Morris v Leaney

[2021] NSWDC 224

District Court

New South Wales

Medium Neutral Citation:

Morris v Leaney [2021] NSWDC 224

Hearing dates:

24-27 August 2020, 8-9 and 12 February 2021; written submissions 17 March 2021

Date of orders:

10 June 2021

Decision date:

10 June 2021

Jurisdiction:

Civil

Before:

Smith SC, DCJ

Decision:

1.    Judgment for the plaintiffs in the sum of $1,000.

2.    The plaintiffs file submissions of no more than three pages, if any, in relation to costs within 14 days.

3.    The defendant file any submissions of no more than three pages in response within 14 days.

4.    Unless the parties consent to the issue of costs being determined without further oral hearing, the matter is to be listed for hearing on costs on a date to be fixed by arrangement with my associate.

Catchwords:

TORTS – professional negligence – architect – damages – breach of contract - false and misleading representations – reliance on representations – loss and damage – concurrent wrongdoer

Legislation Cited:

Architect’s Regulation 2004, Sch 1 – NSW Architect’s Code of Professional Conduct

Architects Act 2003 (NSW)

Civil Liability Act 2002 (NSW)

Competition & Consumer Act, 2010 (Cth), Sch 2 – Australian Consumer Law

Cases Cited:

Auburn Municipal Council v ARC Engineering Pty Ltd [1973] 1 NSWLR 513

Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700

Bellgrove v Elridge (1954) 90 CLR 613; [1954] HCA 36

Beregold Pty Ltd v Mitsopoulos (t/a D Mitsopoulos & Associates) (1999) 15 BCL 290

Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60

Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25

Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45; [2000] HCA 12

Chappel v Hart (1998) 195 CLR 232; [1998] HCA 55

Doepel & Associates Architects Pty Ltd v Hodgkinson [2008] WASCA 262

Forrest v Australian Securities and Investment Commission (2012) 247 CLR 486; [2012] HCA 39

Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82

Huppert v Stock Options of Australia Pty Ltd (1965) 112 CLR 414; [1965] HCA 30

Ireland v WG Riverview Pty Ltd [2019] NSWCA 307

Jewelsnloo Pty Ltd v Sengos [2016] NSWCA 309

Kennedy Street Pty Ltd v The Minister [1963] NSWR 1252

Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286; [1938] HCA 66

McBratney v Boston [1994] ATPR ¶41-355

Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357; [2010] HCA 31

Motium Pty Ltd v Arrow Electronics Australia Pty Ltd [2011] WASCA 65

Nadinic v Cheryl Drinkwater as trustee for the Cheryl Drinkwater Trust [2020] NSWCA 2

NAIS v Minister for Immigration & Multicultural & Indigenous Affairs (2005) 228 CLR 470; [2005] HCA 77

Norton Property Group Pty Ltd v Ozzy States Pty Ltd (in liq) [2020] NSWCA 23

Robinson v Kenny [2014] FCA 988

Roluke Pty Ltd v Lamaro Consultants Pty Ltd [2008] NSWCA 323

Spencer v Commonwealth of Australia (1906) 5 CLR 418; [1907] HCA 82

State of New South Wales v Stevens (2012) 82 NSWLR 106

Voli v Inglewood Shire Council (1963) 110 CLR 74; [1963] HCA 15

Wyzenbeek v Australasian Marine Imports Pty Ltd (in liq) (2019) 272 FCR 373; [2019] FCAFC 167

Texts Cited:

Walmsley, Abadee, Zipser and Sirtes, Professional Liability in Australia (3rd ed, 2016, Law Book Company) at [6.1950]

Category:

Principal judgment

Parties:

Alan Morris – First Plaintiff
Tania Morris – Second Plaintiff
Dustin Leaney - Defendant

Representation:

Counsel:
Plaintiffs:
Mr M Gilbert (24-27 August 2020)
Mr D Rayment (8, 9 and 12 February 2021)

Defendant:
Mr A Ahmad

Solicitors:
Gilberts Legal – Plaintiffs
Holman Webb Lawyers – Defendant

File Number(s):

2018/187937

Publication restriction:

Nil

Judgment

1. The plaintiffs, Mr and Mrs Morris, are the registered proprietors of the property situated at 8 Narran Close, Kings Creek, New South Wales. When they bought the property in 2012 there was a house on it with three bedrooms. The Morris’s then had a young family including three young daughters. They had plans to have at least one further child and for all of their children to be schooled at home. In 2014 they decided that they would develop their property to accommodate their growing family and their desire to have a “forever home”. The issues in this case arise from the tension between the plaintiffs’ desire to have such a home and their ability to pay for it. Ultimately, as is almost always the case, the plaintiffs’ financial limitation held sway and they were unable to complete the house of their dreams.

