient to justify his conclusion that there were not reasonable grounds for the estimate, without resort to the actual costs incurred.
36 For these reasons, the conclusion of the trial judge to the effect that Mr Doepel did not have reasonable grounds for representing that the cost of construction for the house contemplated by the parties as at 22 July 1999 would fall within the range of $390,000 - $400,000 (after excluding certain items) was the only conclusion open on the findings of fact which he made, and which are not challenged. It follows that the appellant did not discharge the burden of proving that the representations made on its behalf were made on reasonable grounds. It also follows that, because those representations were made without reasonable grounds, the appellant breached its duty of care to Mr Hodgkinson. Grounds 1 and 2 should be dismissed.
Ground 3
37 As I have mentioned, as developed in written and oral argument, this ground has essentially two components:
(a) the assertion that the trial judge should not have found, as a fact, that Mr Hodgkinson would have entered into a contract for the construction of a predesigned home with a project builder for a total cost of around $500,000 but for the representations made on 22 July 1999; and
(Page 15)
- (b) the proposition that, because a small profit was realised when the house and land were sold in 2003, no damages are recoverable, as a matter of law.
38 The written submissions filed on behalf of the appellant in support of this ground assert that there was no positive evidence to the effect that Mr Hodgkinson would have entered into a contract with a project home builder but for the construction cost estimate made by Mr Doepel in July 1999, and further assert that the trial judge provided no reasons for his finding to that effect. Both assertions are wrong.
39 The trial judge set out the evidence of Mr Hodgkinson on this:
…
'I had a budget of 400,000 to construct the house and 100,000 for items mentioned above to finish the house. I intended to sell my existing residence at 2 Earls Court, Mount Claremont when Blenheim Lane was finished and use the proceeds of sale to reduce my overdraft and repay any borrowings that I might have paid for the construction of Blenheim Lane.
If Doepel had indicated at this first meeting that the house that I described to him could not be built for 400,000, I would have approached other builders who I knew were building in the area, such as Webb and Brown-Neaves, Oswald Homes or Riverstone Homes, to build a house for me within my budget.' [297]
…
'Can I put it to you that when a client is talking to you about the sorts of matters that Mr Hodgkinson is talking to you about, a limestone house, a limestone two storey house with all bedrooms being double sized bedrooms, when you're talking about feature internal walls out of limestone, Donnybrook stone or rammed earth, swimming pools and landscaping, cellars and the like, that's a very expensive house, isn't it?---Not necessarily. I mean, for instance, the house next door had all of those things and that was, you know, not all that expensive.
Which house?---The Fletchers' house.
It had a swimming pool?---Yes.
- And you know how much that house cost to build, do you?---Well, I think it was around 450 to 500 thousand, and that was limestone as well.
So you could have then built a limestone house with a pool for 450,000 at the time?---No, Mr Hodgkinson could have gone to Riverstone and had an identical house to the one next door for about that price; correct.' [298]
41 The evidence given by Mr Hodgkinson to the effect that but for the construction cost representation, he would have entered into an agreement with a project home builder to build a home within his budget was not challenged in cross-examination. This is fatal to the appellant's contention on appeal. The rule in Browne v Dunn (1893) 6 R 67 HL, which requires a party to put a proposition which is contrary to the evidence of a witness to that witness in order that he or she may deal with it in their evidence, is no mere technical rule of evidence. It is a fundamental principle of procedural fairness. The way in which departure from the rule can cause unfairness is illustrated by this case.
42 In support of its argument on this issue, the appellant submits that, notwithstanding the direct and unchallenged evidence of Mr Hodgkinson, the trial judge and this court should conclude that his evidence should be rejected because of such things as his family circumstances and the expenditure which he later voluntarily incurred, which, it is said, suggests that he was never committed to a budget. It would be quite unfair to Mr Hodgkinson to use those matters to reject his clear and unequivocal evidence without giving him the opportunity to state why he would have engaged a project home builder in July 1999 rather than proceed as planned.
43 Further, all the matters upon which the appellant would rely to challenge the direct evidence of Mr Hodgkinson were considered by the trial judge. After considering those matters, he concluded that they did not cause him to doubt the evidence given by Mr Hodgkinson to the effect that but for the construction cost representation made in July 1999, he would have approached a project home builder to construct a predesigned home [302].
44 At all events, it was certainly open to the trial judge to accept the clear and unequivocal evidence given by Mr Hodgkinson on this subject, and which was not challenged in cross-examination. None of the matters to which reference has been made in support of the appellant's argument on this subject provides a sufficient basis for disturbing that finding.
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45 Turning then to the legal issue raised in relation to the damages awarded, the appellant relies upon a number of decisions which deal specifically with the damages to be awarded by reason of the negligent estimate of construction costs. Those cases establish, not surprisingly, that if a party relies upon such a representation and proceeds to undertake construction, and receives full value for the construction work undertaken, damages will ordinarily be nominal - at least in the absence of evidence to the effect that the cost could have been reduced had some other form of construction been undertaken. On the other hand, if market value following construction is less than the cost of construction (added to the land acquisition cost), damages in the amount of the difference may be awarded (J & J C Abrams Ltd v Ancliffe [1978] 2 NZLR 420). This is not a special rule applicable to the negligent assessment of construction costs, but the application of general principle.
46 The appellant relies also upon the decision in McBratney v Boston (Unreported, FCt of WA, Library No 940567, 14 October 1994); (1994) ATPR 41-355. The trial judge expressed the following views in relation to that case:
290. In McBratney the owners of a house had claimed to have suffered loss or damage as a consequence of the conduct of the architect they had retained to supervise the house’s construction in representing that the house could be built for no more than $90,000 plus agreed extras. There was valuation evidence at the trial that the house was worth more than that sum. The Court concluded that the appeal against the trial judge’s determination that the owners had not persuaded him they had suffered any loss or damage should fail.
