Kronenberg v Bridge
[2014] TASFC 10
•20 October 2014
[2014] TASFC 10
COURT: SUPREME COURT OF TASMANIA (FULL COURT)
CITATION: Kronenberg v Bridge [2014] TASFC 10
PARTIES: KRONENBERG, David Gerald
KRONENBERG, Robyn Joy
v
BRIDGE, Stephen
FILE NO: 1045/2013
JUDGMENT
APPEALED FROM: Kronenberg v Bridge [2013] TASSC 57
DELIVERED ON: 20 October 2014
DELIVERED AT: Hobart
HEARING DATES: 11, 12 March 2014
JUDGMENT OF: Blow CJ, Porter and Pearce JJ
CATCHWORDS:
Contracts – Building, engineering and related contracts – The contract – Generally – Formation of contract – Standard form of fixed price contract endorsed "as a cost plus contract" – Whether contract made.
Scammell (G) & Nephew Ltd v Ouston [1941] AC 251; York Air Conditioning and Refrigeration (A/sia) Pty Ltd v Commonwealth (1949) 80 CLR 11; Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429; Meehan v Jones (1982) 149 CLR 571, referred to.
Aust Dig Contracts [250]
Contracts – Building, engineering and related contracts – The contract – Construction of particular contracts and implied conditions – Determination of cost – Standard form of fixed price contract endorsed "as a cost plus contract" – Estimated price specified – Whether estimated price promissory or representational.
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, referred to.
Aust Dig Contracts [257]
Trade and Commerce – Trade Practices Act 1974 (Cth) and related legislation – Enforcement and remedies – Actions for damages – Assessment or availability of damages – What loss or damage recoverable – Lost commercial opportunity – Misleading representation as to cost of future building works – Loss of opportunity to enter into more advantageous contract.
Fair Trading Act 1990 (Tas), s37.
Doepel & Associates Architects Pty Ltd v Hodgkinson [2008] WASCA 262; Dominelli Ford (Hurstville) Pty Ltd v Carmot Auto Spares Pty Ltd (1992) 38 FCR 471; Doolan v Renkon Pty Ltd (2011) 21 Tas R 156, referred to.
Aust Dig Trade and Commerce [1138]
REPRESENTATION:
Counsel:
Appellants: S B McElwaine SC
Respondent: M E O'Farrell SC
Solicitors:
Appellants: Shaun McElwaine + Associates
Respondent: Toomey Maning & Co
Judgment Number: [2014] TASFC 10
Number of paragraphs: 144
Serial No 10/2014
File No 1045/2013
DAVID GERALD KRONENBERG and ROBYN JOY KRONENBERG
v STEPHEN BRIDGE
REASONS FOR JUDGMENT FULL COURT
BLOW CJ
PORTER J
PEARCE J
20 October 2014
Order of the Court
Further hearing of appeal adjourned.
Serial No 10/2014
File No 1045/2013
DAVID GERALD KRONENBERG and ROBYN JOY KRONENBERG
v STEPHEN BRIDGE
REASONS FOR JUDGMENT FULL COURT
BLOW CJ
20 October 2014
The appellants, David and Robyn Kronenberg, own some land at Eaglehawk Neck. The respondent, Stephen Bridge, is a builder. On 2 January 2007 the appellants entered into an arrangement with the respondent for him to build a house on their land. The respondent worked on the construction of the house from January 2007 until October 2008, but did not complete it. During that period the appellants made payments to the respondent totalling $566,192. A dispute arose as to whether the respondent was overcharging the appellants. It was as a result of that dispute that he ceased work on the project. The appellants subsequently had the house completed by another builder. They sued the respondent claiming damages and/or a payment by way of restitution. He counterclaimed, contending that he had not been fully paid for his work. The action was tried by Tennent J, who dismissed the appellants' claims and determined that the respondent was entitled to recover $37,926 from the appellants, as well as interest on that sum: Kronenberg v Bridge [2013] TASSC 57. Final judgment was not entered on the counterclaim because interest remained to be calculated. This is an appeal from her Honour's order dismissing the appellants' claims and her determinations in relation to the counterclaim.
There is a controversy as to the nature of the arrangement made between the appellants and the respondent for the construction of the house. At trial, the appellants' primary contention was that they and the respondent had entered into a fixed price contract whereby the contract price payable to the respondent was to be $340,000 plus GST, subject to adjustments in accordance with the provisions of the contract. The respondent contended at trial that he and the appellants had entered into a "cost plus" contract, with the figure of $340,000 being no more than an estimate. The learned trial judge rejected both sides' primary contentions, and concluded that she was not satisfied that there was any legally binding contract entered into at all because the parties "failed to reach agreement as to an essential term of any agreement, namely what was to be paid by the plaintiffs to the builder for the building of the house": [88] of her Honour's reasons. She concluded that the respondent was entitled to payment on a quantum meruit representing the reasonable value of the benefit conferred on the appellants, and determined the counterclaim on that basis.
The parties signed a standard form of fixed price building contract on 2 January 2007. It was prepared by the appellants' architect. It was an Australian Building Industry Contract Simple Works 1 (ABICSW-1 2002). There was evidence that, before the signing of the document, the appellants wanted a fixed price contract, whereas the respondent wanted a cost plus contract. A cost plus contract is one whereby the builder charges the proprietor the costs that the builder incurs for labour and materials, together with a fee, which may be an agreed amount or an agreed percentage, covering overheads and profits: CPC Energy Pty Ltd v Bellevarde Constructions Pty Ltd [2007] NSWSC 1397 at [14]. The contract price of $340,000 appeared in the signed form of contract under a heading that read "The contract price (clause N1)". That figure was handwritten in a space provided for the insertion of the contract price. Beside that heading, the words "AS A COST PLUS CONTRACT" were handwritten. Written specifications and contract drawings had also been prepared. Also, the respondent had prepared an additional document ("the addition to contract document") that read as follows:
"84 BLOWHOLE RD ADDITION TO CONTRACT
1 ; ESTIMATE 340 K EX GST
2; LUMP SUM PAYMENT TO BUILDER 14% 47600
3; SUBTRACT RETENTION 5% 17000
4; BALANCE OF LUMP SUM 30600
5; DEPOSIT ON CONTRACT SIGNING 5% 17000
6; HOURLY RATES CARPENTERS 45 EX GST
LABOURERS 35 EX GST
APPRENTICE 30 EX GST
BUILDER 50 EX GST
7; DRAWS 15 DAYS
8; TRAVEL AN HOURS WAGE ONE WAY
9; ACCOMMODATION EXCLUDED FROM CONTRACT NEG".
That document was not signed by any of the parties, but they had it at the meeting of 2 January 2007.
At trial, the appellants' principal contentions were essentially as follows:
· That the parties had entered into a fixed price contract, with a contract price of $340,000 plus GST, subject to adjustments in accordance with the terms of the contract.
· Alternatively, that the parties had entered into a contract with a contract price of $340,000 plus GST that was "capable of variation within reasonable parameters", but which otherwise had the characteristics of a fixed price contract.
· As a further alternative, that there was no contract because the parties failed to reach agreement upon fundamental terms as to the amounts payable to the respondent.
· That on 13 December 2006 – some weeks before the signing of the contract document – the respondent provided the appellants' architect with a price of $330,000 plus GST.
· That the respondent engaged in misleading and deceptive conduct, contrary to s 14(1) of the Fair Trading Act 1990, by advising the appellants' architect of the price of $330,000 plus GST, and subsequently by providing the addition to contract document.
· That the respondent was negligent in providing the figure of $330,000 plus GST to the architect, and by providing the addition to contract document.
· That the appellants had suffered loss and damage as a result of such misleading or deceptive conduct and/or negligence.
· That the respondent breached the contract by overcharging them and by failing to complete the works.
· That, if the respondent was entitled to remuneration on a quantum meruit, the sums paid to him had been excessive, and he was obliged to make restitution.
The principal conclusions reached by the learned trial judge were as follows:
· As I have said, that the parties did not enter into a contract.
· That the respondent was entitled to fair and reasonable remuneration on a quantum meruit.
· That the remuneration to which the respondent was entitled exceeded the amounts paid to him.
· That the respondent breached s 14(1) of the Fair Trading Act by providing the estimate of $340,000.
· That she was not satisfied that the appellants had suffered any loss or damage as a result of the breach of s 14(1) because she had no means of determining what the appellants had at the time of the trial "in terms of value": [141] of her Honour's reasons.
· That the respondent was entitled to $604,118 "as a fair and reasonable price for the work he has done", of which $37,926 had not been paid.
· That the respondent should be entitled to interest on $37,926.
The appellants' contentions, as advanced in their amended notice of appeal, can be summarised as follows:
· That her Honour erred in concluding that the parties had not entered into a binding contract. (Ground 1A.)
· Alternatively, that her Honour misdirected herself as to the onus of proof applicable to a claim for restitution. (Ground 1.)
· That her Honour erred in her findings of fact as to fair and reasonable remuneration, and should have arrived at a much lower figure. (Ground 2.)
· That her Honour erred in her approach to the assessment of damages for the contravention of s 14(1) of the Fair Trading Act. (Ground 3.)