2. These proceedings are brought by the plaintiffs against the architect engaged by them in respect of what is alleged to be the breach of his duty of care to them, in breach of his contractual obligations and also misleading and deceptive conduct. The central allegation against the defendant is that he led the plaintiffs to believe that they could build their dream home within their financial limits.

3. Before proceeding to the relevant facts it is necessary to identify the claims made by the plaintiffs with more precision.

Claims and issues

4. The first set of claims articulated in the amended statement of claim are based upon negligence. The plaintiffs allege that the defendant breached his duty of care to them and set out 14 particulars of that breach. Leaving aside the number of particulars that were ultimately abandoned, ^[1] these fall into three groups: first, a failure to advise on the likelihood of the plaintiffs achieving their desired home within their budget; secondly, failing to advise the plaintiffs accurately on the appropriate building contract; and thirdly, failing to monitor and report to the plaintiffs on the performance of the builder and the costs of the works performed under the building contract.

   1. Amended Statement of Claim at [43] particulars (d) through (h), filed 19 August 2020.

5. The second claim is for breach of contract. The pleaded claim is based upon the allegation that the defendant breached the terms of his agreement with the plaintiffs to provide architectural services. In particular, the plaintiffs allege that the defendant breached that agreement by failing to do a number of things including accurately and adequately advising the plaintiffs on the likelihood of them achieving their objectives within their final budget and the selection of the appropriate building contract.

6. The third claim is brought under the Australian Consumer Law. ^[2] This claim is pleaded as follows: first, the defendant made three representations concerning the costs of the construction of the house on the property: the first on 11 April 2015, the second on 24 April 2015 and the third on 21 August 2015 made in connection with the application to the local authority for development approval.

   2. Competition & Consumer Act, 2010 (Cth), Sch 2.

7. Next it is alleged that each of those representations was misleading and deceptive because they “led and deceived the Plaintiffs to believe that they could achieve the Plaintiffs’ Objectives within the Final Budget, when in fact they could not”: see [51(a)].

8. Then the plaintiffs allege that they relied upon each of the cost representations. It is alleged [at 53] that representations made by the defendant in respect of the relevant building contract were misleading and deceptive in that they “led and deceived the Plaintiffs into believing that by entering into the Building Contract they were entering into a building contract” that would be appropriate to their circumstances, that would incentivise the builder to complete the works on budget and on time and result in the works being complete free of defects within the plaintiffs’ budget. They say that they relied upon the representation and but for the combination of the costs representation and that representation, they would not have entered into the building contract and that by entering into the contract they suffered loss and damage.

9. The loss and damage claimed in the amended statement of claim is the amount spent by the plaintiffs on the construction of the building on the property ($781,059.23) less the improvement of the value of the property as a whole ($275,000) bought about by the building work (amounting to $506,059.23). As will be seen, that approach to the quantification of damages is contentious.

10. The defendant denies all liability but also argues that the builder was a concurrent wrongdoer and that the plaintiffs were also negligent.

11. These claims raise a number of factual and legal issues for resolution. The key issues between the parties are whether:

1. the plaintiffs informed the defendant that their maximum budget was $600,000;

2. the defendant represented to the plaintiffs that their objectives could be achieved with a budget of $600,000;

3. the defendant conveyed to the plaintiffs the substance of the document at tab 22 of Exhibit DL-1 (dealing with matters relevant to the choice of building contract);

4. the defendant accurately and/or adequately advised the plaintiffs on the likelihood of achieving their objectives within their budget of $600,000 (assuming that he was aware that there was such a budget);

5. the defendant adequately advised the plaintiffs in relation to the selection and form of the building contract;

6. the defendant was relieved of the obligation of administering the building contract;

7. the defendant adequately administered the building contract;

8. the costs representations were misleading or deceptive (assuming that they were made to the effect pleaded);

9. the plaintiffs relied on those representations;

10. the plaintiffs suffered loss and damage as a result of any breach of duty of care, contract and/or the Australian Consumer Law and, if so, the proper basis of assessing damages;

11. the builder was a concurrent wrongdoer;

12. the plaintiffs caused or materially contributed to any loss suffered by them by their own negligence and failure to take reasonable care in accordance with s 137B of the Competition & Consumer Act 2010.