291 I note, however, the following, from the judgment of Franklyn J in McBratney at 11:
'Nowhere in the evidence to which we were referred, nor elsewhere so far as I can ascertain, is it suggested by the appellants that they would settle for, or would have built, a house that had less than they had originally required. It may well have been the case that the house they wanted could not have been built within the price range they wanted. Whether they would then have built a house with a different design or smaller, or whether they would have abandoned their plan to build on the block and either sell or keep it, is a matter of conjecture. Counsel's assertion that, had the appellants known the cost of the house would exceed $90,000, they would have built a different house on the block at a cost they could afford is not supported by the evidence. Nor can it be assumed that, had the
- appellants not relied upon the respondent's representations, they would not in the end have built the same house, borrowing or by some other means acquiring the necessary additional funds so to do. What they would have done in the absence of such reliance was not explored. Without that evidence one cannot say, in my opinion, that they have, necessarily or even more probably than not, suffered damages as a result of the misrepresentation.'
- 292 I also note the following from the joint judgment of Wallwork and Owen JJ, at 11:
'It was put by counsel for the appellants that had they not entered into the transaction they would have enjoyed the benefit of the construction of a residence at a cost of $89,679 plus the agreed extras. In other words they would have built a different house that was within their budget. There are numerous difficulties in this area. For a start, so far as we were able to ascertain there was no evidence on which such an assertion could be based. There was evidence, and findings, that the appellants had a budget beyond which they could not afford to go and that this fact had been made known to the respondent. There was also a finding that but for the representation the appellants would not have entered into the agreement. It seems to us that to go the one step further and say that they would have built a different house is a matter of speculation to which the evidence does not extend.'
293 It seems to me that these judgments in McBratney allow for loss or damage in a case such as this one if there is a finding that, but for the unreasonably low cost estimate, the claimant would have made another contract. The loss or damage is the loss of the opportunity to make that contract: see Seddon, N C and Ellinghaus, M P Cheshire and Fifoot's Law of Contract 8th Aust ed Sydney LexisNexis Butterworths, 2002, at [23.8], and authorities cited there. As will shortly be seen the case before me was argued for the plaintiff on just such a basis.
47 This summary of the case, and the conclusions properly drawn from it, seems to me, with respect, to be entirely correct. There is nothing in that decision that would preclude a conventional claim for reliance loss where it is established, on the facts, that but for the misleading and deceptive/negligent representation, another course of action would have been taken.
48 The conventional principles applicable to cases of this kind are well established. They establish that a party who has been subjected to
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- misleading and deceptive conduct or negligent misrepresentation is entitled to be put in the position in which he or she would have been but for the breach of statutory or common law duty (Gates v The City Mutual Life Assurance Society Ltd (1986) 160 CLR 1). So, where it is established as a fact that a different course of action would have been taken but for the breach of statutory and/or common law duty, the measure of damages is the sum required to put the innocent party, in this case Mr Hodgkinson, in the position in which he would have been but for the relevant breach of duty. Gates (at [13]) sets out the proposition that if a claimant establishes that but for the relevant breach or duty, he or she would have entered into a different contract upon which he or she would have made a profit, that profit may be recovered on the basis that it is part of the loss which has been suffered in consequence of the relevant breach (also see Warwick Entertainment Centre Pty Ltd v Alpine Holdings Pty Ltd [2005] WASCA 174 at [96]); Havyn Pty Ltd v Webster [2005] NSWCA 182 [117]).
49 In this case, the trial judge found, on the basis of the uncontradicted evidence of Mr Hodgkinson, that he would have entered into a contract for the construction of a predesigned home with a project home builder for an approximate cost of $500,000 but for the representation made as to the cost of construction of the house in contemplation as at 22 July 1999. For the reasons I have given, that finding should be upheld. The evidence of an expert valuer, Mr Liggins, which was accepted by the trial judge, was to the effect that if such a contract had been entered into, the house and land would have had a value of $1,260,000 at about the time the partially completed residence was sold by Mr Hodgkinson [344]. The appellant does not challenge that finding. Therefore, in accordance with conventional principle, on the findings of fact made by the trial judge, the consequence of the breaches of statutory and common law duty was that Mr Hodgkinson failed to enter into a contract which would have realised a profit of approximately $398,000 as at the time of the settlement of the sale of the partially completed home in October 2003 [345]. That sum is calculated as the difference between the estimated sale price of $1,260,000, and the sum of the cost of construction of a predesigned home by a project home builder ($500,000) and the total cost of acquiring the land ($362,000).
50 The trial judge properly set off against this amount the profit actually realised upon the sale of the partially constructed house – an amount of $82,195.42, resulting in the assessment of the amount required to put Mr Hodgkinson in the position in which he would have been but for the breaches of statutory and common law duty in the amount of $315,804.58.
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51 The process of calculation and assessment undertaken by the trial judge accords entirely with conventional principle, given the findings of fact which he made, and which should not be disturbed. Ground 3 should be dismissed.
Conclusion
52 For these reasons, all grounds of appeal should be dismissed. As the notice of contention only raises additional matters which are said to support a conclusion of the trial judge which, in my view, was amply justified by the findings which he made, it is unnecessary to give any consideration to it.
53 McLURE JA: The appellant, a company carrying on business as architects, appeals from the decision of Simmonds J ordering it to pay to the respondent $429,870 and interest thereon of $90,013 for a negligent and misleading and deceptive representation relating to the cost to build a house for the respondent and his wife.
54 The primary issues in the appeal are whether the appellant had reasonable grounds for making the representation and whether the representation caused the claimed loss and damage. The respondent was awarded the difference between the market value of his land with a completed project home less the costs associated therewith and the profit from the sale of the land with the partially completed architect designed house.
55 The respondent was a project manager for a land developer and a real estate agent. He was familiar with the process relating to the design and construction of buildings, both residential and commercial.
56 In March 1998 the respondent and his wife purchased land in Mt Claremont for $350,000 (the land) on which they intended to construct a house. The appellant, by its agent Mr K Doepel, provided architectural and associated services to the respondent and his wife. The respondent informed Mr Doepel that he and his wife had a budget of $400,000 for the construction of the house, not including a swimming pool, landscaping, special equipment and furniture.