· Alternatively to ground 3, that her Honour should have assessed damages under the Fair Trading Act on the basis of the loss of a chance or opportunity. (Ground 4.)
· That, in determining quantum on the counterclaim, her Honour erred by using the amounts claimed by the respondent as a starting point. (First limb of ground 6.)
· That her Honour erred in failing to give reasons as to why the respondent was entitled to interest on the sum of $37,926. (Second limb of ground 6.)
There was a ground 5, but it was abandoned.
The respondent does not contend that her Honour was correct in holding that the parties did not enter into a contract. However there is a dispute between the parties as to the interpretation of the contract, assuming one existed. The appellants contend that it was a "hybrid cost plus contract" whereby the respondent undertook the work on a cost plus basis, subject to a cap of $340,000 plus GST on the contract price, and subject to any post-contract variations. Alternatively, they contend that the contract provided for the respondent to undertake the work on a cost plus basis, subject to the total contract price being "within reasonable parameters of" $340,000 plus GST. The respondent contends that the parties made a cost plus contract that was not subject to any sort of cap on the total contract price.
The contract and its terms
It is quite clear from the evidence that the appellants and the respondent intended to enter into a contract when they signed the contract document on 2 January 2007. They went through the motions of signing the document as if they were making a contract. In their amended statement of claim, the appellants pleaded that they had made an agreement whereby the respondent agreed to undertake building works in order to construct a residence on their land. That much was admitted by the respondent in his defence. The pleadings raised issues as to whether the contract comprised anything more than the standard form and the specification. In the pleadings the respondent disputed assertions by the appellants that the contract was partly oral, that it included the addition to contract document, that it included drawings, and that it included implied terms.
It is well established that, when parties intend to enter into a contract, but there are inconsistent contractual promises and/or difficulties in the interpretation of the words used, then a court, if at all possible, ought to give effect to the intention of the parties to contract, despite any such inconsistencies or difficulties.
Lord Wright explained that principle in Scammell (G) & Nephew Ltd v Ouston [1941] AC 251 at 268 as follows:
"The object of the court is to do justice between the parties, and the court will do its best, if satisfied that there was an ascertainable and determinate intention to contract, to give effect to that intention, looking at substance and not mere form. It will not be deterred by mere difficulties of interpretation. Difficulty is not synonymous with ambiguity so long as any definite meaning can be extracted. But the test of intention is to be found in the words used. If these words, considered however broadly and untechnically and with due regard to all the just implications, fail to evince any definite meaning on which the court can safely act, the court has no choice but to say that there is no contract. Such a position is not often found."
In York Air Conditioning and Refrigeration (A/sia) Pty Ltd v Commonwealth (1949) 80 CLR 11 at 26, Williams J stated the applicable principle as follows:
"If the court comes to the conclusion that parties intended to make a contract, it will if possible give effect to their intention no matter what difficulties of construction arise."
In Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 436–437, Barwick CJ said:
"But a contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void for uncertainty. As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties, and of applying it. Lord Tomlin's words in this connexion in Hillas & Co Ltd v Arcos Ltd [(1932) 147 LT 503 at 512] ought to be kept in mind. So long as the language employed by the parties, to use Lord Wright's words in Scammell (G) & Nephew Ltd v Ouston [above] - FTN.10is not 'so obscure and so incapable of any definite or precise meaning that the Court is unable to attribute to the parties any particular contractual intention', the contract cannot be held to be void or uncertain or meaningless. In the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements. Thus will uncertainty of meaning, as distinct from absence of meaning or of intention, be resolved."
In that case, McTiernan, Kitto and Windeyer JJ agreed with his Honour's reasons. Menzies J delivered a separate concurring judgment.
In Meehan v Jones (1982) 149 CLR 571 at 578, Gibbs CJ referred with approval to the judgment of Barwick CJ quoted above, and said:
"It is only if the court is unable to put any definite meaning on the contract that it can be said to be uncertain."
In that case at 589, Mason J, with whose reasons Wilson J agreed, referred to "the traditional doctrine that courts should be astute to adopt a construction which will preserve the validity of the contract".
In determining the meaning of a contract, a court must of course take an objective approach, determining the meaning that the parties intended the contract to have by reference to the objective facts, and not evidence of their subjective intentions. Thus in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 at [34], the High Court said:
"The legal rights and obligations of the parties turn upon what their words and conduct would be reasonably understood to convey, not upon actual beliefs or intentions."
In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40], the High Court said:
"The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction."
It was therefore the duty of the learned trial judge, if at all possible, to seek to give effect to the parties' contractual documents as a contract, interpreting the words of their documents so as to determine what the terms of the contract were in relation to the remuneration of the respondent. In my view it was possible to do that, and her Honour erred in failing to do that.
In my view the first question to be addressed in seeking to interpret the contract concerned the effect, if any, of the handwritten words "AS A COST PLUS CONTRACT" at the point in the standard form where there was a space for the contract price to be filled in.
The printed form of contract comprised 43 pages, excluding schedules and incorporated documents. Pages 2 to 4 were headed "Introduction". Those pages provided spaces for important details to be filled in, such as the names of the parties and the architect, their addresses for the service of notices, their contact details, the contract price, and the site of the works. The contract price was filled in as "$340,000 EX GST." It was immediately above that entry that somebody wrote "AS A COST PLUS CONTRACT". Those added words were initialled by both appellants and the respondent. The second appellant, Mrs Kronenberg, gave evidence at the trial that those words were put into the contract because of the respondent's insistence. It was admitted on the pleadings that he told the appellants that he would only sign a contract on a "cost plus" basis.
There have been many cases in which special conditions added to a standard form of contract have been held to prevail over inconsistent provisions in the standard form. In Robertson v French (1803) 4 East 130 at 136, 102 ER 779 at 782, Lord Ellenborough, speaking of policies of insurance, said:
"… the greater part of the printed language of them, being invariable and uniform, has acquired from use and practice a known and definite meaning, and … the words superadded in writing (subject indeed always to be governed in point of construction by the language and terms with which they are accompanied) are entitled nevertheless, if there should be any reasonable doubt upon the sense and meaning of the whole, to have a greater effect attributed to them than to the printed words, inasmuch as the written words are the immediate language and terms selected by the parties themselves for the expression of their meaning, and the printed words are a general formula adapted equally to their case and that of all other contracting parties upon similar occasions and subjects."
That passage has been cited with approval by Lord Halsbury in Glynn v Margetson & Co [1893] AC 351 at 358, by Scrutton LJ in In re an Aribitration between E L Sutro & Co and Heilbut, Symons & Co [1917] 2 KB 348 at 361–362, by Lord Bingham of Cornhill in Homburg Houtimport BV v Agrosin Private Limited [2004] 1 AC 715 at [11], and by Young CJ in Eq in Wentworth Partners Estate Agents Pty Ltd v Gordony [2007] NSWSC 1135 at [54].
In Fitzgerald v Masters (1956) 95 CLR 420, the High Court considered the meaning and effect of a clause in a contract which provided, "The usual conditions of sale in use or approved of by the Real Estate Institute of New South Wales … shall so far as they are inconsistent [sic] herewith be deemed to be embodied herein." The Court held unanimously that "inconsistent" should be read as "consistent". At 427, Dixon CJ and Fullagar J said the parties "must clearly have intended to incorporate a set of general conditions except so far as they were inconsistent with what they had specially agreed upon".
Those authorities and the evidence that I have referred to compel the conclusion that the words "AS A COST PLUS CONTRACT" were intended by the parties to have contractual effect and to prevail over any inconsistent provisions in the standard form of contract. On that basis, the contract should not be interpreted as a fixed price contract, even though the standard form for a fixed price contract was used by the parties.
Next, it is appropriate to consider whether the addition to contract document had any contractual force, and the related question of whether the figure of $340,000, written into the standard form of contract in the space for the contract price, was the subject of any contractual promise.
At the trial, the respondent gave unchallenged evidence that he prepared the addition to contract document and handed it over at the meeting when the parties met to sign the contract. The contents of the document are significant. It is entitled "ADDITION TO CONTRACT". That suggests that it was intended to form part of the contract, in addition to the standard form. If it had contractual force, then it did a number of things other than fixing or capping the contract price. It capped the respondent's remuneration at $47,600. It permitted the appellants to hold back $17,000 as retention money. It required them to pay a similar amount as a deposit. It fixed the hourly rates for the work of carpenters, labourers, apprentices and the respondent. It permitted him to draw progress payments every 15 days. It capped his remuneration for travelling time at one hour's remuneration each way whenever he visited the site. It provided for him to receive reimbursement for his accommodation expenses in addition to the remuneration for his work. None of those matters were covered by the standard form of contract.
The meeting on 2 January 2007 at which the contract was signed was attended by both appellants, their architect, and the respondent. The learned trial judge made a finding that the addition to contract document was prepared by the respondent and made available to the architect at some stage between a meeting in late December 2006 and the signing of the contract. That finding has not been challenged in these proceedings. There was inconsistent evidence as to when the addition to contract document was produced. Evidence from the first appellant, Mr Kronenberg, that it was produced after the 2 January meeting was contradicted by the other three participants in that meeting and rejected by her Honour. There is no need to make a finding as to when the document was produced. The important point is that it was brought to the meeting at which a contract was entered into.