The witnesses

12. Before turning to the facts, it is necessary to say something about my impression of each of the lay witnesses. The plaintiffs, the defendant and Mr O’Hagan, the builder, each gave oral evidence at the hearing in August 2020. For reasons that are unnecessary to articulate, the hearing could not be completed at that time and was adjourned part heard until February 2021. After the hearing, the parties were given leave to file a note concerning the issue of the correct quantification of loss. The last of these notes was filed on 17 March 2021. Due to other commitments in the Court, I have been unable to finalise my judgment until now. This means that there has been a considerable period of time since I have seen the lay witnesses. Cognizant of the possibility that that might occur, and the possible consequences of delay,^[3] I made extensive notes of my impressions of each witness at the time they gave evidence. I base the following on my current recollection aided by having re-read the transcript as well as by reference to my contemporaneous notes.

    3. See, for example, NAIS v Minister for Immigration & Multicultural & Indigenous Affairs (2005) 228 CLR 470; [2005] HCA 77 at [5] (Gleeson CJ).

13. I found that Tania Morris was an evasive witness who preferred to advocate her own case rather than to answer direct questions in cross-examination. She showed herself to have very strong opinions and deep feelings about the wrongfulness of the defendant’s behaviour. In addition, as she herself admitted, she had discussed with her husband the relevant events and, in particular, the conversations that took place from 2014 through to June 2016. In light of that, and in the absence of contemporaneous records, I am wary of accepting her version of events. That is not because I consider that Mrs Morris deliberately fabricated her evidence but, rather, because I have formed the firm view that her recollection has been formed by a combination of her strong feelings and beliefs about being wronged in the process of designing and building her dream home and conversations with her husband who shared her strong feelings.

14. Mr Morris described himself as being a good friend and a bad enemy. There is no doubt that he considers that the defendant is his enemy or that, like his wife, he has strong feelings about this matter. While his evidence was generally given in a forthright manner and he accepted that his recollection had faded with time, I find that he was not an entirely reliable witness. Again, while I consider that he believed what he said in evidence, his strong feelings about the matter, in combination with discussions with his wife, undermine my ability to readily accept his evidence.

15. The defendant was also not a particularly reliable witness. On occasion he confidently asserted facts only to retract them moments later when confronted with other facts. Like the plaintiffs, Mr Leaney has strong feelings about this matter, although not to the same degree as they do. Overall, I find that he was an honest witness but that caution is required before accepting his evidence.

16. Mr O’Hagan gave me the impression of having the clearest recollection of the relevant events. No doubt his recollection was assisted by having given evidence in proceedings against him in the NSW Civil and Administrative Tribunal. In some respects his evidence to this Court was different to his evidence in the Tribunal; however, he readily accepted that fact, and I accept his explanation that in the Tribunal he was confused during the cross-examination.

The Facts

17. In November 2012 the plaintiffs bought the property for $410,000. At the time there was a house on the property that consisted of three bedrooms, a study, kitchen, dining room, lounge room, bathroom, laundry, second toilet and a shower off the laundry. There was also an enclosed rear deck, a carport and a garage.

18. The plaintiffs at that time had three daughters and in 2014 the plaintiffs decided that they needed more living space to accommodate their growing family and lifestyle. Although they had never engaged an architect before, they were friends with the wife of the defendant who suggested that they speak to the defendant who was an architect. They did so and, on 21 June 2014, they received a proposal from the defendant for the provision of architectural services. ^[4] It was not until 29 November 2014 that the plaintiffs decided to engage the defendant as an architect and paid him a deposit for the first three stages as explained in his proposal.

    4. See exhibit TM-1, pp 1-6 to the Affidavit, Tania Morris, 27 June 2019.

19. The first formal meeting concerning the proposed construction of the home took place on 6 January 2015. At that meeting, Tania Morris said to the defendant that they had a budget of $300,000 and that they only wanted to use “healthy and natural materials, and construct a natural swimming pool, tennis court, a sauna room, landscaping and a driveway”. The next meeting between the parties occurred on or about 21 January 2015 when the defendant told the plaintiffs that they could not achieve everything including a tennis court and a pool with a budget of $300,000.

20. The parties next met on 24 January 2015 and Tania Morris told the defendant that they could increase their “budget to $300,000 plus the cost of a tennis court and steam room”. The defendant, however, informed the plaintiffs that this further budget was also not possible.

21. On 5 March 2015 the plaintiffs obtained an appraisal of the property from a local real estate agent in which they were told that the price range was between $445,000 and $460,000.

22. On or about 11 April 2015 there was a further meeting between the parties at which the defendant presented several preliminary designs. These designs were discussed and the plaintiffs arrived at their preferred design. ^[5]

    5. See exhibit TM-1, pp 29-30 to the Affidavit, Tania Morris, 27 June 2019.

23. Also at this meeting the defendant presented a document in the form of a spreadsheet which set out a schedule of accommodation and an opinion of probable cost. ^[6]

    6. Exhibit DL-1, tab 7 to the Affidavit, Dustin Leaney, 18 November 2019.

24. That document sets out in the left hand column the rooms or spaces contained in the design. There follow a number of columns giving the dimensions of each of those spaces including its area. Under the five columns set out under the subheading of “Opinion of Probable Cost”, there are two sets of figures given, the first two in respect of minimum cost and the second in respect of average cost. The first column in each of these gives a dollar figure per square metre and the second is a figure arrived at by multiplying the relevant area by that dollar figure. For example, the minimum cost total in respect of the lounge room is $31,360 which is arrived at by multiplying the area, 31.36m² by the cost per metre ($1,000).

25. The third and fourth columns show the average cost. The cost per square metre is $1,350.

26. Finally, there is a column showing extra costs for fit-out.

27. Below this table there is a further table setting out exterior extras such as a covered outdoor entertainment area, tennis court, pool, sceptic tank, gravity feed water tank, carport and pizza oven/sauna.

28. The final two figures in the document are arrived at by adding in respect of each the minimum and average cost columns, the total of the exterior extras (with some deductions for savings) to the minimum total cost calculated in respect of the interior areas as described above.

29. The amount given in respect of the minimum cost was $490,000 and the average cost was $590,000. The note at the bottom of the table indicated that these figures excluded GST and furnishings, decorations, curtains, blinds etc. It is not clear whether the cost of joinery or what is often described as prime cost items are included or excluded.

30. There is some dispute about what was said concerning this document.

31. Mrs Morris’s evidence was that Mr Leaney told the Morris’s that for the finishes they wanted, the cost would be the average cost shown in the document. She also says that he said:

“The average cost of 1350 dollars per square metre is the most that it will cost.”

32. Under cross-examination, she agreed that the document had been given to them by Mr Leaney in order for them to revise their budget estimate. ^[7] That much was consistent with the defendant’s evidence. ^[8]

    7. Tcpt, 24 August 2020, p 48(13).

    8. Tcpt, 27 August 2020, p 247(28).

33. Mr Morris’s evidence was that he told the defendant that he definitely wanted the tennis court, swimming pool, a nice big kitchen and a good space to park his ute. He said that the defendant replied that he would have all that.

34. The defendant said that the document was not based on any particular design but only on the schedule of size requirements given to him by the Morris’s. He said that he explained the document to them, saying that the lower figure was the absolute minimum cost to build and that the average cost was for a project home type of design, that it did not include any above average items and only had allowances for bathrooms and kitchens of a medium standard.

35. In the notes that the defendant had prepared for the purposes of the meeting, ^[9] the defendant set out a number of additional allowances to be made and ways to save costs, including to stage works or to do the construction as owner builders.

    9. Affidavit, Dustin Leaney, 18 November 2019, tab 6.

36. I prefer the defendant’s evidence about this meeting and find that the defendant did not tell the plaintiffs that they could achieve their objectives for any of the amounts set out in the document. The document itself is inconsistent with that proposition as it excluded costs including GST and furnishings. Further, given the content and purpose of the document, and the early stage of the design process, I find that it is highly unlikely that the defendant would have made any definitive statements about the probability of the cost. Finally, accepting, as I do, that the defendant’s notes formed the basis of the topics covered at the meeting, any suggestion of a concrete cost ceiling would have been inconsistent with the general tenor of the meeting.

32. On 24 April 2015 there was another meeting between the parties. Again, there is a dispute between the parties as to what was said at this meeting. Tania Morris gave evidence that the following conversation took place:

Tania Morris:	“We would like to proceed on the condition that we can achieve everything for a maximum cost of $600,000. This is our maximum and final budget.”
Defendant:	“We can do that by making some cost savings to lower the price without compromising the design.”
Tania Morris:	“If we can’t do it for that, we won’t proceed, and we will sell this place and buy another property.”

38. Mr Morris said that there was the following conversation:

Defendant:	“I have made some adjustments to this design that you guys are interested in, it can still be achieved within your budget.”
Alan Morris:	“That looks impressive; provided it definitely won’t cost us any more than $600,000, then this looks like a good plan.”
Defendant:	“It definitely won’t be over $600,000, in fact, with some costs saving choices it should be under $600,000.”

39. In his affidavit, the defendant said ^[10] that he could not recall any ultimatum from the plaintiffs that they would not proceed if they could not have what they wanted. He explained that they told him that they had already invested so much in the property that they were unlikely to obtain a reasonable sales price and that this was the determining factor in their decision to remain and renovate.

    10. The defendant’s responses to the plaintiffs’ affidavits are found behind tabs 32 and 33 of his affidavit. This is a very unsatisfactory way of preparing affidavit evidence and is to be discouraged.

40. Under cross-examination, the defendant accepted that he was aware that, early on, the plaintiffs had a goal of $600,000 for the construction ^[11] ; however, he explained that this was not a cap. ^[12]

    11. Tcpt, 27 August 2020, p 268(27).

    12. Tcpt, 27 August 2020, p 281(10-14).

41. I accept that the Morris’s both told the defendant that they had a budget of $600,000 to build the house; however, I am not satisfied that this was expressed either as a “maximum and final” budget or as the only basis on which they would proceed with the project. There are two reasons for that: first, it is unlikely that they gave a maximum budget that was less than the “average cost” set out in the document given to them in the earlier meeting (which was $649,000 excluding furnishings and other essential items); and secondly, I find that the plaintiffs’ recollection of the details of the meeting has been affected by hindsight and, while it may have been accurate to the extent that the budget was mentioned at this meeting, it is unreliable beyond that.

42. Following this meeting, the defendant continued to work on the design of the property in conjunction with instructions given to him by the plaintiffs. By June 2015 the plaintiffs decided that they needed to fast track the project. Mrs Morris gave evidence that on 16 June 2015 she had a conversation with the defendant in the following terms:

Tania Morris:	“This process is taking too long, we need to speed things up. Can we have longer and more regular appointments so that we can keep the project moving as per your proposal? Please tell us what we need to research, we will do it straight away because we are motivated to progress. We will even move out to speed up the building process if it will help.”
Defendant:	“By moving out you will make even further savings because the builders will have full access to the build the entire time and will have less work in trying to separate the building.”

43. At the top of the notes that she later wrote of this meeting, Mrs Morris wrote “Priority for us to fast track this project -> baby”. ^[13] She also recorded a concern about the health risks in pregnancy and for a baby. From this point forward, the speed of the project became the first priority for the plaintiffs. This explains a number of the decisions made by them later in the process.

    13. Exhibit TM-1, p 34 to the Affidavit, Tania Morris, 27 June 2019.

44. The design agreed to by the Morris’s had effectively two parts: first, a renovation of the existing building and secondly, the construction of a new wing at right angles to the existing building which would predominantly consist of bedrooms.

45. In August 2015 the defendant prepared a development application for submission to the Port Macquarie Hastings Council. The application was for approval to undertake renovations and building works including construction of a tennis court, swimming pool, sauna, water tank, removal of trees, landscaping and driveway. ^[14]

    14. See exhibit DL-1, tab 9 to the Affidavit, Dustin Leaney, 18 November 2019.

46. On page 6 of the application the estimated costs of the works was given as $406,000.

47. By email dated 21 August 2015 ^[15] the defendant wrote to the plaintiffs attaching the development application documents and giving them instructions as to completing them and then lodging them with the Council. The email contained the following note:

“…

Note that on the floor plan I have a schedule of building costs. This is a very bare minimum cost.

The more I put on this figure, the more fees council charges. DO NOT TAKE THIS COST AS A BUILDING COST.

(It will be at least 25% more, I haven’t included any demolition, it has a minimum grass tennis court, a minimum pool, no alterations to the existing dwelling included, etc …).”

(Emphasis in original)

15. Exhibit TM-1, p 90 to the Affidavit, Tania Morris, 27 June 2019.

48. The plaintiffs argue that this email is properly understood to mean that the total costs would be in the vicinity of 25% more than $406,000, that is, approximately $507,500. I reject that argument. First, the capitalised words in the second paragraph make it clear that the cost put into the development application was not to be relied on by the plaintiffs as reflecting what it would actually cost to build their new home. Secondly, that cost was said to be at least 25% more. Thirdly, the brief explanation for the likelihood of far greater costs was not complete: “ … etc …”.

49. In cross-examination, ^[16] the defendant explained that the figure of 25% was “a ball park off the top” of his head. I accept that evidence.

    16. Tcpt, 27 August 2020, p 280(46).

50. I do not, however, accept his evidence under cross-examination ^[17] that the defendant had a meeting with the plaintiffs at which he went through all of the items in the document entitled “Post-Council Process Checklist”. ^[18] The document is undated and unsigned and contains what looks like generic issues that arise for consideration by clients in connection with the engagement of a builder. First, in spite of the obvious relevance of any such meeting, the defendant did not refer to any such meeting in his affidavit. Secondly, there is no reference in any document, including the defendant’s own diary, to such a meeting. Thirdly, as will be seen shortly, the defendant sent the plaintiffs an email containing advice about engaging builders but there is no reference in that to any meeting on the same topic. Fourthly, the meeting was not put to either plaintiff in cross-examination.

    17. Tcpt, 27 August 2020, p 286(15-32).

    18. Affidavit, Dustin Leaney, 18 November 2019, tab 22.

51. On 8 September 2015 the defendant sent two emails to the plaintiffs. ^[19] In the first of these emails, sent at 12:52pm, the defendant gave the plaintiffs an update on what he had been doing which included an attempt to track down a builder for them. He explained that builders would typically take about a month to prepare a quotation and explained why that was the case. He then gave them some advice about the type of contract that might be entered into:

“Often with a renovation, builders will push for whats called a cost plus contract. This acknowledges that there are unknowns in the renovation part of the construction that can’t be quoted on, and they will build the building for what it costs PLUS an agreed percentage as builder’s profit (typically 10% some builders as low as 8%, others as high as 12% or more). There are pros and cons to this type of contract. The pros are that the builders are more likely to get started sooner, and if you get a good builder you trust, you will pay less for the house, because the builder won’t have to include a contingency in his quote to allow for unforeseen items. Basically you will pay exactly what it costs to build and no more. The cons are, you don’t know how much it’s all going to cost when you start, banks are reluctant to finance costs plus contracts, and if you don’t get a trust worthy builder, they can extend the job indefinitely, or if they make mistakes, you end up paying for the mistake, and for fixing it.

I’m not supposed to recommend Cost Plus contracts, but given you criteria of a fast-tracked renovation it may be something that needs to be considered.”

(Without alteration)

19. Exhibit TM-1, pp 104-105 to the Affidavit, Tania Morris, 27 June 2019 and exhibit DL-1, tabs 11 and 12 to the Affidavit, Dustin Leaney, 18 November 2019.

52. In the second email of 8 September 2015 the defendant told the plaintiffs that he had just spoken to a prospective builder called Terry O’Hagan who had been recommended to him by somebody else he had known. Mr O’Hagan is the builder whom the plaintiffs subsequently engaged to undertake the construction work on their new home.

53. On 23 September 2015 the defendant sent an email to the plaintiffs ^[20] in which he updated the plaintiffs again on the prospective builder. It may be noted that at this point a number of the builders contacted by the defendant had indicated they would not be able to commence building works until the following year.

    20. Exhibit TM-1, p 110 to the Affidavit, Tania Morris, 27 June 2019.

54. On 1 October 2015 the defendant forwarded to the plaintiffs a quotation from BDM Constructions. ^[21] The proposal from BDM Constructions included a “suggested budget range with Deluxe finishes and some specific unique requirements” of between $550,000 and $600,000 inclusive of GST. The proposal was for a cost plus contract but that BDM Constructions would review its initial budget estimate before commencing to obtain a greater certainty of special trade requirements and obtain supply quotations so as to be able to put together a detailed cost summary for the purpose of trade budget monitoring during construction. They explained that “this will allow the client to have even further comfort in our final estimate given a large % of the project would be locked into a fixed price”.

    21. Exhibit TM-1, p 119ff to the Affidavit, Tania Morris, 27 June 2019.

55. In his email forwarding this proposal, the defendant described it as very comprehensive and asked the plaintiffs to read through it and to let him know if they had any questions.

56. Tania Morris read through the proposal with considerable alacrity. Within half an hour of receiving it she replied by email with a number of questions including:

“Just confirming also, the cost of pool, sauna, tennis court, driveway, water tank and removal of trees are all not part of this estimate of costs, is this how you understand it?”

57. The defendant replied promptly that he thought that those items were not included in the estimate.

58. In her evidence, