Karalis v Archonstruct Pty Ltd - [2008] SASC 368

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court: Civil)
KARALIS & ANOR v ARCHONSTRUCT PTY LTD & ORS
[2008] SASC 368
Judgment of The Full Court
(The Honourable Justice White, The Honourable Justice Layton and The Honourable Justice Kourakis)
23 December 2008
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - THE CONTRACT - CONSTRUCTION OF PARTICULAR CONTRACTS AND IMPLIED CONDITIONS
The appellants engaged the second respondent to act as their architect for the purposes of building a new home - the appellants then contracted with the first respondent, a construction company, on a 'cost plus' basis for the building of that home - the third respondent was the principal of both the first and second respondents - the house was designed and built in accordance with the instructions of the appellants - the first respondent submitted monthly progress claims for the cost of building work and its remuneration - the appellants failed to pay the last four of those progress claims - the first respondent brought proceedings against the appellant for the amount outstanding on those claims - the appellants disputed the amount claimed and pleaded that the first respondent was not entitled to any payment because the progress claims had not been certified by an architect in accordance with the terms of a contractual document signed by them - in the alternative the appellants claimed that the cost plus contract was an unconscionable bargain and that they were induced to make the contract by false and misleading conduct - the appellants further claimed that the second respondent owed a duty to provide a reliable estimate of the costs of building and that it had failed to do so - the appellants alleged at trial that the second respondent had falsely represented that the house could be constructed for $270,000 - the appellants also claimed damages for certain building defects - the appellants appealed against the final orders of the Judge that reflect findings made in three separate judgments - the primary finding was that the first respondent was entitled to $242,828.00 for work performed under the building contract, but that the appellants were entitled to set off against that amount the cost of remediating the building defects which amount was to be agreed by the parties if possible - the Judge held that the appellants were entitled to offset an amount of $8,000 for disturbance and $20,000 for diminution in value - the second respondent's claim for fees was allowed - the Judge otherwise dismissed the claims made by the appellants against the first and second respondents - the Judge then further made an award of interest in favour of the first respondent and the Judge ordered that the appellants pay the costs of the second respondent and two thirds of the first respondent's costs - the Judge then made further orders with respect to the cost of remediating the building defects because the parties had failed to reach an agreement.
Whether it was a term of the second respondent's contractual engagement that it would design a house that could be built for $270,000 - if it was, whether that obligation was limited to taking reasonable steps to design a house within that limit - whether the second respondent was retained to perform the functions of an architect under the cost plus construction contract - whether the first respondent's entitlement to payment and interest in default of payment was dependent on the second respondent's certification of the amounts claimed.
Held: It was not a term of the second respondent’s contractual agreement that it would design a house that could be built for $270,000 – the second respondent was not retained to perform the functions of an architect under the cost plus contract – the first respondent’s entitlement to payment of its progress claims was therefore not dependent upon certification of those amounts by the second respondent – appeal on those grounds dismissed.

TORTS - NEGLIGENCE - ESSENTIALS OF ACTION FOR NEGLIGENCE - DUTY OF CARE - SPECIAL RELATIONSHIPS AND DUTIES - PROFESSIONAL PERSONS
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - PERFORMANCE OF WORK - GENERAL
Whether the second respondent breached any contractual or professional duty it owed to the appellants in the advice it gave with respect to the construction of their new house - whether the second respondent breached any contractual or professional duty it owed to the appellants to supervise the construction of their house - if the second respondent did breach any duty, what loss if any did the appellants suffer as a result.
Held: The only professional duties owed by the second respondent were to explain in general terms the way in which different forms of building contract would affect the construction of the house and to advise them properly on those options insofar as those arrangements could affect the scope of its engagement as the architect – the second respondent did not owe a duty to supervise the work or administer the contractual arrangements with the first respondent – no tortious duty could arise to supervise the building work in the face of the appellants’ decision not to pay for that part of the architectural service – the second respondent did not breach any of its duties to the appellants – appeal on those grounds dismissed.

TRADE AND COMMERCE - TRADE PRACTICES AND RELATED MATTERS - CONSUMER PROTECTION - MISLEADING, DECEPTIVE OR UNCONSCIONABLE CONDUCT
Whether the contractual arrangement of the second respondent is liable to be set aside for unconscionability - whether the appellants contracted with the first respondent as a result of the misleading and deceptive conduct of the second or third respondents – whether the contract between the appellants and the first respondents was liable to be set aside by reason of unconscionability.
Held: The advice and explanations given by the second respondent to the first respondent as to building contractual arrangements were not misleading and was adequate – the obligations of the appellants under the cost plus contract were not dependent on a determination made by the second respondent – the contract was not therefore unconscionable – appeal on those grounds dismissed.

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH - REPUDIATION AND NON-PERFORMANCE - REPUDIATION - WHAT AMOUNTS TO REPUDIATION
Whether the first respondent repudiated the building contract by its refusal to provide tender documentation.
Held: The first respondent did not repudiate the contract by its failure to provide the original invoices of the trade contractors – appeal on that ground dismissed.

DAMAGES - MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS FOR BREACH OF CONTRACT
Whether the Judge erred in awarding $8,000 by way of damages to the appellants for inconvenience and disturbance – whether the Judge erred in awarding $20,000 by way of damages to the appellants for diminution in value of the home.
Held: The Judge’s assessment of damages in respect of the building defects was not affected by error.
Whether the parties agreed during the trial to defer the issue of the quantum of the first respondent’s entitlement to payment of the progress claims, and if so whether the Judge erred in making a final award in favour of the first respondent on those claims.
Held: The parties had agreed to defer the question of the quantum of the first respondent's entitlement for the unpaid progress claims until after the Judge delivered his reasons for decision on the other issues - the matter must be remitted to the District Court - appeal allowed only for the purpose of remitting the matter to the District Court to determine the contractual liability of the appellants to the first respondents and making such consequential orders as may be necessary consistently with the remaining findings of the Judge.

PROCEDURE - COSTS
Whether the Judge erred in refusing to make a Bullock order against the first respondent in respect of the second respondent’s costs – whether the Judge erred in awarding costs in favour of the first respondent having regard to the offer of settlement made by the appellants.
Held: The decision of the appellants to join the second and third respondents to the claim for damages for the building defects was not induced by the conduct of the first respondent – it would not be reasonable to order that the first respondent pay the costs of the second and third respondents – appeal on that ground dismissed.
Trade Practices Act 1974 (Cth) ss 51AA, 51AB, 87(2); District Court Act 1991 s 33, referred to.
Nemer v Whitford (1982) 31 SASR 475; LG Thorne & Co Pty Ltd v Thomas Borthwick and Sons (Australasia) Ltd (1955) 56 SR (NSW) 81, distinguished.
Arconstruct P/L v Karalis [2007] SADC 34; Archonstruct P/L v Karalis (No 2) [2007] SADC 107; Archonstruct P/L v Karalis (No 3) [2008] SADC 70; Devaugh Pty Ltd v Lamac Developments Pty Ltd [1999] WASCA 280, discussed.
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; Bullock v London General Omnibus Co [1907] 1 KB 264; Sanderson v Blyth Theatre Co [1903] 2 KB 533; Gould v Vaggelas (1984) 157 CLR 215; Fennell v Supervision & Engineering Services Holdings Pty Ltd (1988) 47 SASR 6, considered.

KARALIS & ANOR v ARCHONSTRUCT PTY LTD & ORS
[2008] SASC 368
Full Court White, Layton and Kourakis JJ

WHITE J: I agree with the orders proposed by Kourakis J for the disposition of this appeal. I also agree with his reasons. Like Kourakis J, I would hear the parties as the precise orders which should be made.
LAYTON J: I am grateful for the benefit of having read the comprehensive reasons for decision of Kourakis J. I agree with the orders which he proposes and with his reasons.
KOURAKIS J
Introduction
The appellants are husband and wife. They married in 1990. Together they have operated roadhouses in regional South Australia. Since 1997 they have lived in Adelaide and have appointed managers to operate their businesses. They purchased a residence in Allendale Grove, Stonyfell in 1997. In February 1999 they contracted to purchase the house block at Moreland Avenue, Stonyfell, with the object of demolishing the house which stood on the land and replacing it with an architecturally designed house. The contract was conditional on obtaining planning approval for their proposed residence.
Mr and Mrs Karalis consulted the architect Mr Carn about their proposal. He was the principal of Carn Byrne & Associates Pty Ltd. I will refer to that company as the Architect. Mr Carn produced preliminary sketch drawings, and negotiated with neighbours of the Moreland Avenue property and the Burnside Council. Eventually Mr Carn informed Mr and Mrs Karalis that he had received a favourable response from Burnside Council. Mr and Mrs Karalis then completed the purchase of the Moreland Avenue property.
Shortly after Mr and Mrs Karalis had engaged Mr Carn they informed him of two matters that now lie at the centre of the dispute between them. The first was that they were anxious to complete the construction of the house as soon as possible. They had sold their house in Allendale Grove in April 1999 but had reached a tenancy agreement with the new owners under which they would rent the house until 30 November 1999. The second matter was that they had been advised that their proposed house could be built for between $250,000 and $270,000.
As their discussions progressed, Mr Carn sent relatively detailed letters to Mr and Mrs Karalis. Mr Carn warned that a house of the standard that they had asked him to design could not be built for less than $750 per square metre, and could cost up to $1,000 per square metre depending on the finishes that were selected. The approximate floor area of the proposed residence, as it was finally designed, was about 416 m², if verandas, patios and balconies are included.[1]
[1] See [61] below.
Mr Carn’s letters also explained to Mr and Mrs Karalis that there were essentially two types of building contract from which they could choose. One option allowed them to seek fixed price tenders from several builders for the construction of the house, in accordance with detailed plans and specifications that would be prepared by Mr Carn. The advantage of that option was that they could select the builder from several competitive tenders and enjoy the certainty of a more or less fixed price. There were some disadvantages. The process of tendering would delay the construction of the house because all of the detailed plans had to be drawn in advance so that the competitive tenders could be obtained and compared. The other option was to contract on a “cost plus” and “design and construct” basis, which would allow construction to commence even before the final plans and specifications were completed. A cost plus contract allows the builder, in conjunction with the building owner, to select the most competitive tenders from the necessary trade contractors progressively as the detailed plans are completed and the building is constructed. The builder’s remuneration under a cost plus contract is a percentage of the material and trades costs so incurred. The builder may also charge on an hourly basis for co-ordination and supervision and for the provision of plant and equipment. These costs were described by Mr Carn as “preliminaries”. Mr Carn explained that, for obvious reasons, the percentage fee is lower when “preliminaries” are charged separately. The advantage of a cost plus contract therefore is the saving in time, when it is used in conjunction with a “design and construct” process, and possibly price, if building costs are at least stable over the period of construction. The disadvantage is the lack of price certainty.
In his correspondence, Mr Carn also explained that, for a fee that would be a proportion of the building cost, Mr Karalis could engage the Architect to supervise the building work and to certify the progress claims made by the builder. However, Mr Karalis told Mr Carn on a number of occasions that he did not wish to engage the Architect to carry out that work because of the cost of doing so.
In the course of their discussions Mr Karalis learnt that Mr Carn was also the principal of a construction company, Archonstruct Pty Ltd (Archonstruct). Mr Karalis suggested that Archonstruct may wish to tender for the construction of the house on a fixed price basis. Mr Carn declined because he assumed that he, as the architect, would select the successful tenderer and would therefore be in a position of conflict. However, on an occasion when Mr Carn was explaining the operation of cost plus contracts he offered the services of Archonstruct on a cost plus basis. Mr Carn informed Mr Karalis that Archonstruct would charge an hourly fee for preliminaries and a five per cent margin on trades costs and materials. Mr Carn told Mr Karalis that if Archonstruct was engaged, he, Mr Carn, would be the building supervisor, and that by reason of that arrangement Mr Karalis would have an “architect for free”. The meaning of that phrase was in dispute at trial and continues to be disputed on appeal.
Mr Carn, at the request of Mr Karalis, provided a letter explaining the terms on which Archonstruct could be engaged. At about the same time Mr Carn gave Mr Karalis an incomplete standard form contract for the construction of the house on a cost plus basis. That document was received into evidence as Exhibit B35. A day or so later, Mr Karalis, in a telephone conversation with Mr Carn, engaged the Architect to draw working drawings and specifications, and Archonstruct to construct the house in accordance with those specifications. About a month later Mr and Mrs Karalis signed Exhibit B35, but did not complete those parts of the document where the particular details of the owner, the builder, the architect and the construction would ordinarily be inserted. Nor were the items that made provision for the percentage fees to be charged and other costs and insurance details completed. Mr Karalis sent Exhibit B35 to Mr Carn. Mr Carn then completed Exhibit B35 recording Archonstruct as the builder, Mr and Mrs Karalis as the owners, and the Architect as the supervising and certifying architect. The execution of Exhibit B35 in that way has certain contractual consequences to which I will return.
Correspondence between the parties from August to November 1999 shows that the building work proceeded quickly because Mr Carn and the trade contractors worked extended hours. The house was designed and built in accordance with the instructions given to the Architect and Archonstruct by Mr and Mrs Karalis.
Archonstruct submitted monthly progress claims for the cost of building work and its remuneration. The table below shows the amounts claimed and the payments made by Mr Karalis.