It is clear that the figure of $340,000 came from the respondent. The learned trial judge made a finding that he provided that figure to the architect on 13 December 2006. She also found that he did not then tell the architect that that figure was a notional figure only, not intended to be an estimate of the amount or price for which the house could be constructed. She found that the respondent "did not say he would build the house for that price, but that he gave the plaintiffs [the appellants] to understand it would be in the region of that price".
There was no evidence that the parties discussed any of the stipulations in the addition to contract document other than the figure of $340,000 at or before the meeting at which the contract was signed. Whilst the evidence clearly established that the appellants were very concerned about the cost of the project, and wanted to protect themselves in relation to its cost, there was no evidence that the respondent gave, or was asked to give, a promise or assurance as to the cost not exceeding $340,000, not being unreasonably greater than $340,000, or anything to that effect. He called the figure of $340,000 an estimate. The evidence established that he was asked to provide a breakdown of that figure; that he never did so; and that the contract was signed without any breakdown of the figure having been provided.
After the signing of the contract, the conduct of the parties was in some respects consistent with the addition to contract document having contractual force. The appellants paid a deposit of $17,000 – something required only by the addition to contract document, and not the standard form of contract. The respondent submitted a series of progress claims, calculated on a cost plus basis using the hourly rates specified in the addition to contract document. The architect approved those claims and the appellants made payments accordingly. However, at least as a general rule, evidence of post-contractual conduct may not be used as an aid to the interpretation of a written contract: Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603. The admission of evidence that tends to establish what the parties thought the terms of their contract to be is inconsistent with the adoption of the objective theory of the construction and interpretation of contracts. In the absence of any evidence that the terms of the additional contract document were discussed by the parties at or before the time of the making of the contract, I do not think it would be appropriate, even if it is permissible, to treat the evidence of post-contractual conduct as tending to prove that the provisions of the addition to contract document were addressed and assented to by the parties on 2 January 2007.
However it is clear from the evidence that the respondent came to the meeting on that day insisting on any contract being a cost plus contract rather than a fixed price contract; that he produced, or had produced, a proposal as to the basis for such a contract in the form of the addition to contract document; that that document dealt with subjects that were not dealt with in any of the documents signed that day; that those subjects were ones on which it was very desirable that the parties reach agreement at the outset; that the respondent's proposal was substantially agreed to by the appellants; that the figure of $340,000 plus GST was adopted accordingly as to the contract price for the purposes of the standard form contract document; and that that document was accordingly endorsed "AS A COST PLUS CONTRACT". Because of those circumstances, I think it should be inferred that the addition to contract document was intended to have contractual force, at least in regard to its stipulations other than the one fixing $340,000 plus GST as the estimated cost of the project.
Counsel for the appellants argued that that figure of $340,000 was not just an estimate, but promissory in character. He relied on a passage in the judgment of Gibbs CJ in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 61, where his Honour said:
"A representation made in the course of negotiations which result in a binding agreement may be a warranty — ie, it may have binding contractual force — in one of two ways: it may become a term of the agreement itself, or it may be a separate collateral contract, the consideration for which is the promise to enter into the main agreement. In either case the question whether the representation creates a binding contractual obligation depends on the intention of the parties. In J J Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 at 442 and Ross v Allis-Chalmers Australia Pty Ltd (1980) 55 ALJR 8 at 10, 11, it was said that a statement will constitute a collateral warranty only if it was 'promissory and not merely representational', and it is equally true that a statement which is 'merely representational' — ie, which is not intended to be a binding promise — will not form part of the main contract. If the parties did not intend that there should be contractual liability in respect of the accuracy of the representation, it will not create contractual obligations"
It was neither pleaded nor suggested that the parties made a collateral oral contract – a contract whereby the respondent gave a warranty to the appellants that the total cost would be no more than $340,000 plus GST, or no more than about $340,000 plus GST, or something to that effect, in consideration of them entering in the principal contract. However the appellants contended that, if there was a cost plus contract, the contract price was capped at $340,000 plus GST, or at least so capped subject to "variation within reasonable parameters". Counsel for the appellants argued that the express terms of the contract should be given such an interpretation or, in the alternative, that the contract included an implied term to such an effect.
I do not think the parties' contract should be interpreted as including an express term that the respondent's remuneration was capped at $340,000 plus GST, nor one that it was capped at $340,000 plus GST subject to variation within reasonable parameters. The figure of $340,000 plus GST was described in the addition to contract document as an estimate. It should be inferred that that figure was inserted in the space for a contract price in the standard form contract document only because it was the most appropriate figure to put in that space. Although the evidence establishes that the appellants were very concerned to protect themselves against a cost blow-out, there is no evidence that the respondent gave them any sort of oral promise or assurance as to the cost of the works, as distinct from an estimate. Although I accept that the other stipulations in the addition to contract document had the status of contractual promises, there is no reason to regard the estimate of $340,000 plus GST as having any greater status than that of a recital. That is to say, I think the document should be construed on the basis that that part of it amounted to a recital that the respondent had estimated that the total cost of the works would be $340,000 plus GST. In my view there is no evidence of any conduct on the part of the parties that tends to indicate that the stipulation as to the total cost was promissory rather than representational.
The prerequisites for the existence of an implied term were summarised in the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283, as follows:
"… for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract."
In my view, if the express terms of the parties' contract did not cap the respondent's remuneration at $340,000 plus GST, either absolutely or subject to variation within reasonable parameters, there are a number of reasons for concluding that their contract did not include an implied term to that effect. The contract, being a cost plus contract, would be quite effective without such a cap on the respondent's remuneration. Such a cap would not be so obvious that "it goes without saying" if nothing said or written about the figure of $340,000 was promissory, as distinct from representational. A price "subject to variation within reasonable parameters" is inconsistent with clear expression.
Ground 1A of the amended notice of appeal asserts that the learned trial judge erred:
"In not finding, in accordance with the evidence before her, that the appellants and the respondent entered into a contract for the work to be undertaken:
(i)on a cost plus basis but at a price not to exceed $340,000 plus GST, subject to any post contract variations; or
(ii)at a price estimated and agreed by the parties at or at approximately $340,000 plus GST, subject to any post contract variations; or
(iii)at a price of approxiametly [sic] $340,000 plus GST or within a reasonable degree of tolerance of that price, subject to any post contract variations."
For the reasons stated above, ground 1A must succeed in part. The learned trial judge erred in not finding that the appellants and the respondent entered into a contract for the relevant work to be undertaken. However that contract was a cost plus contract that was not subject to any price restriction as asserted in subpars (i), (ii) and (iii) of that ground.
The appellants' claim for damages for breach of contract
The appellants claimed damages for breach of contract from the respondent on two bases. First of all, they contended that the respondent breached the contract by charging them $549,192, which they paid, when he had a contractual entitlement to only $340,000 plus GST, or alternatively a price "within a reasonable degree of tolerance of $340,000 plus GST". As there was no contractual price restriction as asserted by the appellants, their contentions as to such a breach of contract must fail.
Secondly, the appellants contended that it was an express term of the contract that the respondent would complete the building works by November 2007, and that, in breach of the contract, he had failed to complete the building works by December 2008. It would appear that that alleged breach of contract was pleaded primarily as part of the foundation of a claim in respect of the moneys paid by the appellants to the second builder for the completion of the project. It was pleaded that the respondent's breaches of the contract involving overcharging and delay entitled the appellants to terminate the contract; that they did so; and that they suffered damage as a result. The moneys paid to the second builder were brought into account in their claim for damages for breach of contract.
At the hearing of the appeal, counsel for the appellants did not submit that any sum should be awarded by way of damages for breach of contract in respect of delay alone. It is therefore appropriate to treat any such claim as not pursued. The result is that this Court should not award the appellants damages for breach of the contract.
Grounds 1 and 2
Both of these grounds relate to the assessment of the respondent's remuneration on the basis that there was no contract, and that he was entitled to remuneration on a quantum meruit. Because I have concluded that there was a contract, and the respondent did not contend otherwise, I see no need to address either of these grounds.
Contravention of the Fair Trading Act 1990
As I have said, the appellants contended at trial that the respondent had contravened s 14(1) of the Fair Trading Act, and her Honour made a finding to that effect. At the relevant time, that subsection read as follows:
"A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive, or is likely to mislead or deceive."
A contravention of that subsection could give rise to an entitlement to damages under s 37 of that Act. At the relevant time, that section read as follows:
"A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of this Act may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention."
Those provisions were practically identical to ss 52(1) and 82(1) of the Trade Practices Act 1974 (Cth).
Conduct is "misleading or deceptive" if it induces error, or is capable of inducing error: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 88 ALJR 176.
The learned trial judge made findings to the effect that the respondent provided the figure of $340,000 to the appellants and their architect; that that figure was provided as an estimate of the cost of the works; that the appellants had regard to that figure; that that figure led them to believe, wrongly, that their project could be completed by the respondent for a figure in the region of that amount; and that they then decided to enter into an arrangement with him.