57 Mr Doepel prepared preliminary drawings that were amended from time to time on instructions from the respondent. By July 1999 Mr Doepel had prepared development drawings for submission to the local shire for planning approval. The representation in question was said
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- to have been made by the appellant in letters dated 22 July 1999. The letters materially provide:
Further to the completion of the previous sketch plans in December 1998 we confirm that the house budget is in the range $390,000 to $400,000 not including pool, landscaping, special equipment or furniture.
59 On or about 23 July 1999 the appellant and the respondent and his wife entered into a written contract on a standard Royal Australian Institute of Architects (RAIA) form (the services contract). The parties agreed that the respondent would pay the appellant the sum of $35,000 for the work referred to in the letters of 22 July 1999.
60 The proposed (and actual) arrangement between the appellant and the respondent was unconventional. There was to be no building contract for the project, no contractual drawings, no contractual specifications or schedule of finishes and no contract price for the house. The intention was that the respondent would from time to time during the course of construction enter into contracts directly with suppliers of goods and services for the construction of the house and pay for such goods and services. Generally, the appellant would organise and nominate the contractors. However, the respondent assumed sole responsibility for selecting and negotiating with some contractors, primarily those involved in the supply of goods and services relating to limestone and brickwork. The appellant was to play a project management type role.
61 Between July 1999 and October 1999 the respondent instructed Mr Doepel to vary the development drawings. The construction of the house commenced in February 2000. Thereafter, the respondent instructed Mr Doepel to make a number of additional variations to the development drawings which together significantly increased costs and, without reference to the appellant, purchased or approved the purchase of fixtures and fittings for the house costing in excess of $337,000.
62 In September 2000 the appellant suspended its services. In October 2000 the respondent terminated the services contract. In September 2000 the respondent engaged Hindley & Associates (Hindley) to complete the house. Thereafter, the respondent instructed Hindley to make further variations to the drawings, including the addition of a cellar, the extension
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- of an upstairs balcony and the alteration of the staircase design. In February 2001 Hindley provided an estimate of the cost to complete the house in accordance with the drawings as they then stood. In September 2001 the respondent instructed Hindley to stop work on the house which had not then been completed. In February 2002 the respondent and his wife separated. The respondents commenced this action in February 2001. In September 2003 Mrs Hodgkinson assigned her interest in the land and her interest in the action to the respondent.
63 In October 2003 the land was sold for $1,075,000. The costs of the partially constructed house were agreed at $630,804.58. The sale price of the land exceeded by $82,195.42 the cost of purchasing and building the partially constructed house on the land.
64 The respondent successfully claimed that but for the representation he would have constructed a project home on the land for a total cost of $500,000. There was expert evidence accepted by the trial judge that as at 2003 the value of the land with a project home would be $1,260,000. The trial judge awarded the respondent the difference between that value less the cost of the land, the cost of the project home and the profit from the sale of the land with the partially constructed house.
The respondent's case and the trial judge's findings
65 The respondent pleaded two negligence claims, both of which centred on the alleged making of a representation that 'the cost of completing the Residence (excluding the cost of a swimming pool, landscaping, special equipment and furniture) would be within the range of $390,000 - $400,000' (par 8). Note the use of the words 'completing' and 'would'. The respondent defined this representation as 'the construction cost estimate' and I will use the same expression when referring to the respondent's pleaded representation. The first negligence claim was for a negligent misrepresentation which was contended to be false. The second was a general negligence claim to the effect that the appellant breached a tortious duty to exercise reasonable skill and care by (relevantly) making the construction cost estimate without any regard to its correctness or accuracy and without any regard to the likely cost to construct the residence (par 13). A claim and finding [156] that the appellant had in June 2000 breached its duty to advise of the cost of a variation to change the internal walls to limestone was held not to have caused any loss or damage [373].
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66 The respondent also pleaded breach of a contractual term equivalent to the tortious duty to exercise reasonable skill and care which contractual duty was claimed to be breached by the provision of the construction cost estimate 'that substantially underestimated the actual cost to complete the Residence' (par 33).
67 The respondent also claimed that the construction cost estimate breached s 52 of the Trade Practices Act 1974 (Cth) and s 10(1) of the Fair Trading Act1987 (WA). The construction cost estimate was pleaded as a statement of existing fact, or alternatively a statement of opinion or of future facts (par 15).
68 As to causation, the respondent pleaded that in reliance on the construction cost estimate the Hodgkinsons in July 1999 decided to proceed with the construction of the house and entered into the services contract (pars 10, 22).
69 Notwithstanding the length of the trial judge's reasons for decision, it is difficult to identify with confidence the substance of the findings on which he relied or the legal framework in which he determined the dispute. As a consequence, the parties disagreed on the fundamental question of what the trial judge found to be the precise scope of the representation which was the foundation for the tortious, contractual and statutory causes of action.
70 According to the appellant, the trial judge found that the appellant represented that the house could be built within the nominated budget of $390,000 to $400,000. The appellant relies on what the trial judge said.
71 The respondent contended the trial judge found the appellant had represented that 'the house the respondent wanted to build can be built for $390,000 to $400,000'. The respondent relies on what the trial judge did, which was to determine the reasonableness of the representation by reference to the actual costs incurred up to the cessation of work in September 2001 ($630,804) and Hindley's February 2001 estimate of the cost to complete the house ($828,000) [300]. It is unclear how much of the first figure is reflected in the second.
72 The trial judge characterised the representation (whatever it may be) as a statement of opinion as to a future matter [308]. He determined all the claims (for negligence, breach of contract and breach of statutory duty) primarily by reference to whether there were reasonable grounds for making the representation. Neither party contended that the trial judge
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- erred in so doing. The trial judge found that the appellant did not have reasonable grounds for making the representation which was negligently made and misleading and deceptive, and that its conduct caused the claimed loss and damage.
73 The appellant challenges the trial judge's findings that the appellant did not have reasonable grounds for making the representation (ground 1) and that it was negligently made (ground 2).
74 The third and final ground of appeal relates to causation. The appellant contends the trial judge erred in finding that (1) the respondent relied on the representation in deciding to proceed with construction of the house; (2) but for the representation the respondent would have entered into a contract for the construction of a project home on the land; (3) damages for this lost opportunity are available at law.
75 The respondent filed a notice of contention seeking to uphold the finding of causation on additional grounds.
Further background
76 Before attempting to resolve the dispute as to what the trial judge found to be the representation, it is necessary to provide further factual background.
77 Mr Doepel had provided architectural services to the respondent in his personal capacity and for companies he represented in the 10 years prior to the project relating to the house. These architectural services related to the construction or renovation of a number of commercial buildings. The respondent also had previous involvement in the construction of two residences for himself, one an architect designed house in Mosman Park and the other a project home. The respondent approached Mr Doepel to provide architectural services in relation to the house he and his wife proposed to build on the land. Mrs Hodgkinson was closely involved with the project.
78 By November 1998 Mr Doepel had prepared design drawings. In a letter from the appellant to the Hodgkinsons dated 30 November 1998 the appellant provided a budget breakdown for the project based on expenditure of $500,000. The project was identified as the house, paving, pool and landscaping. It showed a rate of $750 sqm for all areas of the house save for the garage and balcony (which were costed at $500 sqm). It is apparent from the letter that the rate per sqm is a mathematical function relating to the size (area) of the house and the budget.
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79 After November 1998 the Hodgkinsons instructed Mr Doepel to make significant changes to the design of the house. By July 1999 the appellant had incorporated the changes and produced the development drawings. At that stage there were no working drawings and no formal specifications. The trial judge does not make any finding about the level of detail in the development drawings. They were not in the appeal books and were provided to the court upon its request. Generally, they show only the layout and design of the house (being a two-storey building comprising a three-car garage, store, porch, entry, office, drying court, laundry, two ensuites, TV room, four bedrooms, kitchen, meals, living area, two bathrooms and a rumpus room). The drawings note a limestone finish to the external walls and Donnybrook stone on the porch. Otherwise the development drawings do not indicate the nature, quality or level of the building materials, fixtures or fittings.
80 The Hodgkinsons nominated a budget of $390,000 to $400,000 for the house excluding (as the trial judge found) the pool, landscaping, special equipment or furniture. There was no finding as to what was encompassed by the expression 'special equipment'. The development drawings were based on instructions from the Hodgkinsons and represented the design and size of the house they wanted. Their design changes had increased the size of the house from 465.8 sqm in November to 525.8 sqm in July 1999.
81 There was to be no building contract for the house and thus no contractual drawings, specifications, schedule of finishes or contract price. Mr Doepel was to be the project manager and, together with the respondent, organise the provision of building services and materials. The respondent was to enter into contracts directly with and pay the suppliers.
82 As at July 1999, Mr Doepel was aware that the Hodgkinsons intended to retain an interior decorator to advise on, and provide services in relation to, the fixtures and fittings for the house. That brief was to include, inter alia, carpentry for the kitchen, bathrooms, bedrooms and laundry, kitchen appliances, doors, floor coverings, and bathroom, kitchen and light fittings. There is no finding that Mr Doepel was at any material time instructed by the Hodgkinsons as to the level of finish for the house generally or the quality or standard of those fixtures and fittings in particular.
83 The respondent gave evidence that prior to 22 July 1999 he met with Mr Doepel to discuss the development drawings. The trial judge made no finding as to what was said at that meeting relating to the budget and costs
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- of the project. The only relevant finding is that it was more likely than not there had been an exchange between the parties in which the matters in the July letters had been discussed [90]. After the meeting Mr Doepel wrote the two 22 July letters to the Hodgkinsons both of which contain the statement set out above. That statement in the letters is the only basis expressly identified by the trial judge for the representation relating to costs.
84 For the purpose of determining whether the house the subject of the development drawings could be constructed within $400,000, Mr Doepel relied on a rate per sqm taken from the Ralph Beattie Bosworth (RBB) pocket compendium [310]. RBB are quantity surveyors. The unchallenged finding is that it was appropriate to rely on the RBB compendium and use a costs rate per square metre. I infer that is because the level of generality of the information affecting the likely cost of the project. In relation to building costs for residential houses, the RBB compendium provides:
| Cost Range S/sq m gross | |
| 500-600 |
|
| 800-1100 |
|
| 1100-1700 |
High standard finish |
85 Mr Doepel selected a starting rate of $850 per sqm in the medium standard finish category (which he said was appropriate for a $400,000 budget house) reduced to $750 per sqm because there would be no builder's margin and he considered the respondent would get trade discounts from his contacts in the building industry [310]. The evidence established that the builder's margin was 10% which reduced the rate to $765 per sqm. Any trade discount would be in the order of 10% - 15%.
86 The uncontradicted evidence of Mr Doepel was that the RBB compendium rates are for finished houses including fixtures and fittings such as kitchen and bathroom cabinetry, fittings and appliances. At the point in the 'medium standard finish' range selected by Mr Doepel, that would, he said, include kitchen appliances up to a maximum of $5,000 and cupboards/benches at a cost of around $12,000 (ts 805). The trial judge had some difficulty reconciling this evidence and Mr Doepel's
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- evidence that the budget related to the 'shell' of the house shown in the development drawings. On my reading of his evidence he seems to be trying to explain that it did not and was not intended to cover the fixtures and fittings to be chosen in the future by the Hodgkinsons on advice from the interior decorator.
87 In the period between March 2000 and September 2001 the respondent, without informing or conferring with Mr Doepel, incurred or approved the following expenditure for the house on the dates indicated:
|
| $37,996 |
|
| $51,194 |
|
| $31,840 |
|
| $58,882 |
|
| $85,235 |
|
| $57,160 |
| $322,307 |
88 The evidence demonstrates that the respondent was constructing the house to a cost at the high end of the range to the 'prestige executive' standard of finish. The Hodgkinsons had selected Gaggenau appliances for the kitchen, being top of the range European appliances. As to the special doors, the Hodgkinsons acquired at auction three pairs of antique doors ($6,194) that required restoration. They also authorised the restoration of the antique doors and fabrication of pine doors to match the antique doors ($45,000) at a total cost of $51,194. According to Mr Doepel, standard doors cost $150. However, the respondent did not in the end proceed with the restoration and pine doors. Otherwise the costs were either incurred or were included in Hindley's February 2001 estimate of the costs to complete the house. Of the amount incurred for bathroom fittings, $23,838 was incurred in July 2000.
89 As previously noted, there is no finding that the Hodgkinsons had expressly or impliedly specified the level of finish they required. The evidence establishes that the mere identification of a product (door, cabinet, airconditioning etc) says nothing about its actual cost. Their
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- decision to incur the abovementioned costs at the high end of the top range (which may properly be characterised in that sense as discretionary expenditure), is on its face inconsistent with a budget of $400,000.
90 There were also design changes that added to the cost. The antique doors were higher than standard doors. As a result, the height of the first floor walls of the house had to be increased. There was no finding as to the quantum of the resulting cost increase.
91 In June or July 2000 the respondent instructed Mr Doepel to add rammed earth walls to the television room, his office and the kitchen. It was common cause that the original intention was to have one rammed wall. The net cost increase was guessed at by the respondent to be in the order of $15,000 to $18,000.
92 The respondent also instructed Mr Doepel to replace all the existing brick and plaster internal walls with limestone walls, save for those internal walls which he directed to be rammed earth. As a result of the change to limestone walls, an engineering re-design was required and steel columns and a concrete structural beam had to be added for load-bearing purposes. This variation resulted in a very substantial net increase in costs. However, there is no finding that quantifies the increase.
93 The trial judge found that the appellant would have had much greater difficulty than the respondent in monitoring the costs of the project during its course [238]. That is amply supported by the evidence relating to the fixtures and fittings.
94 There was no finding by the trial judge as to the quantum of the total net cost of the variations associated with the antique doors, the rammed earth and limestone walls and the very many other variations from the development drawings.
The legal framework
95 Legal disputes have to be resolved within a principled legal framework, which framework should be clear from the reasons for decision. The common law claim for negligent misrepresentation and the statutory claims for misleading and deceptive conduct overlap, albeit not entirely. It was common cause that in relation to the common law claims the respondent had to prove that the representation was unreasonable and for the statutory claims the onus of proving reasonableness was on the appellant. However, there are some common requirements for the
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- common law and statutory claims. First, ordinarily, the content of a representation will be determined by the express words or conduct relied on together with all relevant contextual matters that shape and inform the meaning of what can be and is communicated to the representee. Secondly, the relevant representation must be objectively capable (as a matter of law) of arising from the matters relied on. In making that assessment regard is had to contextual matters known to the representee.
96 Thirdly, the question of reasonableness is to be tested as at the date of making the representation and not with the benefit of hindsight: Bill Acceptance Corporation Ltd v GWA Ltd (1983) 78 FLR 171. That proposition also applies to a continuing representation which is, in reality a representation at a later time that nothing has changed to alter the continuing correctness of the earlier statement. The representation in J & J C Abrams Ltd v Ancliffe [1978] 2 NZLR 420 was of that nature. No question of a continuing representation arises in this case. The respondent's case was that reliance occurred in July 1999, a plea no doubt central to the claimed loss and damage (loss of the opportunity to build a project home on the land). Accordingly, the issue for the trial judge was whether the representation was unreasonable at the time it was made in July 1999. Fourthly, where there is a representation of an opinion or about a future matter, the mere fact that what was represented does not come to pass does not make the representation false at common law or misleading or deceptive under the statutes: Bill Acceptance.
97 Fifthly, if the representation is capable of arising, the representee must prove that he or she relied on the representation which reliance caused the claimed loss and damage.
The scope of the representation
98 Grounds of appeal 1 and 2 are predicated on the assumption that the trial judge found that on 22 June 1999 the appellant represented to the respondent that 'the house could be built within a nominated budget of $390,000 to $400,000'. The appellant contended that the trial judge erred in taking into account the actual costs incurred and to be incurred to complete the house when determining the reasonableness of that representation and in failing to find that the house could have been constructed within the $400,000 budget.
99 The first step is to identify what the trial judge decided as to the content of the representation. The terms of a representation must be clearly and unambiguously identified. If that is not done, it is well nigh
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- impossible to make any sensible judgment as to whether the representation is false, misleading or deceptive or whether the representator had reasonable grounds for making it. The express words in the letters of 22 July 1999 are delphic. I repeat them for convenience:
Further to the completion of the previous sketch plans in December 1998 we confirm that the house budget is in the range of $390,000 to $400,000 not including pool, landscaping, special equipment or furniture.
I have concluded on all of the evidence that the defendant did indeed provide a cost estimate for 'the house' as referred to in the 22 July 1999 letters. That cost estimate was initially provided orally at the meeting the letters dated 22 July 1999 were meant to address … I see no reason to conclude that the [22 July] estimate was other than that the 'the house' could be constructed within the $400,000 budget.
101 There is little relevant reasoned analysis leading to this conclusion. The trial judge does not identify what if any contextual matters he relied on. Save for implied findings that the internal walls were to be brick and plaster with the exception of one rammed earth wall, there are no findings as to what matters beyond those shown on the development drawings had been specified orally and no finding about what was said at the July meeting concerning costs. Moreover, there is no discussion of the respondent's pleaded imputation which was promissory in nature, being that the cost to complete the house would be within the range of $390,000 - $400,000. The respondent does not complain of these failures. He must be taken to accept the trial judge's decision based solely on the findings he made.
102 The absence of reasoned analysis leading to the statement of the representation makes it difficult to identify its intended scope. Pivotal to an understanding of the scope of the representation identified by the trial judge in [240] is an understanding of what he meant by the words 'the house'. The appellant not unreasonably took the view that the trial judge meant the house the subject of the development drawings.
103 The respondent's formulation of the alleged representation said to have been found by the trial judge departs from the language of the finding. It was put on behalf of the respondent that the trial judge impliedly found the representation to be that 'the house the respondent wanted to build can be built for $390,000 to $400,000'. The representation in those terms was intended by the respondent to capture
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- information or instructions given by the Hodgkinsons to Mr Doepel both before and after the date of the representation. In that event, the cost estimate would include costs incurred as a result of design variations required by the Hodgkinsons after 22 July 1999. It would also capture the costs unilaterally incurred by the respondent from March 2000 for the fixtures and fittings. What the respondent (in fact the Hodgkinsons) wanted would thus be reflected in the actual costs incurred and to be incurred in the completion of the house.
104 It is common ground that in answering the question whether the representation was unreasonable, the trial judge had regard to the costs actually incurred and to be incurred in the completion of the house in accordance with the drawings as amended to February 2001 ([255] - [260], [263], [264], [310]). This is unambiguously clear from the following:
As I understand the [appellant's] submission, [it is to the effect that] there is no evidence the house the subject of letters of 22 July 1999 could not have been constructed within the budget. The only matters that seem to bear on the issue are two, the cost of partial completion incurred by Mr Hodgkinson prior to the resale of the property with the partially completed residence, and the cost estimates in early 2001 arrived at by [Hindley] [255]. (emphasis added)
105 The fact that the trial judge relied on those costs in rejecting the appellant's submission and in determining whether the representation was reasonable provides support for the view that he intended the representation to cover subsequent (post 22 July) design variations that increased costs and the discretionary costs unilaterally incurred or approved by the respondent. Other indicators in the reasons point in the same direction. The trial judge considered the post 22 July design variations by reference to whether the changes meant the Hodgkinsons were proceeding with a 'different house', answering that question in the negative [258]. The trial judge also relied on that analysis to reject the appellant's submission that the Hodgkinsons did not rely on the representation in proceeding with the house. The appellant claimed that the design variations, particularly the height increases necessitated by the antique doors and the change to rammed earth and limestone internal walls together with the expenditure or approved expenditure on fixtures and fittings demonstrated that the Hodgkinsons did not rely on the representation. The trial judge said:
However, I have also previously indicated why I do not consider that evidence shows the Hodgkinsons should be seen to have been proceeding
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- with a different house in mind than that for which the house cost estimate had been made. That consideration in my view also disposes of the present [reliance] point [284].
106 A reasonable inference to be drawn from the trial judge's treatment of these issues is that he meant the expression 'the house' in the representation identified in [240] to have an ambulatory meaning to the effect that it was what the Hodgkinsons wanted in relation to the house from time to time, provided their requirements did not (perhaps individually or collectively) make it a 'different house'. There are some fundamental problems with a representation in those terms. First, it was not pleaded. Although it bears some similarity to the construction cost estimate pleaded by the respondent the latter would not on its face apply to subsequent variations or unilateral discretionary costs at a level inconsistent with the budget. Secondly, it is incapable of arising from the facts found by the trial judge or the evidence. There is no arguable basis to suggest that a building cost estimate given before all matters relating to cost had been determined would include cost increases arising from subsequent design variations. Moreover, such a cost estimate could not include unilateral discretionary expenditure incurred by the proprietor of which the estimator had no actual or constructive notice prior to making the representation.
107 In this case the content of the representation is solely dependent on events before it was communicated to the Hodgkinsons and acted upon by them (23 July 1999). Any representation can only relate to the design of the house as depicted in the development drawings and matters otherwise specified by 22 July 1999. As previously noted, there were no working drawings, no formal specifications or schedule of finishes and no finding that the Hodgkinsons had informed Mr Doepel of the general standard of fixtures, fittings and other finishes they required. The trial judge did not identify or resolve all the conflicts in the evidence in relation to relevant matters said to have been orally specified or excluded by the respondent with the consequence that he did not consider or make any finding as to whether the Hodgkinsons expressly or impliedly informed the appellant as to the general standard of finish (including fixtures and fittings) they required. The respondent did not seek to uphold the decision on the basis that the trial judge ought to have upheld his pleaded claim that the appellant knew the house was to be in the executive category.
108 The appellant does not expressly challenge the trial judge's finding as to the terms of the representation no doubt because of its understanding as to its limited scope. However, the issue as to the scope of the finding
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- actually made by the trial judge is indirectly but necessarily raised for determination by the appellant's grounds of appeal 1 and 2 and its written submissions. Moreover, I raised the matter with both parties during the course of the appeal.
109 In summary, the factual findings made by the trial judge are incapable of supporting a finding of a representation to the effect that the house the subject of the development drawings as subsequently varied from time to time to a high standard of finish could be constructed within the $400,000 budget (the wide representation). In circumstances where the respondent subsequently instructed the appellant to make and implement design variations which together significantly increased the construction costs and incurred or claimed discretionary expenditure at a level that was inconsistent with a budget of $400,000, the costs actually incurred together with the estimated cost to complete the house cannot support a finding of unreasonableness.
110 The trial judge erred in taking those matters into account regardless of which party is correct as to the scope of the representation intended by the trial judge. The same applies if the Chief Justice is correct in his conclusion that the trial judge found the appellant had represented that the house would be completed to a good standard of finish. It follows that ground of appeal 1 should be upheld. It is necessary to deal with ground of appeal 2 separately because the finding was not solely based on the trial judge's conclusion as to the unreasonableness of the representation.
Ground 2
111 In finding that the representation was negligently made, the trial judge relied in part on the evidence of Mr Standen, a consultant architect. The trial judge said:
In relation to the use of the quantity surveyors' publication (Exhibit D4), to which as I have indicated on Mr Doepel's evidence he had resorted in relation to the determinations he made as to the costs of construction within the budget of $400,000, Mr Standen's evidence, on the description of the house previously put to him which I quoted above, was this (cross-examination, TS 1039):
'And so an architect at the initial discussion with the client about budget when working out an appropriate square metre rate would look to one of the higher rates, would a competent architect not?---For this kind of house, yes.'
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- I have previously noted the band and the point in it, for a 'medium standard finish', to which the defendant resorted in this case on Mr Doepel's evidence. I consider that this exchange indicates the assumption as to the appropriateness of the point in the range chosen was not a reasonable one. I consider this is so even allowing for the likelihood of a saving of the builder's margin, to which Mr Doepel's evidence related, and which does not appear to be contested [267] - [268].
112 Mr Standen's evidence does not support the conclusion that Mr Doepel unreasonably relied on the 'medium standard finish' category. The question put to Mr Standen was predicated on the assumption that the architect was involved in determining the budget figure. The evidence in this case was that the respondent unilaterally set the budget and gave instructions in relation to the design of the house. Moreover, the trial judge's reference to the evidence is incomplete. The transcript immediately following the answer relied on by the trial judge is as follows:
As described by ?---Assuming your house was going to be wholly in one contract by normal processes.
Sorry?---Assuming the project was going to go ahead on the basis of normal practice, normal processes (ts 1039).
113 Mr Standen said the arrangement between the appellant and the respondent was nothing like a normal project and continued:
What I'm trying to say is that the whole arrangement was so unconventional that estimating in those circumstances is not as straightforward as normal practice (ts 1040).
114 Mr Standen went on to say that any estimate should be qualified by making it clear that the cost estimate depended on a lot of 'ifs and buts' (ts 1040). The trial judge then discussed the RAIA practice note relating to architects' estimates. The trial judge said:
The Practice Note also says as to the scope of the estimate produced when a 'schematic design' has been arrived at (cl 4.2) that the architect 'should clarify in writing specifically what is included and should also advise what other possible costs may be need to be considered but which are excluded'. Examples given of the latter include 'professional fees including survey fees', and 'furnishings, fixtures and equipment'. When the design development has reached the stage that (cl 4.3) 'all matters relating to the brief will have basically been resolved', the architect 'could provide a further estimate of the building', in which case '[s]imilar comments to the previous opinion apply'. I consider on my previous findings that this is the stage at which the 22 July 1999 estimate confirmation was provided.
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- Finally, I note that the Practice Note indicates (cl 4.5) the architect 'must keep the client informed of the current financial status of a project at regular intervals, preferably agreed with the client, during the administration stage of the project'.
I have already indicated the difficulties the defendant would have faced meeting this standard under the arrangements for this project. However, I take it from this provision, and the evidence of Mr Standen, that in light of those arrangements it would have been good practice for Mr Doepel to disclose the qualifications to his estimates that those arrangements indicated should be made [277] - [279].
115 In his finding of negligence the trial judge also expressly relies on the difference between what he characterised as the appellant's 'cost estimate' and the actual and projected costs of completing the house [280]. For the reasons already given, the trial judge erred in doing so.
116 There is no reasoned analysis to support the trial judge's assertion in [277] that all matters relating to the brief had basically been resolved by 22 July 1999. That conclusion is not supported by findings as to what was discussed prior to 22 July 1999 or the content of the development drawings. Nor is it supported by the uncontradicted evidence.
117 Mr Standen's evidence and the trial judge's conclusions also depend in part on the appellant having provided an estimate of costs. That is not an accurate characterisation of the trial judge's finding (in [240]) that the house could be constructed within $400,000. The word 'could' connotes that it was possible to construct the house in question. That is not an estimate of what the house will or would cost and reflects the unconventional nature of the construction arrangement. The appellant's representation at its highest was that the house the subject of the development drawings and matters otherwise specified could be constructed within a budget of $400,000. The following findings and unchallenged evidence supports that conclusion. First, the unconventional arrangement between the appellant and the Hodgkinsons meant that matters relating to cost, including the type, standard and quality of the fixtures, fittings and other finishes, would to the knowledge of the parties not be identified and costed in advance of the commencement of construction but during the course of construction. Secondly, as of 22 July 1999, the selection and design of the fixtures and fittings was to be the responsibility of the Hodgkinsons with the assistance of an interior decorator who had not been identified or retained before 22 July 1999. Thirdly, a further consequence of the unconventional arrangement was that the respondent would contract directly with suppliers and by that
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- mechanism have the means of control over the quality, standard and cost of goods and materials supplied. Fourthly, the Hodgkinsons knew from the November letter that the appellant calculated the house cost at a rate per square metre. Fifthly, as the July letters were prompted by the completion of the development drawings, 'the house' must be a reference to the house the subject of those drawings and other specified matters such as for example the type of internal walls. Sixthly, there is no finding that prior to 22 July 1999 the Hodgkinsons advised Mr Doepel as to the level of finish that they required. Finally, the Hodgkinsons identified what they wanted in terms of the design and layout of the building and had unilaterally nominated the budget. The representation having been made in that context, the trial judge's finding that the house could be constructed within budget is both appropriate and significant. It is concerned with possibilities.
118 Against that background, it cannot be said to be unreasonable to rely on a medium standard finish or that there was a need to qualify the representation when it was not an estimate of what the house would cost. That conclusion is not dependent on but is fortified by the respondent's familiarity with usual building processes and procedures. Thus, the trial judge's negligence finding must also be set aside.
119 The trial judge accepted that it was reasonable for the appellant to rely on the RBB compendium and to reduce the appropriate rate to reflect the absence of a builder's margin [248]. The trial judge also found that in the absence of an assurance from the respondent that he could obtain a trade discount at least in relation to the brickwork and the limestone, it was unreasonable to take a trade discount into account in determining the appropriate rate per square metre on which to assess the costs. That finding is unchallenged. Omitting the trade discount and applying the same rate to all areas including the garage and balcony would make the costs ($765 x 525.8 sqm) $402,237. In circumstances where the same rate is applied to all areas of the house and where the proprietor has control of costs throughout the project, such a relatively marginal increase above budget does not undermine the reasonableness of the representation. I would uphold ground 2.
Ground 3
120 As a result of my conclusions on grounds 1 and 2, it is not necessary to determine the causation issues because the respondent has not established any breach. However, I propose to comment on them for the sake of completeness.
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121 The first issue is whether the trial judge erred in finding that the respondent relied on the representation in entering into the services agreement and proceeding with the construction of the house.
122 The trial judge's reasons on the subject of reliance are as follows:
The plaintiff pleads in relation to the negligent misrepresentation claim that it makes that the Hodgkinsons were induced by the cost estimate I have found to commence construction on the project and to enter into the agreement of July 1999. If there were such a cost estimate, as I have found, I find that reliance on it in those respects to have been made out … .
The defendant, as I have previously indicated, put to me I should not arrive at any such finding, in view of the variations in the design of the house which the Hodgkinsons made and the commitments and possible commitments they entered into for the items I have previously considered.
However, I have also previously indicated why I do not consider that evidence shows the Hodgkinsons should be seen to have been proceeding with a different house in mind than that for which the house cost estimate had been made. That consideration in my view also disposes of the present point [282] - [284].
123 Mrs Hodgkinson did not give evidence. The respondent's reliance evidence related to the pleaded representation based on his evidence of the communications between the parties (on which no findings were made). There is no finding as to what the Hodgkinsons understood by the ambiguous representation found by the trial judge which is relevant to causation because reliance is a subjective question. In any event, the trial judge's flawed approach to determining reliance by reference to whether what was built was a 'different house' also undermines the trial judge's finding of reliance and thus causation. The finding should be set aside.
124 The respondent contends the finding of causation should be upheld on other grounds. In essence the respondent relies on his evidence that he did not terminate the services contract in October 2000 because of the costs blow out of which he did not become aware until February 2001. The trial judge seems to have accepted that the respondent did not have actual or constructive notice that his design variations would result in a budget blow out. However, that does not fully answer the reliance issue. The evidence establishes that generally the respondent ordered design variations without seeking or obtaining information from the appellant as to whether the variation had any adverse budgetary implications. It is clear the respondent knew that design variations may have the potential to increase costs. Moreover, the respondent knew or ought to have known
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- the amount of his actual and approved expenditure on fixtures and fittings. The latter alone provides strong objective evidence that the respondent would in July 1999 have entered into the services contract and proceeded with the construction of the house even if the cost estimate had exceeded $400,000.
125 However, the question of causation cannot be determined in the absence of a finding of the extent of the cost over run attributable to any proven misrepresentation or breach. If (contrary to my conclusion) the wide representation was capable of arising and was so understood by the Hodgkinsons, the respondent's subsequent conduct in ordering costly design variations and incurring or approving costs for fixtures and fittings that almost exhausted the entire construction budget would not prevent a finding of reliance in July 1999. If on the other hand the appellant represented (as the Chief Justice says the trial judge found) that the house designed by the appellant 'would' be completed to a 'good' standard of finish, it remains the case that the respondent's conduct overwhelmingly supports the inference that he would have proceeded with the construction of the house even if the cost estimate had exceeded $400,000. However, that is not the end of the matter. It is necessary to know what would have been a reasonable estimate using the RBB compendium. The respondent's pleaded case was that the house was to be of 'executive' standard which would bring it into the 'high' not merely 'good' standard of finish. The net (less 10% builder margin) costs range in the executive category is $520,542 to $804,474. Having regard to the respondent's conduct after July 1999, in particular the design variations and the amount he incurred or approved for fixtures and fittings, the weight of the evidence does not support an inference that the respondent would not have proceeded with the house if the cost estimate had been within that range or if the cost estimate of $400,000 had been qualified.
126 As the finding that the Hodgkinsons would not have entered into the services contract and proceeded with the construction of the house must be set aside, the derivative finding that the respondent would have constructed a project home on the land must also be set aside. That is so even if the appellant had breached the rule in Browne v Dunn (1893) 6 R 67 HL which requires that a party put to an opponent's witness in cross-examination the nature of the case upon which it proposes to rely. In my view there was no breach. The rule does not apply where the witness is on notice that his or her evidence is in contest. Notice can come from the pleadings or witness statements exchanged before trial. It is unequivocally clear from Mr Doepel's witness statement (ts 611) that
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- the appellant challenged the respondent's evidence that but for the representation he would have constructed a project home. Moreover, the challenge was also evident from the cross-examination of the respondent on reliance.
127 In these circumstances, it is undesirable to determine the issue of legal principle, being whether the respondent can recover for the loss of opportunity to take an alternative course of action which would have enhanced the respondent's financial position. The appellant contends the answer must be in the negative, relying on McBratney v Boston (1994) ATPR 41-355. My preliminary view is that McBratney is not authority against the respondent's damages claim. In that case the respondent engaged in misleading or deceptive conduct and made a negligent misstatement as to the cost to construct a house. The trial judge found that the proprietors had failed to establish loss and damage because the value of the house exceeded the costs. The Court noted that although there was evidence the appellants would not have entered into the construction agreement but for the representation, there was no evidence that they would have built a different house that was within their budget or the financial consequences thereof. There is no such evidential gap in this case.
128 The better view seems to be that an unreasonable underestimation of the cost of construction will not ordinarily result in loss or damage if the owner received a building to the value of the construction costs unless there is a finding that the proprietors would have taken a different course to their financial advantage and that such damage was not too remote: Gates v The City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 13; Warwick Entertainment Centre Pty Ltd v Alpine Holdings Pty Ltd [2005] WASCA 174 [96].
Conclusion
129 I would uphold grounds of appeal 1, 2 and 3, dismiss the notice of contention, set aside the orders made by the trial judge and in lieu thereof order that the respondent's action be dismissed.
130 LE MIERE AJA: I agree that the appeal should be dismissed for the reasons stated by the Chief Justice.
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