Progress payment Amount Running Total Date Paid

1^st (06.09.1999) $ 32,362.00 $ 32,362.00 08.10.1999

2^nd (01.10.1999) $ 53,668.00 $ 86,030.00 08.10.1999

3^rd(29.09.19990 $ 78,027.00 $164,057.00 03.11.1999

4^th(30.11.1999) $131,987.00 $296,044.00 Unpaid

5^th(14.12.1999) $ 60,872.00 $356,916.00 Unpaid

6^th(29.03.2000) $ 34,267.00 $391,183.00 Unpaid

7^th (25.05.2000) $ 20,650.00 $411,878.00 Unpaid

Balance Owing $247,776.00

In November 1999 Mr Karalis became increasingly concerned about the amount he had already paid and his estimate of the costs that he would have to incur to complete the building. His concerns were exacerbated when he noticed some errors in a claim submitted by Mr Carn. Even though they were corrected, Mr Karalis became suspicious and sought advice from another architect. Correspondence between the parties in November and December became increasingly terse. It can be seen from the above table that the progress claims submitted on 30 November 1999 and 14 December 1999 were not paid. As a result, Archonstruct was left to carry the burden of the accounts of contractors who had performed work in November and December.
The construction of the house had progressed past “lock up” stage and was close to completion by mid-December 1999 when the building work, by and large, came to an end because of the dispute. A quantity surveyor who inspected the house in December 1999 gave evidence that he would place the house in the “medium to luxury” end of the market.
In December 1999 Archonstruct brought proceedings against Mr and Mrs Karalis for the amount of $247,776, which was the amount outstanding for the fourth to seventh progress claims made by it. In addition, Archonstruct sought the sum of $2,760, which was calculated by applying its margin of 5 per cent to the estimated cost of completing the building work. Mr and Mrs Karalis disputed the quantum of the amount claimed. They also pleaded that Archonstruct was not entitled to any payment at all because the progress claims had not been certified by an architect in accordance with the terms of Exhibit B35. In the alternative, Mr and Mrs Karalis disputed the whole of Archonstruct’s claim on the basis that the cost plus contract was an unconscionable bargain. By counter claim, Mr and Mrs Karalis alleged that they were induced to enter into the contract by Mr Carn’s false and misleading conduct in relation to the advantages of entering into a cost plus contract with Archonstruct. They also claimed that Mr Carn and the Architect owed a duty to provide a reliable estimate of the cost of building and that they had failed to do so. Although it was never pleaded, Mr and Mrs Karalis alleged at trial that Mr Carn had falsely represented that the house could be constructed for $270,000. Indeed, Mr and Mrs Karalis were permitted, at trial, to prosecute a claim which had not been pleaded, that the retainer of the Architect included a warranty that it would design a house that could be built for about $270,000.