At the hearing of this appeal, counsel for the respondent argued that the conduct of the respondent was not misleading and did not contravene s 14(1). He also argued, in the alternative, that there was no reliance by the appellants on the respondent's representation as to the estimated cost of the works. Those submissions should be rejected.
Counsel for the respondent relied on the fact that the transaction in question was an arm's-length dealing; evidence that the appellants had advice from the architect, particularly in relation to the dangers of a cost plus contract; the evidence that they knew the respondent would not enter into a contract on any other basis; and the evidence that the appellants allowed the words "AS A COST PLUS CONTRACT" to be inserted into the standard form document. However there was uncontroversial evidence that the figure of $340,000 was supplied as a rough estimate; that the appellants understood it to be an estimate; that they had previously obtained quotations from other builders for the same works for $372,189 plus GST, and for $459,062 plus GST; and that the respondent's costings of the work subsequently done by him revealed the figure of $340,000 to be a substantial underestimate. The appellants also adduced evidence from a quantity surveyor, Mr Darvell, that in his opinion the reasonable cost of constructing the dwelling in accordance with the original plans and specifications was $377,080 exclusive of GST. The respondent adduced evidence from another quantity surveyor, Ms Stone, that the reasonable cost of the works in late 2006 or early 2007 would have been $445,748.31, exclusive of GST. All of that evidence compelled a conclusion that the figure of $340,000 was so low as to be misleading.
Section 11 of the Fair Trading Act contained the following subsections:
"(1) For the purposes of this Act, where a person makes an inaccurate representation with respect to any future matter (including the doing of, or the refusing to do, any act) the representation shall be taken to be misleading unless the person has reasonable grounds for making the representation.
(2) For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a person with respect to any future matter, the person shall, unless the person adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation."
By providing the estimate of $340,000 plus GST, the respondent made an inaccurate representation with respect to a future matter within the meaning of s 11(1). That representation must be taken to have been misleading in the absence of reasonable grounds for its making. Section 11(2), like s 51A(2) of the Trade Practices Act, imposed an evidential burden, not an onus of proof: McGrath v Australian Naturalcare Products Pty Ltd (2008) 165 FCR 230; North East Equity Pty Ltd v Proud Nominees Pty Ltd (2010) 269 ALR 262. In my view the evidence adduced by the respondent was insufficient to discharge his evidential burden. In his witness statement, which was an exhibit at the trial, he said that the architect told him that one of the tenders obtained by the appellants represented a value in the region of $6,000 per square metre; that the architect asked him if he was able to do the job for around $3,000 per square metre; and that he commented to the architect that the square metreage in each proposed building was well below half the Australian average, which meant that it was not appropriate to work on $3,000 per square metre but that, taking into account the decking areas, he was nevertheless prepared to use $3,800 per square metre to reach a notional cost figure from which he proposed to apply 14% as a fixed profit. There was no evidence that $3,800 per square metre was a reasonable figure to use in calculating a rough estimate. There was only evidence that the respondent adopted that figure. Under cross-examination he gave evidence that all he did was to multiply a number of square metres by a number of dollars, using the calculator on his phone, without making specific allowance for any particular items. He also said that he did not believe that, if he entered into a cost plus contract, it would come in at about $340,000, and that he had a suspicion that the cost would be more than that.
As to reliance, counsel for the respondent submitted that, when the appellants entered into the contract, they either knew the truth as to the likely cost or were indifferent to it. However there is no reason to think that they had any idea that the estimate of $340,000 was unrealistically low. Their architect gave them no advice to that effect. They were unfamiliar with building costs. They were certainly not indifferent to the cost. They had started out with a budget of $250,000 plus GST, and were going to have to borrow part of the cost of the works. The evidence compels a conclusion that both appellants relied on the respondent's estimate of $340,000 plus GST when they decided to enter into their contract with him.
Damages under the Fair Trading Act
The learned trial judge rejected the appellants' claim for damages under the Fair Trading Act on the basis that they had not proved any loss. No doubt the construction work undertaken by the respondent resulted in an increase in the value of their property. No doubt the finishing of the construction work by the builder who replaced the respondent had the same effect. There was no evidence as to the value of the appellants' property, nor as to the increase in value attributable to the respondent's work, nor as to that attributable to the completion of the whole project. The evidence established that, but for the respondent's misleading estimate of $340,000 plus GST, the appellants would not have entered into the contract that they signed on 2 January 2007. However the evidence did not establish that the amount spent by the appellants on the construction works did not result in a corresponding increase in the value of their property. If it had been established that the increase in value had been less than the expenditure resulting from the appellants entering into the contract, damages could have been assessed by reference to the difference between the expenditure and the increase in value, consistently with Potts v Miller (1940) 64 CLR 284. Since there was no evidence of value, it was not open to her Honour to award damages on that basis. The appellants accept that. But they contend that she erred in concluding that it followed that they had proved no loss or damage.
The appellants contend that, but for the respondent's misleading estimate, they would not have entered into a cost plus contract with him; that they could have found and engaged another builder who was willing to undertake the work pursuant to a fixed price contract at a total cost lower than the total that they ultimately paid to the respondent and his successor; and that they are entitled to damages for the loss of the chance of entering into a less costly contract for the construction of the building.
The respondent contends that there is insufficient evidence that the appellants could, or would, have entered into an alternative contract with another builder.
The principles applicable to a claim for damages of this nature were summarised by Martin CJ, with whose reasons Le Miere AJA agreed, in Doepel & Associates Architects Pty Ltd v Hodgkinson [2008] WASCA 262 at [48], as follows:
"… a party who has been subjected to misleading and deceptive conduct or negligent misrepresentation is entitled to be put in the position in which he or she would have been but for the breach of statutory or common law duty (Gates v The City Mutual Life Assurance Society Ltd (1986) 160 CLR 1). So, where it is established as a fact that a different course of action would have been taken but for the breach of statutory and/or common law duty, the measure of damages is the sum required to put the innocent party, in this case Mr Hodgkinson, in the position in which he would have been but for the relevant breach of duty. Gates (at [13]) sets out the proposition that if a claimant establishes that but for the relevant breach or duty, he or she would have entered into a different contract upon which he or she would have made a profit, that profit may be recovered on the basis that it is part of the loss which has been suffered in consequence of the relevant breach (also see Warwick Entertainment Centre Pty Ltd v Alpine Holdings Pty Ltd [2005] WASCA 174 at [96]; Havyn Pty Ltd v Webster [2005] NSWCA 182 [117])."
In that case an architect represented that a house could be built at a cost in the range of $390,000 to $400,000, but it in fact cost much more. Construction was abandoned after over $630,000 worth of work had been done. The landowner contended that, but for the architect's representation, he would have constructed a project home on the land at a cost of $500,000. Damages were assessed on the basis that he would have done that, and sold the land, with the project home on it, at a profit.
In this case, no evidence was given as to what the appellants would have done if the respondent had not misled them as to the cost of construction. As a matter of principle, inferences can be drawn as to what course an innocent party would have taken: Dominelli Ford (Hurstville) Pty Ltd v Carmot Auto Spares Pty Ltd (1992) 38 FCR 471 at 482–483.
The evidence of the appellants and their architect establishes that in January 2007 they were very keen to proceed with the construction of the house that their architect had designed for them. Whilst they were hoping that it could be built to a budget of $250,000, subsequent events established that they had a capacity to pay far more, at least with the help of loan funds that they were able to obtain from their bank. They obtained the two quotations mentioned above from other builders on 3 November 2006. They were "shopping around" for a cheaper builder. There is little chance that they would have abandoned the whole idea of building on their property, even if they had not been able to do better than the quotation of $372,189 plus GST that they had decided to reject. I am satisfied on the balance of probabilities that, but for the misleading conduct of the respondent, they would sooner or later have entered into a fixed price contract with another builder for the construction of the house, or perhaps a cheaper modified version of it. I am satisfied on the balance of probabilities that they would have been able to enter into a contract for the construction of the house for something in the vicinity of the rejected figure of $372,189 plus GST. They might or might not have been able to do better than that. There is a chance that they might never again have got so low a quote. The result of the respondent's misleading conduct is that the appellants lost the chance of entering into a more advantageous contract for the construction of a house on their land.
The principles relevant to the assessment of damages for such a loss of a chance were discussed by this Court in Doolan v Renkon Pty Ltd (2011) 21 Tas R 156 at [48]–[65]. It is clear from that case that, because the appellants have established on the balance of probabilities that they lost the chance of entering into a more advantageous construction contract, they are entitled to damages for the loss of that chance. As Kiefel J said in Tabet v Gett (2010) 240 CLR 537 at [136], "… the courts must do the best they can in estimating damages; mere difficulty in that regard is not permitted to render an award uncertain or impossible".
The appellants' damages should be assessed on the basis that the respondent should recover nothing on his counterclaim. The payments made by the appellants to the respondent and to the second builder who completed the project must of course be taken into account.
