Karalis v Archonstruct Pty Ltd

Case [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…

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Karalis v Archonstruct Pty Ltd [2008] SASC 368
Case
[2008] SASC 368
Decision Date

CaseChat Overview and Summary

The case of Karalis v Archonstruct Pty Ltd involved a dispute between the appellants, Mr and Mrs Karalis, and the respondents, Archonstruct Pty Ltd (a construction company) and its principal, Mr Carn (an architect). The appellants engaged Mr Carn to design their new home and subsequently entered into a cost-plus construction contract with Archonstruct. The appellants failed to pay the last four progress claims submitted by Archonstruct, leading to legal proceedings. The appellants disputed the amounts claimed and argued that Archonstruct was not entitled to payment without certification by an architect, that the contract was unconscionable, and that they were induced to enter into the contract by misleading conduct. The appellants also sought damages for building defects. The Judge ruled in favour of Archonstruct, awarding them $242,828 for work performed but allowing the appellants to offset the cost of remediating building defects. The Judge dismissed the appellants' claims against Archonstruct and Mr Carn and ordered the appellants to pay interest, costs, and part of the respondents' legal fees.

The legal issues before the court were whether Mr Carn's contractual engagement included a term to design a house that could be built for $270,000, whether Mr Carn was retained to perform the functions of an architect under the cost-plus contract, and whether Archonstruct's entitlement to payment was dependent on Mr Carn's certification of the amounts claimed. The court held that there was no such term in Mr Carn's contractual engagement, that he was not retained to perform the functions of an architect under the cost-plus contract, and that Archonstruct's entitlement to payment was not dependent on Mr Carn's certification. The court also found that Mr Carn did not breach any contractual or professional duty owed to the appellants, that the appellants did not contract with Archonstruct due to misleading conduct by Mr Carn or any other party, and that the contract was not unconscionable. The court dismissed the appellants' appeal on these grounds.

The court's reasoning was based on the contractual terms, the roles and duties of the parties, and the evidence presented. The court found that Mr Carn's advice and explanations regarding building contractual arrangements were not misleading and were adequate. The court concluded that the appellants' obligations under the cost-plus contract were not dependent on a determination made by Mr Carn, and therefore, the contract was not unconscionable. The court found that Mr Carn did not owe a duty to supervise the construction work or administer the contractual arrangements with Archonstruct, and that no tortious duty arose to supervise the building work in light of the appellants' decision not to pay for that part of the architectural service. The court also found that Mr Carn did not breach any of his duties to the appellants. The court held that the appellants were not entitled to set aside the contractual arrangement for unconscionability or misleading conduct.

The final orders of the court included an award of $242,828 to Archonstruct, with the appellants entitled to set off the cost of remediating building defects, an amount of $8,000 for disturbance, and $20,000 for diminution in value. The court allowed Mr Carn's claim for fees and dismissed the appellants' claims against Archonstruct and Mr Carn. The court awarded interest in favour of Archonstruct and ordered the appellants to pay the costs of Mr Carn and two-thirds of Archonstruct's costs. The court also assessed the cost of remediating the building defects and made final orders.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

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].

Ratio Decidendi

Legal Principle Established

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