Additionally, Mr and Mrs Karalis claimed damages against the Architect and Mr Carn for certain building defects. Only one such defect remains the subject of controversy on this appeal. The bricklayers engaged by Archonstruct failed to damp proof the mortar used in some low walls which were constructed to support the ground floor slab of the house. The design and construction of those walls was necessitated by the sloping nature of the Moreland Avenue site. I will refer to those walls as the supporting walls. Archonstruct’s liability for that defect was determined by Judge Bright in the District Court following a hearing of a part only of the dispute between the parties in November 2004. Judge Bright ordered Archonstruct to compensate Mr and Mrs Karalis for the cost of repairing that work by removing the mortar and inserting a viscous membrane between the brick courses. That method of remediation was referred to at trial as “undersetting”. The alternative, less expensive method advocated by Archonstruct in the hearing before Judge Bright involved the injection of a chemical compound into the mortar. The proceedings before Judge Bright were then adjourned so that the remedial work would be completed and its cost ascertained before the other matters in dispute between the parties were determined.
The Judge dealt with the outstanding question of the quantum of damages payable pursuant to the ruling of Judge Bright that Archonstruct was liable for the cost of undersetting the supporting walls. That issue was determined in his reasons given on 6 June 2008. Mr and Mrs Karalis also claimed amounts for diminution in the value of the house, because the undersetting work would be apparent to any prospective purchaser, and for the inconvenience caused to them in the course of that remedial work.
Judgments
This is an appeal against the final orders of the Judge that reflect findings made in three separate judgments. In his primary judgment delivered on 30 March 2007[2] the Judge found that Archonstruct was entitled to $242,828 for work performed under its contract of engagement. He found that Mr and Mrs Karalis were entitled to set off against that amount the cost of remediating the supporting walls but he left that amount to be agreed by the parties if possible. The Judge determined that Mr and Mrs Karalis were also entitled to offset an amount of $8,000 for disturbance and $20,000 for diminution in value caused by that work. The Architect’s claim for fees was allowed. The Judge otherwise dismissed the claims made by Mr and Mrs Karalis against Archonstruct and the Architect. On 24 October 2007 the Judge made an award of interest in favour of Archonstruct and ordered Mr and Mrs Karalis to pay the costs of the Architect and two thirds of Archonstruct’s costs.[3] On 6 June 2008 the Judge assessed the cost of remediating the supporting walls because the parties had failed to reach an agreement.[4] He then made final orders.
[2]    Arconstruct P/L v Karalis [2007] SADC 34.
[3]    Archonstruct P/L v Karalis(No 2) [2007] SADC 107.
[4]    Archonstruct P/L v Karalis (No 3) [2008] SADC 70.
Factual findings
The Judge found that in one of the first meetings between Mr Karalis and Mr Carn on 9 March 1999 Mr Carn told Mr Karalis that the house he wanted “was not a $250,00 house”. The Judge accepted that a land agent who had been engaged by Mr Karalis to sell another property was present and that he volunteered that the proposed house was likely to cost Mr Karalis $1,000 per square metre to build.
The Judge rejected Mr Karalis’ evidence that he and his wife had told Mr Carn that they were “looking to spend” $270,000. The Judge found that it was inconceivable that Mr Carn would have designed a house with a floor area of about 416 m² when he had estimated that the building cost could be as high as $1,000 per square metre if he had been so informed.[5] The Judge rejected Mr Karalis’ evidence even though Mr Carn later completed an application for building approval and an application for building insurance in which the building costs were estimated to be $270,000. The Judge found, in accordance with the explanation given by Mr Carn, that those entries were made by him on the instructions of Mr Karalis.[6]
[5] Arconstruct P/L v Karalis [2007] SADC 34 at [27]–[30].
[6] Arconstruct P/L v Karalis [2007] SADC 34 at [50].
The Judge found that over the entire course of their discussions Mr Carn had made it plain to Mr and Mrs Karalis that their proposed residence could not be built for a price in the order of $250,000 - $270,000 and that he had told Mr and Mrs Karalis that it was likely to cost between $750 per square metre and $1,000 per square metre to build.
The Judge found that Mr and Mrs Karalis had informed Mr Carn that they were working on a budget that had been prepared by Mr Andrew Kantzavelos, a quantity surveyor who was also the nephew of Mrs Karalis. The Judge found that the detail of that budget was not provided to Mr Carn.[7]
[7] Arconstruct P/L v Karalis [2007] SADC 34 at [69].
The Judge dismissed the claim that it was the Architect’s professional duty to ascertain Mr and Mrs Karalis’ budget and design a house that could be built within it. The Judge found that a publication of the Australian Institute of Architects that suggested that an architect should clarify the brief and budget of his or her client before obtaining planning approval was only a guide to the use of a particular form of contractual retainer that architects were free to use or not use as they saw fit.[8] That contractual retainer had not been adopted by Mr and Mrs Karalis and the Architect as the basis of the Architect’s engagement.
[8] Arconstruct P/L v Karalis [2007] SADC 34 at [71]-[75].
The Judge rejected the case that the appellants were allowed to put at trial, even though it had not been pleaded, that the Architect had agreed to design a house that could be constructed for a certain price. There is some confusion about precisely what that price was. The Judge appears to have proceeded on the basis that it was $350,000 based on [6] of the appellants’ counterclaim, in which the appellants claim that Mr Carn had estimated a price which “equated to” a maximum cost of $350,000. On appeal, however, the appellants contend that the issue was whether the Architect had agreed to design a house that could be built for $270,000. The appellants contend that the Judge’s reference in [5] of his reasons to a cost of $370,000 was mistaken.[9] In any event, the Judge found that Mr Carn had merely expressed a view about the possible cost of a house of the kind that the appellants wanted. In circumstances where the features and finishes of the house were yet to be decided the Judge found that the expression of that view was not incorporated as a term of the contractual engagement of the Architect. The Judge went on to find that even if Mr Carn’s estimate of $1,000 per square metre had been incorporated as a contractual term, his duty was only to do what was reasonably possible to achieve that result. The Judge found that it had not been proved that the Architect had breached that duty because the evidence showed that the house could have been built at a cost of $467,000, or about $1,191 per square metre. The Judge took the view that the difference of twenty per cent between that cost and Mr Carn’s estimated cost of $1,000 per square metre was justifiable given the short time within which Mr Karalis wanted the house constructed and the volatile state of the building industry at the time.[10] It follows that the Judge must have found that, even if a term about the cost of building the house had been included in the Architect’s retainer, it was not a warranty that the price would not be exceeded. The Judge treated the term as one that only required the Architect to do what was reasonably practicable in the circumstances to achieve that result.
[9] Arconstruct P/L v Karalis [2007] SADC 34 at [71].
[10] Arconstruct P/L v Karalis [2007] SADC 34 at [76]–[78].
The Judge did not expressly deal with the claims of misrepresentation or false or misleading conduct. Those claims were made on two grounds. The first was the alleged failure of Mr Carn to warn Mr and Mrs Karalis that it would cost more to build the house than they appeared to think. The second was the alleged failure of Mr Carn to warn of the risks of entering into the cost plus contract with Archonstruct without appointing an independent supervising architect. The findings to which I have just referred must, by necessary implication, lead to the dismissal of the claim based on the first omission. The findings to which I am about to turn, that Mr Karalis understood the nature of the engagement of Archonstruct and the role of the Architect and Mr Carn in that arrangement, explain why the claim based on the second omission must also have failed.
The Judge found that Mr and Mrs Karalis did not wish to incur the cost of retaining an architect to administer the building contract on their home and supervise the building work. He also found that they were anxious to construct their home by the end of 1999 so that they could move into it when the lease back arrangement on the house that they had sold expired at the end of 1999. The Judge found that the engagement of the Architect to prepare progressively the working drawings as Archonstruct engaged contractors to build it was much more likely to achieve that result than going to general tender.
The Judge found that Mr Carn discussed the features and finishes of the proposed house at length with Mr and Mrs Karalis at a long meeting on 19 June 1999. Mr Karalis and Mr Carn also discussed the different contractual arrangements under which the house could be built. Mr Karalis was, at that time, considering whether to call for tenders for a fixed price contract or to enter into a cost plus contract. If Mr Karalis took the latter course, he was likely to engage either Archonstruct or Mr Paul Guy, a builder who was based in the Barossa Valley who had built Mr Karalis’ brother’s house. The Judge accepted Mr Carn’s evidence that at the end of that meeting Mr Karalis was still considering his options.[11]
[11] Arconstruct P/L v Karalis [2007] SADC 34 at [54]–[55].
There was a further meeting between Mr Karalis and Mr Carn on 21 June 1999, which was also attended by Mr Kantzavelos. On that occasion Mr Carn gave Mr Karalis a letter dated 21 June 1999 in which he explained the different contracting options. The Judge found that Mr Karalis asked Mr Carn whether he would supervise the work of Mr Guy, by making a monthly inspection for a fixed fee. The Judge had “no doubt that Mr Karalis’ question on this topic was with an eye to keeping down architect fees”.[12] The Judge found that Mr Carn refused to provide a certification service on that basis.[13] The Judge was satisfied that Mr Karalis understood that if he and his wife chose to call for tenders, Mr Carn would not, as their architect, involve his construction company, Archonstruct, in the tender process. As a result, Mr Karalis understood that if he chose a builder other than Archonstruct he could only secure Mr Carn’s skill and knowledge for the supervision of the building work if he were to engage the Architect at the cost of the full architectural fee.[14] The Judge found that Mr and Mrs Karalis understood that if, on the other hand, they engaged Archonstruct to build the house, Mr Carn would occupy the role of construction manager, and would program the works, co-ordinate and supervise the trades and make applications for progress claims.[15]
[12] Arconstruct P/L v Karalis [2007] SADC 34 at [58].
[13] Arconstruct P/L v Karalis [2007] SADC 34 at [59], [63].
[14] Arconstruct P/L v Karalis [2007] SADC 34 at [62].
[15] Arconstruct P/L v Karalis [2007] SADC 34 at [63].
The Judge accepted Mr Carn’s evidence about what he meant by the phrase “get an architect for free”. The Judge found that it meant that in acting as the construction manager, Mr Carn could not divorce himself from his architectural knowledge generally, or his specific knowledge of the existing and proposed architectural drawings for Mr Karalis’ proposed residence.[16] The Judge found that Mr Karalis understood the expression in that way and that it meant that he would secure some of the advantages of architectural supervision of the building work without incurring the significant cost of engaging the Architect to do so.
[16] Arconstruct P/L v Karalis [2007] SADC 34 at [64].
The Judge found that Mr and Mrs Karalis had engaged the Architect in about early June, independently of their engagement of Archonstruct, to prepare the detailed plans and working drawings necessary for the construction of the house in accordance with the construction management system. The Judge found, against Mr Karalis’ evidence to the contrary, that he had agreed to pay a hourly fee of $95 to the Architect to prepare the plans in addition to the fee payable to Archonstruct under the building contract.[17] The evidence in support of that finding was overwhelming and it was not challenged on appeal.
[17] Arconstruct P/L v Karalis [2007] SADC 34 at [65] - [70].
The Judge found that the Architect was not engaged to undertake the administration of the building contract nor to supervise the building work.[18]
[18] Arconstruct P/L v Karalis [2007] SADC 34 at [70].
The Judge proceeded on the basis that ExhibitB35 was the entire contract between Archonstruct and Mr and Mrs Karalis. The effect of the requirement found in clause 16 of Exhibit B35, that the Architect certify progress claims when the Architect had not been engaged to do so, was a major issue at trial. The Judge found that a term must be implied in the contract, Exhibit B35, to provide for the contingency that Mr and Mrs Karalis may not appoint an architect to perform the functions contemplated by its terms. The term that the Judge implied was that “references in the contract to the Architect include a reference to the proprietors where no Architect has been appointed”.[19] However, the Judge did not then go on to consider, in the light of that implied term, the significance of the fact that Mr and Mrs Karalis, as the proprietors, disputed and had never certified the fourth to seventh progress claims.
[19] Arconstruct P/L v Karalis [2007] SADC 34 at [92].
The Judge observed that his finding that Mr Carn and the Architect were not appointed to be the architects for the purposes of Exhibit B35 made it unnecessary to rule on the alleged unconscionability of the contract with Archonstruct. Nonetheless, the Judge held that even if the Architect had been appointed as the contract administrator, the contract between Mr and Mrs Karalis and Archonstruct would not have been unconscionable, notwithstanding Mr Carn’s position as the principal of both corporate entities.[20]
[20] Arconstruct P/L v Karalis [2007] SADC 34 at [27].
The Judge accepted Mr Carn’s evidence that he did not prepare estimates of trade packages for Mr and Mrs Karalis, because he was told they were being prepared by Mr Kantzavelos.[21] The Judge found, however, that Mr Karalis was able to check progress payments against accounts rendered and tenders provided by the various tradespeople, and a summary of the tender process was prepared and sent to him in December 1999 by Mr Carn.[22]
[21] Arconstruct P/L v Karalis [2007] SADC 34 at [101].
[22] Arconstruct P/L v Karalis [2007] SADC 34 at [102]–[104].
The Judge accepted that Mr and Mrs Karalis had asked for the originals of invoices and other documents on 14 December 1999 and that Archonstruct had refused to provide them. The Judge found that copies were not provided until March 2000.[23] Nonetheless, the Judge concluded that the failure to provide the documents was not a ground “for rescinding the contract, and nor were the plaintiff’s actions or inactions in that respect capable of being categorised as repudiatory conduct”.[24] The Judge found that Mr and Mrs Karalis had failed to prove any grounds entitling them to repudiate the contract with Archonstruct or justifying an order that it be avoided ab initio or from any later time.[25] On the contrary, the Judge found that the contract was repudiated by Mr and Mrs Karalis when they excluded Archonstruct from the building site on 29 March 2000.[26]
[23] Arconstruct P/L v Karalis [2007] SADC 34 at [107].
[24] Arconstruct P/L v Karalis [2007] SADC 34 at [108].
[25] Arconstruct P/L v Karalis [2007] SADC 34 at [109].
[26] Arconstruct P/L v Karalis [2007] SADC 34 at [109].
The Judge was satisfied on the evidence that Archonstruct had, subject to an immaterial exception, proved its entitlement to the monies charged in the unpaid progress claim.[27] Archonstruct’s entitlement to those sums depended on whether it had reasonably incurred the costs it claimed in engaging contractors to work on the house in accordance with the working drawings the Architect had prepared. Unfortunately, as will be seen, the Judge must have overlooked the agreement reached by the parties, of which he was informed, to defer to a later date the hearing and determination of the extent of Archonstruct’s entitlement, contractual or otherwise, for the building work it had performed.
[27] Arconstruct P/L v Karalis [2007] SADC 34 at [110].
The Judge, in his reasons delivered on 24 October 2007, found that pursuant to clause 16(a) of Exhibit B35, the progress claims made by Archonstruct became payable in June 2000 on the delivery to Mr and Mrs Karalis of the copies of the invoices of trades contractors. The Judge held that Archonstruct was entitled to interest at the rate of 1.5 per cent per month thereafter for non payment of the progress claims, in accordance with clause 16(b) of Exhibit B35.[28]
[28] Archonstruct P/L v Karalis (No 2) [2007] SADC 107 at [30].
The Judge held that because Mr Carn and the Architect were not engaged to supervise the building work, they were not liable for the failure of Archonstruct to damp proof properly the mortar used in the supporting walls.[29] The Judge dismissed the appellants’ claims against the Architect and Archonstruct with respect to two other defects, namely an alleged failure to provide underfloor ventilation[30] and the omission of a slip joint.[31] The parties agreed to refer a schedule of other defects to an arbitrator. Ultimately it was agreed before the Judge that Archonstruct’s liability for those defects was $10,000.[32]
[29] Arconstruct P/L v Karalis [2007] SADC 34 at [124].
[30] Arconstruct P/L v Karalis [2007] SADC 34 at [135] and [138].
[31] Arconstruct P/L v Karalis [2007] SADC 34 at [119].
[32] Archonstruct P/L v Karalis and Ors No 3 [2008] SADC 70 at [79].
The Judge awarded a sum of $20,000 against Archonstruct for the diminution in value of the house,[33] and a further sum of $8,000 for the delay in completing Mr and Mrs Karalis’ home and for the disruption to their home life resulting from the need to underset the supporting walls.[34]
[33] Arconstruct P/L v Karalis [2007] SADC 34 at [151].
[34] Arconstruct P/L v Karalis [2007] SADC 34 at [146].
Issues to be determined on appeal
The Notice of Appeal to this court and the submissions made in support of it raise the following issues:
1Was it a term of the Architect’s contractual engagement that it would design a house that could be built for $270,000?
2If so, was the Architect’s obligation limited to taking reasonable steps to design a house within that limit or did it effectively warrant that result?
3Was the Architect retained to perform the functions envisaged by clauses 2, 15(d), 16 and 18 of Exhibit B35?
4Did the Architect breach any contractual or professional duty it owed to Mr and Mrs Karalis in the advice it gave with respect to the contractual arrangements for, and the possible cost of, the construction of their house?
5Did the Architect breach any contractual or professional duty it owed to Mr and Mrs Karalis to supervise the construction of their house?
6If the Architect breached any of the duties just referred to, what loss, if any, did Mr and Mrs Karalis suffer as a result?
7Is the contractual engagement of the Architect liable to be set aside for unconscionability either under the Trade Practices Act 1974 or the general law?
8Did Mr and Mrs Karalis contract with Archonstruct as a result of the misleading or deceptive conduct of Mr Carn or the Architect?
9What were the terms of the contract between Mr and Mrs Karalis and Archonstruct as to the payment of progress claims and, in particular, was the entitlement of Archonstruct to payment, and interest in default of payment, dependent on the Architect’s certification that the amount claimed was payable?
10Were any other of the contractual obligations of Mr and Mrs Karalis or Archonstruct dependent on a determination made by the Architect?
11If any of the contractual rights or obligations of Archonstruct or Mr and Mrs Karalis were dependant on a determination made by the Architect, was the contract, for that reason, unenforceable or otherwise liable to be set aside by reason of unconscionability either pursuant to the general law or ss 51AA, 51AB or 87(2) of the Trade Practices Act 1974?
12Did Archonstruct repudiate the building contract with Mr and Mrs Karalis by its refusal to provide tender documentation?
13Did the parties agree during the trial to defer the issue of the quantum of Archonstruct’s entitlement to payment of the progress claims made by it, and if so, did the Judge err in making a final award in favour of Archonstruct on those claims?
14If, by reason of any of the matters referred to in Issues [9] to [12] above, Archonstruct is not entitled to its contractual remuneration, is it entitled to any, and what sum, by way of quantum meruit?
15Did the Judge err in awarding $8,000 by way of damages to Mr and Mrs Karalis for the inconvenience and disruption to their lives consequent upon the failure to damp proof the mortar in the supporting walls?
16Did the Judge err in awarding the sum of $20,000 by way of damages for diminution in value of the residence consequent upon the failure to damp proof the mortar of the supporting walls?
17Did the Judge err in refusing to make a Bullock order against Archonstruct in respect of the Architect’s costs?
18Did the Judge err in awarding costs in Archonstruct’s favour having regard to the offer of settlement made by Mr and Mrs Karalis?