In all the circumstances, I think it reasonable to assess the appellants' damages on the basis that, but for the respondent's misleading conduct, there is about an 80% chance that they would have entered into a fixed price contract for the undertaking of the same works for about $375,000 plus GST. But it is not as simple as that. In the course of the construction of the house, there were a series of variations to the contract works. There were both additions and deletions. And there is a dispute between the appellants and the respondent as to (a) what did or did not amount to additional works, and (b) the financial implications of the additional works. At the trial, the respondent contended that the cost of completing the works was increased by $107,064 as a result of variations. At the hearing of the appeal, counsel for the appellants made submissions about variations to the scope of the works in the context of his submissions relating to damages for breach of contract and overcharging. He submitted that only $3,998 should be allowed for additional work, and that that was offset by deletions to the scope of the work resulting in savings totalling $6,380. If the appellants had entered into a fixed price contract with another builder for the undertaking of the same works, there would no doubt have been variations to the scope of the works as construction progressed. In order to assess the appellants' damages for contravention of the Fair Trading Act, it is appropriate to assume that all the variations that were in fact made to the scope of the works during the construction of the house by the respondent and his successor would have been made, and that reasonable consequential adjustments would have been made to the contract price.
For the reasons which follow, I am satisfied that the additions to and deletions from the scope of the contract works resulted in a net increase of about $16,000 plus GST to the reasonable cost of the project.
At the trial the respondent's quantity surveyor, Ms Stone, asserted in a report, which was tendered, that there had been 27 variations to the scope of the contract works, resulting in an estimated cost increase of $107,064. All of her figures were exclusive of GST. There was no suggestion that the cost of the project was increased by any other additions to the works. The appellants rely on only two deletions from the contract works. In order to assess the impact of variations to the scope of the works on the reasonable cost of completing the project, I will first address Ms Stone's 27 suggested variations, and then address the appellants' two suggested deletions.
1 – Upsizing masonry walls
A decision was made after the signing of the contract to increase the thickness of the masonry walls by using wider bricks. The specification contained details as to the dimensions of the bricks, expressed in millimetres. It called for bricks measuring 390 x 140 x 190. A decision was made to substitute bricks measuring 390 x 190 x 190. According to Ms Stone's report, this resulted in a cost increase estimated to be $2,394.
The appellants accept that there was a variation to the scope of the works that resulted in a cost increase, but the figure of $2,394 is disputed. Invoices relating to the purchase of the bricks measuring 390 x 190 x 190 were tendered at the trial. One quantity cost $3.43 each. A second quantity cost $4.07 each. There was no evidence of the precise price of the smaller bricks originally specified. The only evidence as to their cost came from cross-examination of the respondent. It was put to him that the change in the dimensions of the bricks made a difference of only some cents per brick, but he disagreed and said, "A hundred cents maybe." The invoices show that 560 bricks were purchased. The only evidence as to the difference in price is the respondent's estimate that suggested a price difference of $1 per brick. It is clear from his cross-examination that the change in the dimensions of the bricks did not result in any extra labour cost. Since the bricks were filled with concrete, I infer that more concrete was used as a result of the change to larger bricks, but there is no evidence as to how much more concrete or what it would have cost. Doing the best I can, I assess the additional costs resulting from the change to larger bricks to be about $600.
2 – Rock excavation, concrete binding and increase in footing size
There are three components to this item. The first and third are not disputed. In relation to 26 of these 27 items, Ms Stone calculated a figure and then added 10% as a "locality allowance" because of the remoteness of the site at Eaglehawk Neck. Her calculation in relation to this item was as follows:
Reinforced concrete strip footing $1,940
Extra over excavation clay for rock excavation $40,250
Allowance for concrete binding to underside of strip footing $1,590
Locality allowance (10%) $4,387
Total $48,167
There was little evidence as to the disputed second component in this calculation. The respondent gave evidence that the excavation of the areas where the buildings were to go was more difficult than he anticipated as a result of dolerite that he encountered when he commenced the excavation. For present purposes, it is necessary to consider what difference that would have made if there had been no misleading or deceptive representation and the appellants had entered into a fixed price contract with another builder. The standard form of fixed price contract that was signed by the parties in this case contained provisions whereby, in the event of a builder discovering a latent condition affecting the building site which may result in additional expense being incurred, the builder may invoke clauses that provide for the contract price to be adjusted to the extent of the additional expense. The appellants' architect, Mr Tanner, gave evidence at the trial. Two witness statements by him were tendered as exhibits. It appears from his witness statements that such provisions are common. It is therefore reasonable to assume, for the purpose of assessing the appellants' damages by reference to what another hypothetical builder would have charged them, that the encountering of dolerite would have resulted in some additional cost to them. However there is little evidence relevant to the extent of that extra cost. Ms Stone's estimate of $40,250 is not supported by other evidence. That figure is out of all proportion to the amounts paid by the respondent to contractors in relation to the excavation of the site, and out of all proportion to the amounts claimed by him by way of progress payments during the period when the excavations were carried out. He paid Hazell Bros Group Pty Ltd a total of $5,300 in relation to the hire of two excavators. He paid Nichols Excavations $2,555 in relation to the excavation and removal of material. There is no evidence as to what proportion of the cost of excavating related to the unforseen dolerite. Doing the best I can, I think it appropriate to allow $1,000 instead of Ms Stone's figure of $40,250.
The amount to be allowed under this item is therefore $4,983, made up as follows:
Reinforced concrete strip footing $1,940
Extra cost of excavation $1,000
Allowance for concrete binding to underside of strip footing $1,590
$4,530
Locality allowance (10%) $453
Total $4,983
3 – Onsite power
Ms Stone made an allowance of $4,840 in relation to the provision of power to the site from an adjacent property. That figure included the provision of a power pole, the provision of protection to leads, and the daily removal of leads.
One of the contract drawings, Drawing BA01, provided for a power pole and switchboard that were not present when the contract was signed. Clause 15.2 of the specification required the respondent to "Provide consumers mains and connect them to the electricity distributor mains". It also specified details relating to the construction of switchboards. This item relates entirely to costs that were within the scope of the original contract, not to any variation in the scope of the contract works. It follows that nothing should be allowed in respect of this item.
4 – Onsite water
In her report Ms Stone allowed $4,620 in relation to the obtaining of water from an adjacent property, the protection of hoses, and the daily removal of hoses over a period of approximately six months.
The contract drawings showed that water tanks were to be installed. Clause 14.5 of the specification contained requirements as to rainwater tanks. In his evidence the respondent conceded that he had been to the property before the contract was signed and had noted that there was no onsite water supply.
The lack of an onsite water supply did not result in any variation to the scope of the contract works. It follows that nothing should be allowed in respect of this item.
5 – New pole and temporary power supply
In her report Ms Stone allowed $935 in respect of the provision of a temporary power supply. This was additional to the $4,840 allowed in respect of item 3. However the need for a temporary power supply, and for a new pole, did not involve any variation of the contract works. It follows that nothing should be allowed in respect of this item.
6 – Removal of topsoil
In her report Ms Stone allowed $6,089 in respect of the removal of poor quality topsoil from the site. She did so on the basis that the excavated material, or at least some excavated material, was of too poor a quality for landscaping.
Clause 2.4 of the specification read as follows:
"Stockpile site topsoil required for re-use. Protect stockpiles from contamination by other excavated material, weeds and building debris."
Nothing was specified as to topsoil that was not required for re-use. It follows that the builder either needed to use that topsoil as fill or to get rid of it. The removal of unwanted topsoil from the site therefore did not involve any addition to the scope of the contract works. It follows that nothing should be allowed in respect of this item.
7 – Steelwork drawings
In her report Ms Stone allowed $2,200 for the obtaining of steelwork drawings not provided by the architect.
The appellants' architect dealt with this item in his second witness statement, in which he said the following:
"Steel Frame drawings were issued to Mr Bridge on 13th September 2006 as part of the full tender set of drawings. These were BA07 Floor Framing Plan, BA09 Clearstory Plan, BA11 roof Framing Plan, BA15 Deck Framing Plan, BA21 Section AA, BA22 Section BB, BA 23 Framing Elevation, BA47 Floor Plan & BA57 Section CC. These drawings were certified by the structural engineer and describe the steel frame for both pavilions in significant detail. Combined with the additional construction details in the tender drawing set, these framing plans are entirely adequate for both estimating and the production of steel shop drawings by the steel fabricator. It is not the responsibility of the architect to produce steel shop drawings and this process is the responsibility of the building contractor to arrange with the steel fabricator. The contractor should include the cost of the production of the steel shop drawings in his price or estimate and also factor the time it takes for their production into his project path."
That evidence was unchallenged and uncontradicted. There was no evidence of any need to spend money on additional steelwork drawings. It follows that nothing should be allowed in respect of this item.
8 – No vent to bathroom
This project involved the construction of two pavilions. In Ms Stone's report, she allowed $605 in respect of this item on the basis that the specification had not required the installation of a vent pipe to the bathroom in the upper pavilion, and that the architect had required one to be installed.
In his second witness statement, Mr Tanner said, "This issue was a simple architect's instruction and does not constitute any change in scope or increase in cost to the project."
Clause N1 of the standard form contract signed by the parties stated that the respondent represented that the contract price allowed for "everything reasonably required to complete the works". The appellants contend that the installation of a vent pipe was something reasonably required to complete the works, and therefore not something involving an additional cost.