For the reasons that follow, I am not persuaded that any of the factual findings of the Judge should be set aside. The findings depend to a large extent on his assessment of conflicting oral evidence. His findings are not inherently improbable. Indeed, the weight of the evidence strongly supports the finding that the Architect did not contract to design a house that could be built for $270,000 and that Mr Carn repeatedly warned Mr and Mrs Karalis that they had an unrealistically low expectation of the building costs. The claims in contract, misrepresentation and false and misleading conduct made against the Architect were for that reason correctly dismissed. No specific misrepresentation about the relative advantage or disadvantages of a cost plus contract was established by the evidence. The only professional duty owed by the Architect was to explain in general terms the way in which the different forms of building contract would affect the actual construction of the house. The Architect also owed a duty to Mr and Mrs Karalis to advise them properly on the different contractual arrangements for the construction of their house from which they could choose, insofar as those arrangements could affect the scope of its engagement as an architect. However, the Architect did not owe them a duty to advise on the contractual arrangements that best advanced their financial or legal interests. The finding of the Judge that the Architect was not engaged to supervise the work or administer the contractual arrangements with Archonstruct was also consistent with the weight of the evidence. A tortious duty of care to supervise the building work cannot be imposed on Mr Carn and the Architect in the face of Mr Karalis’ deliberate decision not to pay for that part of the architectural service. For that reason, the Judge was right to dismiss the claim against the Architect for failing to ensure that the mortar of the supporting walls was damp proof.
In my opinion the Judge erred in proceeding on the basis that the contract with Archonstruct was constituted entirely by Exhibit B35. I consider that the terms of Archonstruct’s engagement must be ascertained from the entirety of the negotiations between Mr and Mrs Karalis and Archonstruct in June 1999. On the whole of the evidence, and for the reasons given below, I have concluded that the evidence supports a finding that it was a term of that engagement that neither the Architect nor any other architect would be engaged to perform the work of contract administration contemplated by clause 16(b) of Exhibit B35. Nonetheless, the discussions, correspondence and conduct of the parties show that they agreed that progress claims would be made and become payable on a monthly basis. However, in my view, the default interest provisions of clause 16 of Exhibit B35 were not a term of Archonstruct’s engagement and did not apply to a breach of the term to pay the monthly claims. The default interest provision in Exhibit B35 is clearly premised on the appointment of an architect to provide independent certification of the claims made by the builder and for that reason can not be incorporated into a contract under which no architect was to be appointed. It follows from these conclusions that the claim that it was unconscionable for Archonstruct to rely on the contract, by reason of the powers the Architect could exercise whilst subject to conflicting duties, does not arise for consideration.
The finding of the Judge that Archonstruct did not repudiate the contract by its failure to provide the original invoices of the trade contractors was plainly correct. The Judge found, consistently with the weight of the evidence, that Mr Karalis was consulted about the payment of the contractors and had access to the quotes and invoices submitted by them. In that context the failure to provide the originals could hardly evidence an intention not to be bound by the contract. In any event, if Archonstruct had repudiated the contract in December 1999, Mr and Mrs Karalis could claim damages for the breach itself or accept the repudiation and claim damages for the wrongful termination. However, the contractual obligation of Mr and Mrs Karalis to pay for the work already performed would not be affected by the subsequent repudiation.
For the reasons given below I have concluded that the assessment of damages for Archonstruct’s failure to damp proof the mortar of the supporting walls was not affected by error.
The decision of Mr and Mrs Karalis to join the Architect and Mr Carn as defendants to the claim for the supporting wall defect, on which they were successful against Archonstruct, was not induced by the conduct of Archonstruct and it would not be reasonable to order that it pay the cost of the Architect and Mr Carn.
Unfortunately, the Judge proceeded to assess the quantum of Archonstruct’s entitlement for the work that was the subject of the fourth to seventh progress claims, when the parties had agreed to defer that question until after the Judge delivered his reasons for decision on the other issues. The matter must therefore be remitted to the District Court. The question of the costs as between Archonstruct and Mr and Mrs Karalis will necessarily have to be revisited after the final determination of the amount that Archonstruct is awarded on its progress claims. For that reason the costs order between Archonstruct and the appellants will be set aside.
Did the Architect agree to design a house which could be constructed for a cost of no more than $270,000?
The appellants dispute the Judge’s finding that it was not part of the terms of the Architect’s engagement to design a house which could be constructed for a cost of no more than $350,000.[35] Indeed, as I have already observed, the appellants contend that a finding should have been made that the Architect had warranted that it would design a house that could be built for $270,000. Just why the appellants fasten on that amount and not one of the numerous other estimates arising from the evidence is not clear. The appellants’ written submission asserts that their case was that Mr Carn and the Architect represented, and that it became a term of the Architect’s, that subject to variations, the house could be built for $750 per square metre unless Mr and Mrs Karalis chose particularly expensive finishes, in which case the cost per square metre may be as high as $1,000 per square metre. The case put by Mr and Mrs Karalis was that they had not chosen particularly expensive finishes. The final floor plan of the house showed a floor area of 339 m² if the veranda and patio (75 m²) and the pool are excluded. The appellants contend that Mr Carn’s representation about the likely cost per square metre was in effect a representation and a contractual term that, given the size of the Moreland Avenue house, it could be built for less than $290,000 if the lower rate is taken and the veranda, patio and pool are excluded. The figure of $270,000 may also have been selected because it is the amount that Mr Karalis told Mr Carn he believed the house could be built for and was included in the documentation to which I earlier referred.
[35] Arconstruct P/L v Karalis [2007] SADC 34 at [72].
The case pleaded against Mr Carn and the Architect in the appellants’ counter claim was a limited one. Mr and Mrs Karalis alleged that Mr Carn had given an estimate of $750 to $1,000 per square metre as the building cost, and that they had asked Mr Carn for a reliable estimate of construction costs. The case pleaded by Mr and Mrs Karalis was that in all of the circumstances, Mr Carn and the Architect owed Mr and Mrs Karalis a duty to provide them with a reliable cost estimate and, by implication, that the estimated range of rates which had been provided by Mr Carn was not reliable. Nowhere was it claimed that it was a term of the engagement of the Architect that it would design a house which could be constructed for a specified cost. Even the pleaded misrepresentations were limited to the general nature of the construction management system and did not extend to any misrepresentation of the likely cost of building. Nonetheless, it appears that the Judge allowed Mr and Mrs Karalis to prosecute a claim in contract. He considered, but ultimately dismissed, that claim. The question on this appeal is whether the factual findings of the Judge on that issue should be overturned. The appellants contend on this appeal that no inference adverse to their position on the contract case should be drawn from the variation between that case and their pleadings.
By way of a preliminary observation it can be noticed that the very decision of Mr and Mrs Karalis to enter into a cost plus contract with Archonstruct is inconsistent with the proposition that it was a term of the engagement of the Architect that it design a house which could be constructed for no more than $270,000. One would have expected Mr and Mrs Karalis to insist that Mr Carn, as the principal of Archonstruct, commit to a maximum price of no more than $270,000 if it was truly the case that Mr Carn, as principal of the Architect, had agreed to design a house that could be built for that amount. There was no reason that they could not at least have asked that the design and construct method, and even the cost plus arrangement, operate subject to that maximum. The inherent probabilities therefore strongly favour the conclusion of the Judge that it was not a term of the Architect’s engagement that he design a house that could be built within that cap. Nonetheless, it is the responsibility of this court to examine the evidence and to determine whether it reveals any facts or circumstances that lead to a contrary conclusion.
Mr Karalis gave evidence that in his early conversations with Mr Carn he told him that he and his wife had around $270,000 to spend and that “basically that’s what we were looking to spend”. Mr Karalis also testified that he informed Mr Carn that his brother had built a house in the Barossa Valley for $500 per square metre. The builder of that house was Mr Guy. Mr Guy was occasionally referred to in the evidence as the Barossa builder.
Mr Carn gave evidence that he had a meeting with Mr Karalis on 9 March 1999 to obtain instructions on the design of the house. Mr Karalis told Mr Carn that on the basis of enquiries that he had made he believed that the house could be built for $250,000. Mr Carn replied that it was not a $250,000 house. According to Mr Carn, Mr Karalis’ land agent who was present then volunteered that he thought that the likely cost was $1,000 per square metre. Importantly, in cross-examination, Mr Karalis agreed that his real estate agent had been present at that meeting but said that he could not recall that particular conversation. However he did not dispute Mr Carn’s recollection.
Mrs Karalis testified that Mr Carn had advised her that the house would cost between $750 and $1,000 per square metre to build. According to Mrs Karalis, Mr Carn said that the house was more likely to cost $750 per square metre but that “with better quality finishes, it might even go up to $1,000/sm”.
In a letter dated 26 March 1999 Mr Carn wrote:
In our various discussions we have advised that we are of the opinion that a residence of this nature is likely to cost $750/m2 (even up to $1,000/m2) depending upon the complexity of the construction and the detailing you require and the extent and quality of the materials and finishes.
You will recall we have repeatedly expressed extreme doubts that it could be built for $500/m2 as mentioned in relation to your brother’s house.
For that reason we recommend the plans, elevations and preliminary schedule of materials/finishes be given to that Builder and a Budget Estimate be obtained. We are keen not to be seen to be giving a “high estimate” because of our involvement and we feel an independent estimate would be in your interest.
The strong warning given by Mr Carn about the possible costs of building and Mr Carn’s recommendation that Mr and Mrs Karalis obtain an “independent estimate” is significant. It is difficult to see how it can be said that Mr Carn misrepresented the cost of building when he had given blunt and strong advice. Nor can his conduct be characterised as false or misleading. Mr Carn gave a very general estimate of the rate per square metre and it was expressly related to “a residence of this nature”. Mr and Mrs Karalis’ house was yet to be designed. The recommendation made in the letter that Mr and Mrs Karalis obtain independent advice is the very antithesis of unconscionable conduct. It is also difficult to sustain the claim that Mr Carn breached his professional duty to give a more reliable estimate of the cost of the construction of the Moreland Avenue house in the face of that recommendation and such evidence as there was about the level of building costs at that time.
On a copy of the letter of 26 March 1999, Mr Carn had noted “nephew estimate $260,000”. Mr Carn’s evidence was that at about the date of the letter he was told that Mr Kantzavelos had made that estimate of the building costs.
The first sketch plan drawn by Mr Carn, dated March 1999 and marked SK1, provided for a total area of 416 m². Mr Karalis testified that after considering the plan, he told Mr Carn that $416,000 “was definitely the order of what I didn’t want to spend”. He instructed Mr Carn to reduce the size of the house. A further plan designated SK3 was prepared and was provided to Mr Karalis in March or early April. Mr Karalis said that he was happy to see that the floor area had been reduced to 351 m². He explained:
Well, I saw the figure and I – at 351 sqm, doing the rough calculation between $750 and $1,000, 351 x 750 equals something, 351 x 1,000 equals 351 and I thought – sorry, well that’s obviously come down in price, which I was happier with.
According to Mr Karalis he told Mr Carn that he was happy because “the cost is reduced”.
A further plan, designated SK5 was prepared in April 1999. A notation on the plan stated that the floor area was again 351 m². However both the builder Mr Guy and Mr Kantzavelos informed Mr Karalis that in fact the area of the house, as drawn on that plan, was 379 m². Mr Karalis advised Mr Carn of the error.
Mr Carn accepted that he had miscalculated the floor area. Mr Carn denied however that at the time that the miscalculation was brought to his attention Mr Karalis had informed him that Mr Guy had estimated the cost of building the house to be $287,000 and that Mr Karalis had expressed concern that that cost was too high. Mr Karalis confirmed in his evidence that Mr Guy had estimated that the building costs of the house would be between $285,000 to $287,000 based on SK5. Mr Carn testified that Mr Karalis had informed him of a number of different estimates given by different people at various times. Mr Carn recalled a particular occasion when Mr Karalis told him that a quantity surveyor had estimated the cost at $270,000. On that occasion Mr Karalis informed Mr Carn that he wanted to reduce the costs even further to $230,000. Mr Carn gave evidence that he warned Mr Karalis:
Hang on, you want to reduce it from something that I believe is also too low and at the same time you are increasing the house. They are diametrically opposed, it doesn’t make sense.
Mr Carn expressly denied that Mr Karalis had instructed him to reduce the size of the house because he had to “get the cost down”.
After the mistake in the calculation of the floor area made in the plan SK5 was discovered, a further plan dated 21 June 1999 and designated SK9 was drawn. Mr Carn accepted that on the instructions of Mr Karalis he had reduced the floor area of the residence to about 339 m², excluding the pool, patio and veranda, and to 416 m² if they were included.
The estimate of the building costs prepared by Mr Kantzavelos was also based on the plan designated SK5. He estimated the building costs to be $272,248. That estimate was not arrived at by applying a single square metre rate to the total floor area. Rather, it was calculated by pricing individually the trade elements of the construction of the house as planned. That approach was nonetheless still dependent on the dimensions of plans as drawn. From that plan Mr Kantzavelos calculated the total area of the building including the verandas, patios and balconies to be 470 m². The computer programme used by Mr Kantzavelos then calculated, by way of simple division, the average cost per square metre, based on his estimated total construction cost, to be $579.25.
Mr Karalis was examined in some detail about Mr Kantzavelos’ estimate. He accepted that the estimate proceeded on the basis that the total floor area included the veranda, patios and balconies and that it was from that total area that the building cost per square metre was calculated. That evidence is significant because if Mr Carn’s estimated average rate of $1,000 per square metre is applied to a total area of 470 m² shown on SK5, the total building cost rises to $470,000. Mr Karalis agreed that he used the estimate prepared by Mr Kantzavelos as a guide to the cost of building his house. He did so even though he accepted that Mr Carn had warned him that $500 a square metre was unrealistic. Mr Karalis gave evidence that he also relied on Mr Carn’s estimate of $750 a square metre to a maximum of $1,000 a square metre. Mr Karalis said that it would not have been a problem for him to negotiate a loan from a bank to complete the house if that were necessary. Mr Karalis testified that he did show Mr Carn the estimate prepared by Mr Kantzavelos but he agreed that he never left a copy of it with him.
In his evidence Mr Carn at first said that he was never shown a budget estimate from a builder and that until December 1999 he had not seen any estimate at all. However, in pleadings submitted before an arbitrator, Archonstruct had admitted that it received an estimate from a quantity surveyor in June 1999. When Mr Carn was shown Mr Kantzavelos’ estimate in cross-examination he said that he did not recognise some handwriting appearing on the document to be his. He testified that he could not recall seeing the document other than in the course of preparing for the proceedings. However, Mr Carn later accepted that he might have been shown the budget but that as far as he could recall he “wasn’t given a copy of it to sit down and study”. As I have already mentioned, Mr Karalis agreed that a copy was not left with Mr Carn.
My survey of the oral evidence of the conversations between Mr Karalis and Mr Carn about the possible costs of the house does not disclose any good reason to interfere with the finding of the Judge. Although it shows that Mr Karalis was concerned to keep the size of the house down, and thereby reduce the building costs, even on Mr Karalis’ account he never expressly instructed Mr Carn to design the house so that it could be built within a specified budget. The evidence shows only that Mr Karalis was hoping to optimise the size and quality of the house that could be built with whatever funds he already had or could borrow. Notwithstanding Mr Carn’s advice, Mr Karalis hoped the building costs would be much less than the rate of $750 to $1,000 per square metre. If Mr Karalis had instructed Mr Carn to design a house that could be built for $270,000, he and Mr Carn would have had to address both the cost per square metre that should be assumed for that purpose and the maximum price that Mr Karalis could afford. The cost per square metre could not be meaningfully discussed before final decisions were made on the nature and quality of the finishes and features of the home. Those decisions were only finally made after the construction of the house commenced. An early schedule of finishes prepared by the Architect was expressed in general terms and was expressed to be provisional. Neither Mr Karalis nor Mr Carn gave evidence that they had had such a conversation before construction commenced. Mr Karalis’ evidence that he had told Mr Carn that he was “looking at” spending about $270,000 is hardly an instruction to design a house within a particular limit. Mr Karalis did not suggest in his evidence that he had, by words or conduct, obtained a commitment from Mr Carn that he would design a house that could be built within his broad estimate of the range of average building rates per square metre.

The documentary evidence touching this issue leads to the same conclusion.
There are several handwritten notes made by Mr Carn on documents that record the various estimates ranging between $260,000 and $276,000 that Mr Karalis had passed on to him. Those notes, in themselves, do not assist in resolving the question of whether or not it became a term of the Architect’s engagement that he would design a house within any particular cost range. It is the case that Mr Carn explained how his fees would be calculated by reference to a building cost of about $270,000, but there is no significance in his choice of that amount in the light of his written warning about the possibility of much higher prices.
On 1 October 1999 Mr Carn wrote to Mr and Mrs Karalis in his capacity as the principal of Archonstruct enclosing the second progress claims. In that letter he said:
To enable you to make a comparison with your Budget we have split the claim up into as much detail as you might need to compare with Andrew’s figures. If you do not need the detail could you let us know so we can save time and hence costs. …
We have also segregated what we call Additional Works that we assume were not in the original budget. …
A similar reference to Mr Karalis’ budget was made in a letter of 6 September 1999 enclosing the first progress claim. Mr Carn wrote:
We have not received a detailed breakdown. We are not precisely sure of the estimate you had prepared and that of the competitive quotations we have provided so far it is generally in line with (we understand actually under) the budget estimate. We have prepared the progress claim in a format that you can add in your budget where an accepted quotation has not yet been determined”.
There is no reason to think that the references in those letters to the “budget” prepared by Mr Kantzavelos show that Mr Carn had changed his estimate of the average building cost of a house of the type he had designed. Nor do the references suggest that Mr Carn had bound himself to design the house within the “budget” referred to in those letters. It is unreal to suggest that Mr Carn would have bound himself to work within a budget, the contents of which were, as he said in the letter, not precisely known to him. The letters suggest no more than that Mr Carn was formulating the progress claims in a way that allowed the very differences in estimated costs that he had warned about to be monitored against a budget that Mr Karalis had independently prepared. The references to budgeted costs in Mr Carn’s letter of 29 November 1999 should be understood in the same way.
On a development application submitted by Mr Carn to the City of Burnside on 8 June 1999, Mr Carn wrote in the amount of $270,000 in that part of the application that requested information on the cost of the development. Mr Carn testified that he had completed the form in that way on the instructions of Mr Karalis. Mr Carn signed another development application form on 29 July 1999 which also indicated that the development cost was expected to be $270,000. A construction industry training fund levy was paid on the basis of that amount. Mr Carn also arranged insurance for the works in the sum of $270,000. Mr Carn’s evidence was that he showed the development application to Mr and Mrs Karalis and told them that if the costs were higher, as he expected them to be, the Training Board could be advised accordingly and the fee adjusted.
In a facsimile to Mr Karalis dated 21 December 1999 Mr Carn sought instructions to increase the insurance cover over the house. He wrote to Mr Karalis in the following terms:
A few weeks ago we discussed the insurance (which was originally taken out on your budget advice of $270,000 for the house only) and that you would take over the insurance and implement a new policy when you took occupation (late November/early December) to both store belongings and complete the works you were doing (painting, security, TV, phone etc). …
Now we have the situation that you have not occupied, the original insurance we took out though still current is now inadequate because of the huge amount of work done in the last six weeks, and the cover should be increased. …
We believe the insurance for the house (excluding external site works) should be increased to say $370,000 and we seek your approval to extend immediately before we close for business 12 noon tomorrow to provide the proper cover. (emphasis added)
Mr Karalis instructed Mr Carn to increase the cover by a handwritten notation on the facsimile which was faxed back to Mr Carn. In that note Mr Karalis did not take issue with Mr Carn’s historical account of the reason for the selection of the projected cost of $270,000.
In a letter to the Construction Industry Training Board dated 22 September 2000 Mr Carn informed the Board that Mr Karalis had provided the estimate of $270,000. Mr Carn continued:
The Architect advised Karalis that in their opinion the estimate was significantly low and the house was of the order of $360 - $400,000.
Karalis was reluctant to acknowledge this advice and the Architect advised Karalis that the Architect was prepared to complete the documentation (working drawings had not started at that time) and Karalis should proceed with his builder, but it was strongly recommended he check the estimate and be satisfied it was realistic given the site conditions.
The appellant has submitted that that letter is inconsistent with Mr Carn’s evidence that he had not himself estimated the cost of building the house that he was designing. Mr Carn said in answer to a question in cross examination “I had not done an estimate. I had indicated I believed the cost was more. They had done an estimate which they said it was $270,000”. Mr Carn explained that he had not formed a view as to the actual cost at that time because he had yet to complete the design of the house.
There is no real inconsistency here. Mr Carn advised Mr and Mrs Karalis that the average rate per square metre for a house of the standard to which he was designing was between $750 and $1,000, by way of warning not to rely on the estimates provided by Mr Guy and Mr Kantzavelos. That is a very different thing to Mr Carn formulating his own considered estimate of the building cost of the house on completed drawings. Mr Carn’s answers cannot be understood to suggest anything more than that. Mr Carn’s warning in his letter of 26 March 1999, to which I have already referred, is consistent with his evidence.
Correspondence sent by Mr Karalis during the construction of the house is inconsistent with the appellants’ claim that the Architect had been engaged to build the house within a specific budget. In a facsimile to Mr Carn dated 31 October 1999 Mr Karalis strongly expressed his concern about the mounting building costs he faced and expressed regret of his decision to enter into a cost plus contract with Archonstruct. However, he did not complain that the Architect had failed to design the house so that it could be built within a particular budget, or even that the Architect had failed to provide a more reliable estimate.
In my view the documentary evidence supports the conclusion of the Judge. It certainly does not establish that the Judge’s finding on this issue is in any way improbable. It follows that on the first issue I would find that it was not a term of the Architect’s retainer that he would design a house that could be built for $270,000, or indeed within any particular budget. The appellants’ reliance on Nemer v Whitford[36] is misplaced. The proposition stated by Sangster J at p 476 is premised on a finding of fact that a condition of the retainer of the architect was that the house he designed could be constructed for no more than a specified cost. That factual finding cannot be made here. Accordingly, it is unnecessary to answer the second issue. However, if, contrary to my finding, a budget had been incorporated into the engagement, in the absence of clear agreement to the contrary the Architect’s obligation could be no greater than to do what was reasonably practicable to design the house so that it could be built within budget. There was no evidence that would allow the conclusion to be reached that the Architect had not done so. As the Judge observed, the final cost was close to the upper end of Mr Carn’s estimate. A witness, Mr Paddick, who is a quantity surveyor valued the work done to December 1999 at $293,000. In April 2000 he estimated the cost to complete the house to be $100,000.
[36] (1982) 31 SASR 475.
The Architect not engaged to supervise
Counsel for Mr and Mrs Karalis argued their appeal on the basis that the dominant issue was whether Archonstruct and the Architect had engaged in misleading, deceptive and/or unconscionable conduct. He submitted that on a determination of that issue many of the remaining issues would fall into place.
An identification of the role of the Architect in the contractual arrangement for the construction of the Moreland Avenue home is critical to the determination of that issue.
In his letter of 26 March 1999, Mr Carn explained in considerable detail the services that the Architect could offer. He did so under the headings Schematic Design, Design Development, Contract Documentation and Contract Administration. Contract Administration included the calling of tenders and letting of the contract, periodic inspections, administration of claims, adjustment of PC (prime cost) items, attending to Practical Completion and the issue of a final progress certificate.
An attached graph showed that the charge for all of those services was calculated by reference to a percentage of the building costs. The applicable percentage decreased as the cost of the work increased.
In his letter of 26 March Mr Carn also wrote:
Even though the Directors of Carn Byrne & Associates operate a licensed building company, Archonstruct Pty Ltd and you have mentioned you would like Archonstruct to build your project – we can as we initially mentioned prepare documentation for any tender method you choose, …
In a letter of 29 March 1999 Mr Carn referred to his earlier estimate, given on 25 February 1999, of what he would charge for the completion of the preliminary sketches. Mr Carn explained why his professional fees to 29 March for those sketches and some other work were several hundred dollars higher than the initial estimate of $2,500. The letter also advised Mr and Mrs Karalis that the extent of documentation, and therefore the level of professional fees, may vary depending on the method of project delivery.
Mr Karalis’ evidence was that at about the time he received the letters from Mr Carn in late March, he was told that the full architectural services would cost about $35,000. He told Mr Carn that he definitely did not want to pay that amount in architectural fees and that his budget could not afford it.
When giving his evidence, Mr Karalis accepted that he did not want to pay the amount of about $35,000 that he had estimated to be the cost of engaging the Architect to provide a full architectural service. Mr Karalis’ evidence was that he first told Mr Carn that as early as March or April 1999. Mr Karalis agreed that at about the time he received the letter from Mr Carn dated 13 April 1999, in which Mr Carn offered his architectural services on an hourly basis, he had engaged him only to prepare plans for the purposes of Council approval and not to provide full architectural services.
Mr Carn’s evidence was that Mr Karalis had expressly told him in discussions well before June 1999 that he did not wish to engage him for contract administration and supervision of the building work. Mr Carn testified that he explained to Mr Karalis that if he were not engaged to administer the contract, Mr Karalis may find it difficult to borrow money to finance the building. According to Mr Carn, Mr Karalis responded that he would arrange for a quantity surveyor to attend to that.
Mr Karalis explained that in April 1999 he had intended to put the plans prepared by Mr Carn out for tender. Mr Karalis said that Mr Carn first suggested that Archonstruct could build his house in about March 1999. There is a reference to that possibility in a letter from Mr Carn dated 26 March 1999. According to Mr Karalis, Mr Carn informed him that it would not be appropriate for Archonstruct to compete against other tenderers on a fixed price contract if Mr Carn were to be retained to advise Mr and Mrs Karalis about the choice of builder. Discussions continued between March and June 1999 about whether to adopt a construction management system whereby contractors were engaged as the working drawings were prepared and the building work progressed, or to call for tenders for the complete construction of the house.
Mr Karalis gave evidence that in a meeting with Mr Carn held shortly before 21 June 1999, Mr Carn had said that if Archonstruct were engaged he would “do everything”. According to Mr Karalis, Mr Carn described the advantages of engaging Archonstruct in these terms:
It would save documentation time with the plans. We could build as we go, saving time. We could include our own tradespeople for submitting prices. Basically given the fact that he would be the architect and the builder there were advantages in that. In particular in that sense also is that we would be getting an architect for nothing in that process.
Mr Karalis said that when he later gave Mr Carn the go ahead to build the house he believed that Mr Carn “was going to be architect, builder, supervisor, construction manager all in one”.
Mr Carn said that he met with Mr Karalis on 19 June 1999. The meeting started at 10am and finished at about 6pm. Towards the end of the meeting there was discussion about Archonstruct and the construction management system for building a house. Mr Kantzavelos was present. Mr Carn advised Mr Karalis against calling for tenders for the construction of the house because of the delay that process would occasion. Mr Karalis was at that time considering a cost plus contract with Mr Guy. Mr Guy had offered to build the Moreland Avenue house under such an arrangement for a fee of 15 per cent of the building costs incurred. Mr Carn explained to Mr Karalis the difference between the 15 per cent that Mr Guy proposed to charge and Archonstruct’s proposal to charge a lesser percentage of five per cent but in addition to an hourly rate for supervision and other work referred to as “preliminaries”.
Mr Carn made notes of that meeting. Those notes are consistent with the letter he sent to Mr Karalis on 21 June 1999 summarising their discussions. In that letter Mr Carn explained the terms commonly included in a fixed price building contract. In his discussion of cost plus contracts Mr Carn referred to the role that an architect might have in supervising a cost plus arrangement.
Mr Carn then moved on to explain the construction management system that would be adopted if Mr Karalis engaged Archonstruct to build his house. He explained:
The Construction Manager role can be performed by the Architect (but that service is not part of normal Architect Services). …
Given our separate role as Architects there are additional benefits in a more detailed knowledge of the project easier communication and more importantly a detailed knowledge of the costs in all trades should there be a change for some reason and it would be naive to suggest that changes do not occur, usually for quite valid reasons.
The system does allow work to proceed with all the critical decisions being made at the appropriate time, rather than the Conventional Tender process where all decisions have to be made, the work documented, tenders called, contracts arranged and then the work commenced.
There would be a time saving by the construction management method. …
As we would be involved in both the design and construction management decisions can be made much quicker and should a minor variation occur the opportunity exists to re-evaluate the position immediately to see if it is possible to offset the expenditure against other avenues, with all the detail available at the one source. …
You would have access to the constructions files at any time and progress claims would be properly prepared monthly. These would be checked by the writer to ensure that they are correct and certified accordingly. However it is important that the construction manager have financial control or otherwise his authority can easily be undermined. We can explain this in more detail if you wish.
Mr Carn testified that on the night of 21 June and on earlier occasions Mr Karalis asked whether Mr Carn could carry out monthly inspections of the work of the “Barossa builder” or any other builder and certify the work that had been completed. Mr Carn replied:
Yes. Well – I’m trying to explain – what I’m trying to say is that Stan didn’t want to pay an architect or any architect to do contract administration, he wanted to just get someone to certify the costs and get the work done and I had – that’s in some notes somewhere. He asked me, when he was talking about the Barossa builder or this open-tender situation – he called it open tender but it was selected tender – that I could just come along once a month and sign off on what the Barossa builder or what this other builder, whoever, might have done and I said no, I couldn’t, I wouldn’t do that because in issuing the certificate you would accept responsibility for the whole job and if you weren’t there, you just – the institute actually recommend you don’t do that for the nominal fee because you end up with a disproportionate responsibility.
Mr Karalis denied that Mr Carn had refused to supervise the work of Mr Guy on that basis.
Mr Karalis maintained that on the basis of the letter of 21 June 1999 he expected that Mr Carn would act as a supervising architect because Mr Carn had in that letter informed Mr Karalis that he, Mr Carn, would personally check progress claims and ensure that they are “correct and certified accordingly”.
In giving his evidence Mr Carn accepted that he had used the phrase “getting an architect for free” but explained that he had used those words in the context of his discussions with Mr Karalis about whether he, Mr Carn, would supervise the work of another builder for a nominal fee. Mr Carn said that he had explained to Mr Karalis that if he were to engage Archonstruct with Mr Carn as the building supervisor he “would in effect [be] getting an architect for free”. The point that Mr Carn made to Mr Karalis was that if Archonstruct were engaged, he, Mr Carn, would be the building supervisor and Mr Karalis would therefore have achieved, as a matter of practical effect, the object of having Mr Carn supervise the building work without paying the fee for full architectural services. The same point was made by Mr Carn months later in a letter to Mr Karalis dated 3 December 1999. Mr Carn explained:
My remark that you are “getting an Architect for nothing” related to the role the writer was playing as Construction Manager – and that you were getting an (your) Architect on site to make building decisions and answer building/trade queries.
Mr Carn and Mr Karalis both testified that on 22 June Mr Karalis telephoned Mr Carn and engaged him to build the Moreland Avenue house under a cost plus contract using the construction management system. As a result of some further discussion it was agreed that Mr Carn would charge for certain work described as “preliminaries” at $65 an hour. In that conversation Mr Karalis asked Mr Carn to give him notice if a risk of a cost blow out eventuated.
On an objective and reasonable construction of the discussions leading up to and including the meeting of 19 June 1999, and the terms of the letter of 21 June 1999, it is clear that the Architect was not engaged to supervise Archonstruct’s building work or to certify its accounts.

The Master approached Lamac’s claim for summary judgment by considering the standard form contract in isolation. The Master went on to hold that the references to the MCR in that document included a reference to the main contractor, Devaugh itself, where no representative had been appointed.[42] On appeal, the court in Devaugh did not accept that the standard form contract, identified as AS 2545 1993, represented the entire contract between the parties.[43] Parker J explained that he had some difficulty with the Master’s approach. He said:
If AS 2545 1993 is considered alone, as a complete document, given that the term Main Contractor’s Representative is expressly and exhaustively defined in cl 2, I am not persuaded that as a matter of construction of the document itself, the view taken by the Master can be sustained. Indeed, when considered as a complete document and in isolation, the preferable view would appear to be that its operation depended critically upon the appointment of an MCR who, despite the word “representative”, has functions under the conditions which are to be performed with a measure of independence from the main contractor so that fairness is done both to the subcontractor and the main contractor. … I am unable to see in the language of AS 2545 1993, when read in isolation as a complete document, adequate scope for a construction which would allow references to the MCR to be references to the main contractor. No discernible object of cl 42.1, or of the document as a whole, would appear to support such a construction.[44] …
Under AS 2545 1993, read as a complete document and in isolation, it would appear that the failure of Devaugh to appoint an MCR was a clear breach of cl 23 by which it was expressly required to “ensure that at all times there was a Main Contractor’s Representative”.[45]
[42] [1999] WASCA 280 at [99] per Parker J.
[43] (2000) 16 Building and Construction Law 278; [1999] WASCA 280 at [33] per Malcolm CJ, at [90]–[91] per Parker J.
[44] [1999] WASCA 280 at [100] per Parker J.
[45] [1999] WASCA 280 at [101] per Parker J.
The ultimate conclusion of Parker J that the summary judgment should not be quashed was based on a consideration of the contract as a whole. The standard form contract had been incorporated as part of that contract by reference to it in correspondence exchanged between Devaugh and Lamac.[46] He said:
In this case, however, the Master was not concerned to construe AS 2545 1993 as a complete document in isolation. What fell to be construed was the subcontract entered into by the parties. While some of the specifically agreed terms identified earlier in these reasons could be accommodated in varying degrees with some measure of consistency with AS 2545 1993, some were quite inconsistent, eg, completion of the works to the satisfaction of Devaugh. When taken together the specifically agreed terms indicate that the parties contemplated terms and conditions which were in a number of respects quite different from AS 2545 1993 and that, in particular, the parties contemplated a much more direct relationship between them than AS 2545 1993 would provide. It is against that factual and legal matrix that the subcontract falls to be construed.[47]
[46] [1999] WASCA 280 at [75] per Parker J.
[47] [1999] WASCA 280 at [104] per Parker J.
If the terms of Exhibit B35, which confer significant powers on the Architect, were to be transferred without modification to the proprietor, the contract would operate very differently to the way in which it was intended. For example, the builder would be bound by the determination of the proprietor, and not an independent architect, for certification of the costs of materials, contracted labour and his own fee. If made reasonably, that determination might be conclusive of the builder’s entitlement, even if it were affected by error. Furthermore, it would be the proprietor and not the independent architect who would determine, within reason, the extent of any allowance for defective work. Equally strange consequences would follow with respect to the issuing of drawings and written instruction about the Works or their postponement, the dismissal of contractors and the issue of a notice of practical completion.
It is no answer to this difficulty to suggest that the proprietor must still act reasonably. The determinations of an architect under the terms of Exhibit B35 must also be reasonable if they are to have effect. However, what is reasonable for a “proprietor” must necessarily differ greatly from what is reasonable for a professional architect. These serious difficulties are avoided by the approach I prefer.
I would therefore hold that the Architect had no power to affect the mutual rights and obligations of Archonstruct and Mr and Mrs Karalis under the contractual arrangements which, on a proper construction, they had made. It follows that on the ninth issue I would hold that Archonstruct had no right to penalty interest. It also follows that, as regards the tenth and eleventh issues, the contract between Archonstruct and Mr and Mrs Karalis was not unconscionable or otherwise liable be set aside.
Repudiation
The appellants claimed that the failure of Archonstruct to provide the invoice on which its progress claims were based was a repudiation of the contract, which the appellants accepted by failing to respond to Archonstruct’s notice of demand, or by their letter of 21 March 2000 in which they warned Archonstruct off the site.
A party to a contract repudiates the contract by breaching it in circumstances that show an intention to no longer be bound by it.[48] The essence of Archonstruct’s obligations under the cost plus agreement made with Mr and Mrs Karalis was to build the house. The provision of invoices was not a critical element of its contractual obligations. The contractual consequence of Archonstruct’s failure to provide the invoices when requested was that its progress claims did not become due and payable. I accept that there may be some cases where the failure to provide documentation in a cost plus contract will result in such a breakdown in the trust and confidence that is necessary for the continued performance of the contract that the conduct may reasonably be treated as a repudiation. However that was not the case here.
[48] Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115.
The facsimile of 31 October 1999 shows that Mr Karalis had access to a considerable amount of documentation as the building work proceeded. In a facsimile of 6 December 1999, Mr Karalis requested the originals of all invoices, receipts and quotes received by Mr Carn as of that date, saying that “in a few cases the only record I have is figures you have given to me over the phone or handwritten faxes from yourself”.
Mr Carn testified that he had offered to show Mr Karalis all of the quotes. Mr Karalis said that he worked through the first three progress claims comparing them to the quotes and invoices received from contractors. Mr Karalis’ evidence shows that he was ultimately overwhelmed by the amount of documentation that he was shown, including estimates and invoices received from contractors, and that he then asked not to be provided with all of the documentation.
However Mr Karalis demanded the originals of all invoices and other documentation on 14 December 1999 when the relationship with Archonstruct had broken down. By that time work on the site had effectively stopped and Mr Karalis had not paid the fourth and fifth progress claims made in November and December 1999. It is strictly not necessary to decide whether Archonstruct’s failure to provide the original documentation until March 2000 was breach of its obligation to provide “accompanying documents and further information”. If it was, the result provided by clause 16(b) itself was the obligation of Mr and Mrs Karalis to pay the amount claimed was suspended until the documents were provided. What is of importance is that even if Archonstruct breached its contractual obligation in that regard, on the facts of this case, it had plainly not repudiated the contract by doing so. Archonstruct remained ready, willing and able to complete the contract if the dispute over its progress claims was resolved. The finding of the Judge should be confirmed.[49] In any event, even if Archonstruct were found to have repudiated the contract at some time after 6 December 1999, it was still entitled to claim its contractual remuneration for all work done until that time. It follows that I would hold against the appellants on the twelfth and fourteenth issues.
[49] Arconstruct P/L v Karalis [2007] SADC 34 at [108].
It is convenient here to record that I would confirm the finding of the Judge that the contract was repudiated by Mr and Mrs Karalis on about 22 March 2000 when they, by letter excluded Archonstruct from the site, and that Archonstruct tacitly accepted that repudiation.[50]
[50] Arconstruct P/L v Karalis [2007] SADC 34 at [104].
Agreement to defer
On the resumption of the proceedings on 7 August 2006, there was a discussion between the Judge and counsel about the issues that remained outstanding after the orders made by Judge Bright on 17 November 2004. Much of the discussion concerned whether the hearing should proceed given certain difficulties experienced by Mr and Mrs Karalis in completing the undersetting work. In the course of that discussion, counsel for Archonstruct suggested that it might be better if the quantum of Archonstruct’s entitlement on the progress claims made by it was deferred until after the Judge had ruled on the proper construction and validity of the building contract between Archonstruct and Mr and Mrs Karalis. Counsel said:
Your Honour will see that there is a claim by the owners that it’s an unconscionable bargain and that it ought to be set aside. If that claim succeeds, then the plaintiff’s claim is in serious difficulty, it goes without saying. There is little point in proving the minutiae of the various progress claims, the work that was done etc if, in fact, the contract is going to be set aside in its entirety, which is the application by the owners.
Later, towards the end of counsel’s opening of Archonstruct’s case, Archonstruct’s counsel indicated that there were about 16 trade contractors that would have to be called if it became necessary to prove that the amounts claimed by the progress claims were in fact properly payable to trade contractors for work done on the house. The following exchange then took place:
HHI might ask the parties to agree upon the value of the work that has been done, that has been accomplished, so that is an issue out of the way.
CI will take that on board and discuss that with Mr Heywood-Smith this afternoon.
HHAnd in that case it might not be necessary to call the trades.
CIt may not, I agree, and I am all in favour of anything that will shorten the trial. I agree entirely.
On 8 August 2006, in the course of Mr Carn’s examination, counsel for Archonstruct tendered two cash books recording the payments Archonstruct had made to contractors. Counsel for Mr and Mrs Karalis objected and the tender was “reserved”. Just before the Judge adjourned on that day he asked whether any agreement had been reached about the documentary proof of the quantum of the progress claims. Counsel for Archonstruct indicated that certain documentation had been provided so that it might be considered by Mr and Mrs Karalis’ counsel overnight. The next day, counsel for Mr and Mrs Karalis informed the Judge that his instructing solicitor had difficulty reconciling the invoices against schedules that had been prepared by Archonstruct. The Judge then suggested that it might be convenient if Mr Carn sat down with a quantity surveyor engaged by Mr and Mrs Karalis to come to an agreement on the extent to which the documentation supported the claim. After a short adjournment counsel for Archonstruct informed the Court that the parties would attempt to reach agreement in that way. To advance that purpose a bundle of invoices and cheque butts were marked for identification.
On 14 August 2006 after the completion of the cross-examination of Mr Carn, counsel for the parties had a further discussion about the course of the proceedings. In the course of that discussion, counsel for Mr and Mrs Karalis said:
If, on the other hand, Your Honour were to find that this is an enforcing [sic] contract and the builder is entitled to sue on the contract, then it would be convenient to refer out to this arbitrator the exercise of reconciling the invoices that we presently find impossible to do. It’s a slightly different task, it would be a slightly different reference, but the course which the parties are inviting the court to adopt is to proceed to hear the case on the substantial issues, being the validity of the contract, the liability of the architect and that raises the issues of the dampcourse, the issues of the ventilation and Bondex slip joints. … When the matter comes back before Your Honour on judgment of the issues then an appropriately worded reference under s 33 would then go to finish off the issues that Your Honour has determined will be decided in a particular way.
In reply, counsel for Archonstruct expressed his agreement with the proposal:
The expectation is we finish the case in relation to the enforceability of the contract and my learned friend’s claim against the architect for what he’s claiming and Your Honour publishes reasons dealing with the enforceability of the contract and the other issues on the pleadings and reference such remaining matters concerning the quantum of any claim to an arbitrator.
On appeal to this court, counsel for Archonstruct accepted that it was open to construe the discussion in the transcript to which I have referred as establishing an agreement between the parties to defer the decision on the quantum of the builder’s entitlement to the amount claimed.
I have no doubt that the agreement reached by the parties extended to the referral of the question of the quantum of Archonstruct’s entitlement under the progress claims to an arbitrator in the event that the contract was enforceable. The agreement meant that, whether the contract was enforceable or unenforceable, the question of Archonstruct’s entitlement, either under the contract or by way of quantum meruit, would be determined by an arbitrator. There is no other explanation for the failure of Archonstruct to adduce evidence to establish that the amounts claimed by it were in fact paid or payable to contractors for the construction of the house.
It follows that I determine the 13^th issue in favour of the appellants. The consequence of this conclusion is that so much of the matter between Archonstruct and Mr and Mrs Karalis as relates to the quantum of Archonstruct’s entitlement under the contract must be remitted to a judge of the District Court or referred to an arbitrator pursuant to s 33 of the District Court Act 1991.
Damages for inconvenience
The appellants complain that the award of $8,000 for inconvenience and disruption caused to their occupation of the house by the failure to damp course the mortar of the supporting walls is manifestly inadequate.
The appellants complain that the Judge “appears to have had no regard to the six years prior to the works being undertaken when the Karalis’ were obliged to live in an unfinished house”.
After the defect in the supporting walls was discovered, Mr and Mrs Karalis were informed that it would be necessary to remove and then reinstate parts of the floor of the dwelling. They were advised that they may have to vacate the house. Mr and Mrs Karalis delayed the completion of their house in order to minimise the extent of the remedial work. The Judge found that it was reasonable for them to do so, even though it was difficult to be precise about which parts of the house would be affected by the removal of the floor. The Judge found that by November 2004 the probabilities were that no removal of the floors would be necessary. It follows that there was no need to delay completion of the house thereafter. Accordingly, the Judge was satisfied that they had suffered some disruption and inconvenience.
The reasoning of the Judge’s to which I have just referred shows, contrary to the submission of the appellants, that he expressly had regard to the fact that Mr and Mrs Karalis were obliged to live in an unfinished house for many years because of the defect in the supporting walls.
It is also contended that the Judge erred in failing to adjourn consideration of the award of damages for inconvenience until the remedial work had been completed. Courts often make awards for future loss and damage. In this particular case the Judge found that it would not be necessary for the appellants to vacate their house during the undersetting work. As it turned out, they did not in fact vacate their house. The inconvenience that they were bound to suffer was therefore the inconvenience of living in a house whilst work was performed on the supporting walls. It was not necessary to wait to hear evidence after the event about that inconvenience in order to properly understand the extent of the inconvenience that the remedial work was likely to cause.
The Judge awarded the amount of $8,000 for inconvenience by his reasons of 26 March 2007, after hearing the evidence of the contractor, who had been engaged to carry out the undersetting, that it would take six to eight weeks to complete. On various dates between October 2007 and February 2008 the Judge heard evidence and submissions on the question of the quantum of the reasonable costs of performing the undersetting work. That issue had still to be determined following the order made by Judge Bright on 17 November 2004 that Archonstruct pay Mr and Mrs Karalis the reasonable cost of that work. In the course of hearing evidence on that issue, evidence was given that the work actually took 25 weeks to complete. I would not interfere with the award of the Judge notwithstanding the extra time that it took to complete the work. The substantial part of the award made by the Judge was for the past loss and inconvenience in living in an uncompleted house over many years, and not for the prospective loss arising out of the disruption whilst the undersetting was performed.
The exercise of the Judge’s discretion to make a final award for future loss has not been shown to be erroneous on the evidence before him at the time. There was good reason to finalise as much of the multi-faceted dispute between the parties as possible. Even after having regard to the longer time that was actually taken to complete the undersetting work, I am not satisfied that the award was inadequate. I would find against the appellants on the fifteenth issue.
Diminution in value
The appellants called Mr Robert Brooke, who was a qualified valuer, to give evidence about the diminution in value of Mr and Mrs Karalis’ house if the failure to provide a dampcourse was remedied. Mr Brooke was asked to consider the effect of both the undersetting method and the chemical injection method of remediation.
Mr Brooke commenced his evidence by observing that in the case of undersetting, the work would be obvious to anybody who inspected the footings of the house, and that there may be a different colour in the bricks or mortar that were replaced. There would not be a single layer of the black vinyl material that is inserted as a dampcourse but a series of relatively short strips.
Mr Brooke also assumed that some of the floors would have to be removed to allow access to the supporting wall and said that there may be signs of that removal.
Mr Brooke suggested that prospective purchasers who saw that the dampcourse had not been inserted at the time of the original construction might speculate about whether other shortcuts were taken.

Mr Brooke’s evidence was that the extent of discount that might be expected would be “something of the order of five or ten per cent”.
Ultimately Judge Bright decided that the more expensive remediation which involved the insertion of the dampcourse membrane was reasonable. It followed that the diminution of value should be calculated on the same basis.
Mr Brooke’s evidence was that the value of the house, had it been properly constructed with the insertion of a dampcourse, was in the order of $900,000 to $950,000.
The Judge arrived at his award of $20,000 for the diminution in value in this way:
The plaintiff submitted that the low end of the range of diminution (5 per cent) which Mr Brooke spoke of in connection with undersetting method is slightly less than the range of values to which the diminution applied. However in my view the mid point of each range is a reasonable point. My assessment must necessarily be in the broad, taking into account the several imponderables which in my opinion point to any figure greater than $20,000 being unjustified on the evidence before me. That sum is my assessment of this head of loss.[51]
[51] Arconstruct P/L v Karalis [2007] SADC 34 at [151].
The point made in the first sentence of that paragraph is that the percentage diminution suggested by Mr Brooke was of the same order as the percentage difference between the low end of the valuation of the house ($900,000) and the higher end ($950,000). The point made by the Judge is that it was difficult to be precise about the extent of the diminution in value when the percentage suggested by the valuer fell within the range of values of the house in any event.
The second sentence of that paragraph suggests that the Judge accepted as “a reasonable starting point” 7 1/2 per cent, “being the mid point between 5 and 10 per cent”, of $925,000 (being the mid point between $900,000 and $950,000). The appellants contend that the Judge should therefore have awarded the sum of $69,375.
However, the Judge was not bound to accept the evidence of Mr Brooke even though he was the only valuer called. The Judge was entitled to take into account the difficulty about being precise about such matters, particularly when the range of value for the house itself approximated the diminution that Mr Brooke thought would apply. The Judge was also entitled to take into account the necessarily speculative basis of the opinion that was given. The valuation of properties generally proceeds from a comparison of one sale against another. In short, it proceeds from empirical evidence. Mr Brooke’s opinion was not based on empirical evidence. It involved placing himself in the position of potential purchasers, imagining what they might think and then prognosticating on how that might affect their bidding behaviour.
Furthermore, the task of the Judge and of the valuer was to evaluate contingencies. It may be that one purchaser would bid as much as ten per cent less, but another purchaser properly informed that there was no risk to the building after a proper inspection had been undertaken might not reduce his or her bid at all. The ultimate judgment was necessarily discretionary. No error in the exercise of that discretion has been shown here. I would find against the appellants on the sixteenth issue.
Bullock Order
At the conclusion of the trial Mr and Mrs Karalis sought a Bullock order[52] against Archonstruct in respect of the costs that were ordered against them on the dismissal of their claims against the Architect and Mr Carn.
[52] Bullock v London General Omnibus Co [1907] 1 KB 264.
In Sanderson v Blyth Theatre Co,[53] Romer LJ explained that orders that an unsuccessful defendant pay the costs of a successful defendant are made “on the ground that … those costs have been reasonably and properly incurred by the plaintiff as between him and the [unsuccessful] defendant”.[54]
[53] [1903] 2 KB 533.
[54] Page 539 cited with approval in Gould v Vaggelas (1984) 157 CLR 215 at 229-230 per Gibbs CJ.
In Gould v Vaggelas[55] Brennan J held that it would only be reasonable, as between the plaintiff and the unsuccessful defendant, to make such an order where the conduct of the unsuccessful defendant showed that the joinder was reasonable and proper to ensure recovery.[56]
[55] (1984) 157 CLR 215.
[56] Gould v Vaggelas (1984) 157 CLR 215 at 260 per Brennan J.
In Fennell v Supervision and Engineering Services Holdings Pty Ltd[57] von Doussa J stated the principle that governs the making of a Bullock order in this way:
In my opinion the principle to be discerned from Gould v Vaggelas is that a Bullock order may be made where the costs in question have been reasonably and properly incurred by the plaintiff as between him and the unsuccessful defendant; as between them those costs will be so incurred where the conduct of the unsuccessful defendant in relation to the plaintiff's claim shows that the joinder of the successful defendant was reasonable and proper to ensure recovery.[58]
[57] (1988) 47 SASR 6.
[58] Fennell v Supervision and Engineering Services Holdings (1988) 47 SASR 6 at 19 per Von Doussa J.
The only claim against Archonstruct in which Mr and Mrs Karalis were successful was the claim for damages resulting from the failure to damp proof the mortar used in the supporting walls. That claim was made against both Archonstruct and the Architect contemporaneously by way of counterclaim. Archonstruct by its defence did no more than deny the claim. Any Bullock order would necessarily therefore be limited to the costs incurred by Mr and Mrs Karalis in pursuing that claim against the Architect and Mr Carn.
In support of their application for the Bullock order before the Judge and on appeal Mr and Mrs Karalis rely on the following:
·the insertion by Mr Carn of the name of the Architect in Exhibit B35;
·the fact that the Architect designed the house and gave instructions for the construction of the house;
·the terms of Archonstruct’s defence to the claim against it for failure to damp proof the mortar;
·Mr Carn’s role as the principal of both Archonstruct and the Architect;
·the statement of claim filed by Archonstruct in the abandoned arbitration proceedings; and
·the statement in Mr Carn’s letter of 14 October 1999 to the bankers of Mr and Mrs Karalis that the Architect had prepared the working drawings, details and specifications for the project.
I will deal with each matter in turn. Notwithstanding the terms in which Exhibit B35 was completed, the finding of the Judge was that Mr and Mrs Karalis did not engage the Architect to supervise the work of Archonstruct. On that issue, Mr and Mrs Karalis have lost both in their dispute with Archonstruct and in their dispute with the Architect. The contention of Mr and Mrs Karalis based on this ground appears to be no more than that there was a reasonable basis for them persisting with a claim on which they ultimately lost. If that approach were to be taken it would necessarily subvert the ordinary rule that costs follow the event. In any event, even if it were to be accepted that the Architect had been engaged to supervise the work, that fact would not relieve Archonstruct of liability for its defect. Rather, Archonstruct and the Architect would remain jointly and severally liable. Archonstruct had not suggested by its pleadings, or by any earlier conduct, that there was some feature of the Architect’s involvement that absolved it of responsibility for the defect. Accordingly, there was no need to join the Architect to ensure that Mr and Mrs Karalis obtained judgment against a wrongdoer. Concern about the potential impecuniosity of an unsuccessful defendant is, generally, not sufficient in itself to justify the making of a Bullock order.
In its defence to the counter claim made by Mr and Mrs Karalis, Archonstruct denied that Mr and Mrs Karalis had suffered the loss or damage alleged in the Scott Schedule which included the defect in the supporting walls. For the reasons just given, the conduct of Archonstruct in denying its liability did not reasonably require that an action be brought against the Architect for the failure to damp proof the mortar. By its defence to the counter claim of Mr and Mrs Karalis, Archonstruct denied that Mr Carn and the Architect owed a duty to Mr and Mrs Karalis to properly supervise the building work. By their amended defence to the counter claim, the Architect and Mr Carn also denied that they were engaged to supervise the work. It follows that Archonstruct did not by its pleading engage in any conduct that made it reasonable for Mr and Mrs Karalis to join the Architect and Mr Carn on the question of the failure to damp proof the mortar.
It was not necessary to join Mr Carn in his role as the principal of Archonstruct or the Architect. It was always clear that he was acting as the principal of one or other of those corporations and not in his personal capacity.
The statement of claim used in the arbitration was relied on as an admission by Mr and Mrs Karalis in the prosecution of their case that the Architect had been engaged to supervise the work. As I have already observed, they ultimately failed on that issue and for that reason they are not entitled to costs either against Archonstruct or the Architect, whether directly or by way of a Bullock order.
The letter of 14 October 1999 did no more than inform the bank that Mr Carn was personally supervising the work in his capacity as the principal of Archonstruct. In any event that letter was written by Mr Carn as the principal of the Architect and therefore is not, in any relevant sense, the conduct of Archonstruct. Furthermore, it is necessary to repeat that Mr and Mrs Karalis lost on the issue of the nature and terms and scope of the engagement of the Architect both in their defence to Archonstruct’s claim and in their own claim against the Architect.
In my view the matters relied on by the appellants do not support the making of a Bullock order in the exercise of the cost discretion. The appellants have failed to show that the exercise of discretion by the Judge is affected by error. I would find against the appellants on the seventeenth issue. It is unnecessary to consider the final issue, which is the proper order for costs as between the appellants and Archonstruct having regard to certain offers of settlement made by Mr and Mrs Karalis. The proper order for costs will depend on the final determination of the extent of Archonstruct’s contractual remuneration.
Conclusion
I would allow the appeal only for the purpose of remitting the matter to the District Court to determine the contractual liability of Mr and Mrs Karalis to Archonstruct in accordance with [131] and [145] of these reasons and making such consequential orders as may be necessary consistently with the remaining findings of the Judge. Archonstruct is entitled to contractual remuneration for work performed by it until the termination of the contract by Archonstruct’s acceptance of the repudiation by Mr and Mrs Karalis on 29 March 2000. In all other respects I would dismiss the appeal. The conclusion I have reached would appear to require that order 4 made on 24 October 2007 and orders 1, 2, 5 and 6 made on 12 June 2008 be set aside. I would hear the parties as to the precise orders that should be made.

Progress payment	Amount	Running Total	Date Paid
1^st (06.09.1999)	$ 32,362.00	$ 32,362.00	08.10.1999
2^nd (01.10.1999)	$ 53,668.00	$ 86,030.00	08.10.1999
3^rd(29.09.19990	$ 78,027.00	$164,057.00	03.11.1999
4^th(30.11.1999)	$131,987.00	$296,044.00	Unpaid
5^th(14.12.1999)	$ 60,872.00	$356,916.00	Unpaid
6^th(29.03.2000)	$ 34,267.00	$391,183.00	Unpaid
7^th (25.05.2000)	$ 20,650.00	$411,878.00	Unpaid
Balance Owing	$247,776.00