The installation of a vent pipe may or may not have been required by the Building Code of Australia. When the work in question was undertaken, building work was required to comply with that Code by virtue of s 55(1) of the Building Act 2000. There was no evidence at the trial as to what, if anything, was required by that Code in relation to the installation of vent pipes.
The best evidence as to this item is that of Mr Tanner. On the basis of his evidence, I am satisfied that the installation of the vent pipe was within the original scope of the contract works. It follows that nothing should be allowed in respect of this item.
9 – Electrical services entry points
In Ms Stone's report, she allowed $2,365 on the basis that the contract drawings made no provision for the entry of wiring through the roof, and that the architect had given an instruction for wiring to be run through slabs and via columns. The appellants contend that this item does not concern any addition to the scope of the contract works. They rely on cl N1, and say that the establishment of entry points and the installation of wiring were things "reasonably required to complete the works" within the meaning of cl N1 of the contract. Obviously there had to be one or more entry points for electrical wiring. The evidence as to the electrical wiring was meagre, and does not establish that there was any addition to the scope of the contract works in relation to electrical wiring.
10 – External pumps to water tanks
In Ms Stone's report, she allowed $1,785 in relation to the addition of two water pumps. The appellants accept that there was an addition to the scope of the contract works, but the evidence establishes that only one water pump was purchased, and that its cost was $595. I will therefore allow $595 in respect of this item.
11 – Raising bench of lower pavilion
In Ms Stone's report, she allowed $12,826 in respect of the raising of the building platform of the lower pavilion by 500mm. The evidence established that there was such an alteration to the scope of the contract works; that material called FCR was purchased; and that labour costs were incurred in installing and compacting that material. Ms Stone's estimate was disputed. The evidence established that the FCR material was purchased for $1,439, and that labour costs were incurred in the installation and compacting of that material. There was no evidence as to how many hours' labour was involved. Taking a conservative approach, I think that two hours' labour by the respondent ought to be provided for. His charge-out rate, as per the addition to contract document, was $50 per hour excluding GST. It would be appropriate to allow $100 for labour in addition to the sum of $1,439 spent on FCR. I will therefore allow $1,539 in respect of this item.
12 – Additional bathroom light
In Ms Stone's report, she allowed $880 for additional bathroom lighting. Mr Tanner's evidence was that he issued an instruction on 8 May 2007 that reduced the number of lights. It appears that a bathroom light was installed in a position not originally specified as a result of changes to the positioning of internal lights. There was a variation to the scope of the contract works, but there is no evidence that it resulted in any extra cost. It follows that nothing should be allowed in respect of this item.
13 – Bathroom exhaust fans
In Ms Stone's report, she allowed $880 in respect of the installation of two bathroom exhaust fans. There was nothing in the contract drawings or the specification to require the installation of exhaust fans. Mr Tanner said in his second witness statement that this item should have been included as part of the respondent's estimates, and that it does not constitute any additional cost or additional time for the works. There was no evidence as to what, if anything, the Building Code of Australia required in relation to the installation of exhaust fans. The respondent was cross-examined about exhaust fans, and said that he did not think there was any such requirement at the relevant time. Ms Stone said that she did not know. There is no evidence that the installation of exhaust fans involved any addition to the scope of the contract works, rather than being something "reasonably required to complete the works". It follows that no allowance should be made in respect of this item.
14 – Garden taps
In Ms Stone's report, she allowed $660 in respect of the installation of two garden taps. Under cross-examination she accepted that such taps could be purchased for about $20 each, but pointed out that there would be labour costs associated with their installation. At the hearing of the appeal, counsel for the appellants suggested that $200 should be allowed in respect of this item. I regard that as reasonable. I am content to adopt his figure and allow $200.
15 – Eaves variation
In Ms Stone's report, she allowed $2,539 as the cost of extending the front eaves to both pavilions by 150mm. Mr Tanner accepted that he had given an instruction to extend the eaves, but said that the instruction was given when the eaves had been constructed on only one pavilion, with the result that no extra work was required in relation to the second pavilion. His evidence was unchallenged and uncontradicted. I accept what he said. Ms Stone's figures were not challenged, but they should be reduced by half since only one pavilion was affected. I will therefore allow $1,269 in respect of this item.
16 – Additional window to upper pavilion
The scope of the contract works was varied as a result of Mr Tanner giving an instruction to install an additional window to the top pavilion. The cost of the window and its frame should therefore be allowed, but there was a saving in relation to cladding, insulation, plasterboard and other wall materials. That saving was taken into account by Ms Stone. Her figures were not challenged. I think they should be accepted. I will therefore allow $1,060 – the figure Ms Stone arrived at – in respect of this item.
17 – Joinery variation
The architect gave an instruction requiring a lacquered finish to the joinery. The respondent did not apply the lacquered finish before ceasing work. For present purposes that is immaterial. I infer that his successor applied a lacquered finish when he finished the project. It follows that this was a variation to the contract works that resulted in an additional cost which, for present purposes, should be taken into account. That is to say, it is an additional cost which the appellants would have incurred if they had entered into a fixed price contract for about $375,000 plus GST, and later decided to require a lacquered finish to the joinery. Ms Stone's figure for the extra cost was $6,380. It was unchallenged. There is nothing in the evidence to indicate that her figure of $6,380 was out of proportion to the total cost of the joinery work. I will therefore allow $6,380 in respect of this item.
18 – Floor heating
In Ms Stone's report, she allowed $1,155 in respect of an alteration to the floor heating grid. That figure represented 30m2 at $35 per m2. However the respondent gave evidence that, as a result of drawings being revised, an area measuring 800mm x 1,500mm gained floor heating. That is an area of 2.4m2, not 35m2. The cost of installing floor heating to that area, at $30 per m2, is $72. It is appropriate to add Ms Stone's 10% locality allowance. I will therefore allow $79 in respect of this item.
19 – Recycled decking
Drawing BA16 required the use of recycled decking. The respondent was unable to procure any. Mr Tanner therefore gave an instruction requiring the use of spotted gum. This increased the cost of the project. Ms Stone allowed $3,498 in respect of this item. Her figures were not challenged. That amount should therefore be allowed.
The respondent gave evidence that he installed the spotted gum decking using a process known as secret nailing. That was his choice, not something that he was told to do. There is no evidence that that choice made any difference to the cost of the project.
20 – Additional exterior lighting
In Ms Stone's report, she allowed $1,870 in respect of an additional outdoor sensor light and two power points to each pavilion. There is evidence that these fittings were requested by the appellants, and that they were not within the original scope of the contract works. Mr Tanner commented that this item was "only a minor addition to the electrical contractor's scope once on site". I agree. Ms Stone's figure of $1,870 relates only to labour, not materials. I accept that a much lower figure is appropriate. In the absence of evidence as to the amount of labour required or an electrical contractor's hourly rates, I will have to make my own estimate. Doing the best I can, I have decided that $300 should be allowed in respect of this item.
21 – Hardwire envirocycle alarm
In Ms Stone's report, she allowed $550 for the hardwiring of something called an envirocycle alarm. The respondent gave evidence that he and his employees put in a conduit and a lead, and hardwired this alarm. That was specifically excluded from the scope of the contract works. A handwritten special condition on page 2 of Schedule 2 of the contract read as follows:
"CONTRACT PRICE IS FOR/RELATES TO CONSTRUCTION OF DWELLING ONLY & IS EXCLUSIVE OF LANDSCAPE WORKS, DRIVE WORKS, FENCING & POWER CONNECTION & OTHER SPECIALIST CONNECTIONS (ENVIROCYCLE SYSTEM)."
This was clearly something additional. Ms Stone's figures in relation to this item were not disputed. I will therefore allow $550 in respect of it.
22 – Relocate sanitary plumbing
In Ms Stone's report, she allowed $495 in respect of this item. Counsel for the appellants conceded that that amount should be allowed. I agree.
23 – Phone for internet
In Ms Stone's report, she allowed $1,018 in respect of a telephone line connection and a trench.
The subject of telecommunications installation was covered by cl 15.2 of the specification. That clause required the respondent only to submit required applications and to liaise with the telecommunications services carrier. The first appellant, Mr Kronenberg, said in his second witness statement that there was no phone connection to the property. That evidence was unchallenged and uncontradicted. The respondent gave evidence that he and his employees "wired telephone cable within the lower pavilion", but there was no evidence as to whether they were instructed or asked to do that, or whether they did so on their own initiative. There was no evidence about a trench. There was no evidence that installing telephone wiring within the lower pavilion involved any additional cost. Having regard to the state of the evidence, I conclude that nothing should be allowed in respect of this item.
24 – Antenna
In Ms Stone's report, she allowed $550 in relation to the installation of an antenna. The respondent gave evidence that he did not install it. Mr Kronenberg stated in a witness statement that it was installed after the respondent left the property. No antenna is mentioned in the specification or any of the contract drawings. There is no reason to think that the Building Code of Australia might require the installation of antennae, since some households are television-free and some areas have such good reception that external antennae are unnecessary.
For present purposes, it is not relevant that the respondent did not install the antenna. If the appellants had entered into a fixed price contract with another builder for $375,000 plus GST, and later required the installation of an antenna, that would have been something additional to the scope of the contract works. Ms Stone's figures are unchallenged. I will therefore allow $550 in respect of this item.
25 – Gas line for barbecue
In Ms Stone's report, she allowed $550 in relation to the installation of a gas line to the barbecue. The barbecue is shown in Drawing BA08, but no gas line is shown. There is nothing in the specification as to the installation of a gas line or the provision of gas bottles. If a gas line was needed, that must have been something "reasonably required to complete the works" within the meaning of cl N1 of the contract. I will therefore allow nothing in respect of this item.
26 – Soffitt detail
In Ms Stone's report, she allowed $7,115 in respect of 49m2 of 18mm thick structural plywood substrate to the eaves soffitt and an undercoat finish thereto. Mr Tanner said that he had no knowledge of this. The respondent was asked whether Mr Tanner issued an instruction in respect of the soffitt detail, said that he did not, and was asked nothing further about this point. There is no evidence that the plywood substrate was ever installed or requested. I will therefore allow nothing in respect of this item.
27 – Celery Top Pine
Ms Stone's report contains a 27th item relating to the provision of Celery Top shiplap cladding to external walls instead of Tas Oak. However she provided no costing in respect of this item, and wrote the following:
"Variation has not been included there are discrepancies in the documentation and both Tas Oak and Celery Top shiplap cladding are refered [sic] to. We beleive [sic] that the higher allowance should have been included in the tender price."
Mr Tanner commented on this item, but said only that it was cost neutral. I will allow nothing in respect of this item.
Deletion 1 – Stairs to lower pavilion
The contract drawings show a set of external stairs or steps leading down to the deck of the lower pavilion. In an instruction issued on 11 June 2008, Mr Tanner wrote, "Please delete lower pavilion stair …". The reasonable cost of constructing that staircase was estimated by Mr Darvell, the appellants' quantity surveyor, to be $4,015. His figures also excluded GST. Although the respondent called his own quantity surveyor, Ms Stone, that figure was not challenged or contradicted. That figure should therefore be accepted.
Deletion 2 – Bench extending onto deck
The contract drawings showed a bench on the deck of the lower pavilion. Mrs Kronenberg gave uncontroversial evidence to the effect that the construction of that bench was not proceeded with. Mr Darvell estimated the reasonable cost of the construction of that bench to be $2,365. But it is not as simple as that. That estimate was based on costings as at August 2008. In the report in question, he "de-escalated" his August 2008 figures to produce January 2007 figures. That resulted in a reduction from $427,100 to $377,180 as the reasonable cost of construction of the complete contract works, exclusive of GST. That represented a reduction of 8.83% by way of de-escalation. I will therefore allow $2,156 in respect of this item, calculated as follows:
August 2008 cost of bench $2,365
Less 8.83% $207
January 2007 cost of bench $2,156
Conclusion as to additions and deletions
If the appellants had entered into a fixed price contract for the undertaking of the original contract works in early 2007, and then varied the scope of the works by means of the additions and deletions referred to above, the additional cost of the project resulting from those additions and deletions would have been more or less as follows:
1 Upsized masonry walls $600 2 Rock excavation $4,983 10 External pumps to water tanks $595 11 Raising bench at lower pavilion $1,549 14 Garden taps $200 15 Eaves variation $1,269 16 Window top pavilion $1,060 17 Joinery alteration $6,380 18 Floor heating $79 19 Recycled decking $3,498 20 External lighting $300 21 Hardwire envirocycle alarm $550 22 Relocate sanitary plumbing $495 24 Antenna $550 Total additions $21,198 Deletion 1 - stairs $4,015 Deletion 2 - bench $2,156 Total deletions $6,171 Excess of additions over deletions
$15,927
On the basis of this calculation, I am satisfied that if the appellants had entered into a fixed price contract with another builder in early 2007 for the construction of the same contract works for $375,000 plus GST, and if the scope of the works had been varied by the additions and deletions described above, the cost of their project would have increased by about $16,000 plus GST. If they are entitled to damages for loss of a chance as a result of the respondent's contravention of the Fair Trading Act, those damages should be assessed on the basis that, but for his misleading and deceptive conduct, there was an 80% chance that they would have entered into a fixed price contract for $375,000 plus GST, and varied the scope of the works so as to increase the cost of the project by $16,000, plus GST, so that the final cost would have been $430,100 inclusive of GST.
In assessing the appellants' damages under the Fair Trading Act, I consider it appropriate to treat their expenditure on the completion of the project, after the departure of the respondent, as reasonable. There is uncontradicted and unchallenged evidence in Mr Kronenberg's first witness statement that the amounts they paid to complete the project totalled $124,983. Mr Darvell gave unchallenged evidence that, in his opinion, the reasonable cost of the completion of the works, as at 13 March 2008, was $169,300 exclusive of GST. Ms Stone gave evidence that in her opinion the reasonable cost of completing the works was $70,297, but I am not prepared to place any weight on that evidence because, after analysing her evidence as to the financial consequences of variations to the scope of the works, I consider her evidence to be unreliable. On the basis of the evidence from Mr Kronenberg and Mr Darvell, I am satisfied that the expenditure incurred by the appellants was reasonable.
It follows that the appellants' damages for the contravention of the Fair Trading Act, ignoring their claim for interest at this stage, should be assessed as follows:
Payments by appellants to respondent (including GST) $566,192
Payments by appellants to complete project (including GST) $124,983
Total payments by appellants $691,175
Less hypothetical cost under $375,000 fixed price contract with variations $430,100
$261,075
Less 20% $52,215
Damages (excluding interest) for loss of 80% chance $208,860
The appellants' claim for interest
The appellants claimed damages in the nature of interest in accordance with Hungerfords v Walker (1989) 171 CLR 125 and State of Tasmania v Shaw (No 2) (2002) 12 Tas R 1. At the trial there was unchallenged evidence from the first appellant, Mr Kronenberg, as to the borrowing of substantial sums by the appellants from their bank and the interest paid by them to their bank. On the basis of that evidence, it is clear that the appellants are entitled to damages in the nature of interest on the sum of $208,860. Counsel have agreed that, in the event of this part of the appellants' claim succeeding, there should be an adjournment to give the parties an opportunity to reach agreement as to it, or to prepare further submissions in relation to it. That course should be taken.
Proportionate liability
The respondent contends that if the appellants are entitled to recover damages from him then, by virtue of s 43B(1) of the Civil Liability Act 2002, their damages should be reduced because their architect, Mr Tanner, was also responsible for any damage or loss that they suffered.
It was pleaded by the respondent in the action that the architect owed the appellants duties both in contract and in tort, and that he breached those duties in the following respects:
· By designing improvements to the appellants' property that could not be constructed for $340,000 excluding GST, or any amount reasonably contemplated or budgeted for by the appellants.
· By failing to design the improvements so that they could be constructed for $340,000 excluding GST or any amount reasonably contemplated and budgeted for by the appellants.
· By failing to correctly or adequately estimate the likely cost of the construction of the improvements.
· By "failing to provide an estimate that was within a reasonable degree of tolerance".
· By failing to properly or adequately assess the extent of the works required, the degree of difficulty and, as a consequence, the likely cost.
· By failing to estimate the cost of the works by reference to objective costing methods.
· By failing to properly estimate the actual time required by the respondent to execute and complete the works, and the likely cost of materials.
· By failing to advise the appellants properly or at all as to the meaning of the words "as a cost plus contract".
· By allowing the appellants to assume or believe that the contract was for a fixed price, or for a price "within a reasonable degree of tolerance".
· By failing to provide the respondent with a full or sufficient set of plans and/or drawings and/or specifications to enable him to provide a reasonably accurate estimate of the cost of the construction of the improvements.
· By failing to perceive and advise the appellants that the respondent's calculations were for the purpose of him illustrating how he would arrive at his contemplated profit margin under a cost plus contract, and that those calculations contained figures which were too low to "enable the construction of the improvements".
· By telling the appellants that the respondent had advised him on 13 December 2006 of a price of $330,000 when the respondent had not done so.
It was also pleaded that the architect had engaged in misleading and deceptive conduct, contrary to s 14 of the Fair Trading Act, by representing to the appellants, and/or leading them to believe, that the contract was for a fixed price.
The appellants and the architect entered into a written retainer agreement in July 2005. It was an express term of that agreement that the architect would "prepare the contract documents for signing by both parties". No doubt that agreement contained an implied term that the architect would exercise reasonable care and skill in the performance of the services that he contracted to provide to the appellants. And no doubt, for the purposes of the law of tort, the architect owed the appellants a duty to exercise reasonable care and skill, to the standard of an ordinary architect: Rogers v Whitaker (1992) 175 CLR 479.
I have listed the allegations of negligence, breach of contract, and misleading conduct on the part of the architect in the order in which they were pleaded. I will address them in a more convenient order.
No expert evidence was adduced at the trial as to the practice of architects in relation to any relevant matters. I think one can take judicial notice of the fact that architects have less familiarity with construction costs than builders and quantity surveyors, at least as a general rule. I think one can also take judicial notice of the fact that it is common for architects, after being briefed by clients who are interested in getting a house built, to produce an initial design that does not accord with budgetary restrictions discussed at the time of briefing. When that occurs, decisions have to be made about making changes to the clients' brief, the architect's design and/or the clients' budget. I am therefore not satisfied that the architect breached any duty to the appellants by designing a residence whose construction costs were too great. If I am wrong as to that, I do not think that any breach of duty at the design stage was causative of damage. The appellants suffered a loss as a result of entering into the contract, by which time they had received quotes for figures exceeding $340,000 and subsequently the respondent's estimate of $340,000. They knew that the cost of construction would be nothing like the cost they originally had in mind.
At the trial, the architect's evidence was that the respondent gave him a figure of $330,000 on 13 December 2006, but the respondent's evidence was that he did not ever provide a lower figure than $340,000. At [46] of her reasons, the learned trial judge accepted that it was more likely than not that the respondent gave a figure of $340,000 to the architect on that day. There is no reason why that finding should be disturbed. There is no doubt that the architect sent the appellants an email on the day in question saying that the respondent had provided a figure of $330,000. If that amounted to a breach of any duty, it was an inconsequential breach because, by the time they entered into the contract, the appellants had been provided by the respondent with his estimate of $340,000.
I turn to the allegation that the architect breached his duties to his clients by failing to provide the respondent with sufficient plans, drawings and specifications to enable him to provide a reasonably accurate cost estimate. The architect said in his witness statement, which was tendered, that the respondent told him that the plans were "the best set of drawings he had ever priced". That was not challenged in cross-examination. The respondent said in his witness statement that he was not sure whether he had received the specifications before he entered into the contract. He said that the drawings were incomplete, and that they did not include "steel drawings". That assertion was contradicted by the architect in his second witness statement in the passage quoted above at [82]. There was no challenge to that detailed evidence from the architect as to what steelwork drawings were provided before the estimate of $340,000 was provided. There was no evidence of anything surprisingly costly appearing in any later steelwork drawings. I am not satisfied that the respondent had insufficient documentation to be able to provide a reasonably accurate cost estimate.
On 13 December 2006, as a result of the respondent mentioning his desire for a cost plus contract, the architect sent an email to the appellants attaching a "cautionary note" published by the Australian Institute of Architects warning of the risks associated with cost plus contracts.
In the absence of any expert evidence as to the usual practice of architects, I am not satisfied that the architect had any duty to investigate the reasonableness of the respondent's estimate of $340,000 by undertaking his own calculations, questioning the respondent, engaging a quantity surveyor, or taking any other step.
There was no evidence that the architect represented to the appellants that the contract was a fixed price contract. They were present when the words "AS A COST PLUS CONTRACT" were added to the standard form of contract. Under cross-examination the first appellant, Mr Kronenberg, said that he and his wife "agreed to a cost plus style arrangement". The second appellant, Mrs Kronenberg, when asked under cross-examination whether she understood that the price was not a fixed price, replied, "It was an estimate price that we felt was an estimate of what the work would cost." In the light of that evidence, I am not satisfied that the architect either represented to the appellants, or led them to believe, that the contract was for a fixed price. The allegation of misleading and deceptive conduct was pleaded only on that basis, and must therefore fail.
For these reasons, I am not satisfied that the architect breached any duty that he owed to the appellants, nor that he engaged in misleading conduct as alleged. The proportionate liability defence must therefore fail.
Counsel for the appellants submitted to us that that defence should fail for a number of other reasons. He submitted that the building contract contained provisions whereby the parties, by implication, contracted out of the proportionate liability provisions of the Civil Liability Act. He relied on the following provisions:
· Item 4 in the introduction, where the "cost of building work" was said to be $340,000 excluding GST.
· The definition of "contract price" in Section S of the contract, which simply says "see subclause N1.1".
· Clause N1, which sets out a list of items that the contract price allows for, as well as items that the contract price does not include.
By virtue of s 3A(3) of the Civil Liability Act, the parties to a contract can "contract out" of the proportionate liability scheme imposed by that Act by "making express provision for their rights, obligations and liabilities under the contract" in relation to matters to which that Act applies. However there is nothing in the provisions relied on by counsel for the appellants that indicates any intention to contract out of the scheme in question.
Counsel for the appellants also relied on the fact that the proportionate liability provisions apply only when a defendant and a concurrent wrongdoer are liable for the same damage. He relied on the High Court's decision in Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613. That submission might have helped the appellants if they had been entitled to damages for breach of contract in relation to overcharging. However I have concluded that they are entitled only to damages for contravention of the Fair Trading Act for the loss of a chance of entering into a more advantageous contract. If the allegations of wrongdoing by the architect had been established, it would have followed that he was responsible for the same damage or loss.
Counsel for the appellants also relied on the fact that the respondent had commenced third party proceedings against the architect, based substantially on the same allegations that were pleaded in relation to the proportionate liability defence, and subsequently consented to judgment for the dismissal of that third party claim, which was entered accordingly. Counsel for the appellants argued that, as a result, the respondent was estopped from relying on the facts that formed the basis of his third party claim. He referred to Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. That case concerns the species of estoppel that arises when a litigant has the opportunity to make a claim or raise a defence in one proceeding, does not do so, and then seeks to do so in a second proceeding. That is not the situation in relation to the third party claim and the proportionate liability defence. Further, since the appellants were not parties to the third party proceedings in which the judgment was entered, and are not in a relationship of privity with any of the parties to these proceedings, they are not entitled to the benefit of any issue estoppel, nor to any estoppel based on the doctrine of res judicata.
Under s 43B(1)(a) of the Civil Liability Act, when a proportionate liability defence succeeds, the liability of the defendant is limited to the proportion of the damage or loss that the court considers "just". Counsel for the appellants submitted that it could not be said to be "just" that any reduction be applied to the appellants' damages since the entry of judgment in favour of the architect in the third party proceedings meant that the respondent conceded that he had no claim against the architect. I think that submission should be rejected. If the wrongdoing of a defendant and a concurrent wrongdoer are such that a proportionate liability defence should succeed, then the defendant can have no claim for contribution against the concurrent wrongdoer, and any such claim for contribution in third party proceedings would be doomed to failure. If such a doomed proceeding is abandoned, then a reduction under s 43B(1)(a) would certainly be "just".
However, for the reasons stated above, the proportionate liability defence must fail.
Interest on the counterclaim
As I have said, the learned trial judge concluded that the respondent was entitled to recover the sum of $37,926 from the appellants. In the final paragraph of her judgment, [155], she added, "The builder should be entitled to interest on that sum." She said nothing as to the legal basis for an entitlement to interest. The appellants contend that she erred in law in failing to give reasons for her conclusion that interest was recoverable.
In every other Australian jurisdiction, legislation has been enacted to give every court an unfettered discretion to award pre-judgment interest. In Tasmania, magistrates and arbitrators have such powers: Magistrates Court (Civil Division) Act 1992, s 25(1); Commercial Arbitration Act 2011, s 33E. But judges of this Court have no such power.
At common law, there is a general rule that pre-judgment interest may not be awarded. There is an exception in relation to awards of damages for pecuniary losses: Hungerfords v Walker (above). However the respondent's claim was not a claim for damages. There is another exception under s 34 of the Supreme Court Civil Procedure Act 1932, but the respondent could only have been entitled to interest under that section if he had made a written demand for payment, giving notice to the appellants that interest would be claimed from a particular date: s 34(1)(b). No such demand was pleaded. The counterclaim included a claim for interest based on a contractual provision, but the learned trial judge made a finding that there was no contract. It may be that her Honour considered that the respondent had some sort of equitable entitlement to interest by way of restitution, but she did not say that.
This may all be academic, since my conclusions in relation to the claim under the Fair Trading Act have led me to conclude that the respondent was not entitled to recover any sum on his counterclaim. However it is clear that a trial judge has an obligation to give reasons for his or her decisions: Pettitt v Dunkley [1971] 1 NSWLR 376 at 382; Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 at 259; Potts v Frost [2012] TASFC 6 at [28]. It follows that her Honour erred in law in failing to give reasons for her determination that the respondent was entitled to interest. The error asserted in the second limb of ground 6 has been made out.
Conclusion
The further hearing of the appeal should be adjourned in the hope that agreement can be reached as to the claim for Hungerfords v Walker damages. Once that claim has been settled or determined, I would allow the appeal, set aside the judgment dismissing the appellants' claim, quash the determinations relating to the counterclaim, enter judgment for the appellants against the respondent for damages in an appropriate sum, and dismiss the counterclaim.
File No 1045/2013
DAVID GERALD KRONENBERG and ROBYN JOY KRONENBERG
v STEPHEN BRIDGE
REASONS FOR JUDGMENT FULL COURT
PORTER J
20 October 2014
I have had the advantage of reading the draft reasons for judgment of the Chief Justice. I agree with those reasons and with the proposed disposition of the appeal.
File No 1045/2013
DAVID GERALD KRONENBERG and ROBYN JOY KRONENBERG
v STEPHEN BRIDGE
REASONS FOR JUDGMENT FULL COURT
PEARCE J
20 October 2014
I agree with the reasons for judgment of the Chief Justice and with the orders his Honour proposes for determination of the appeal.
6
33
1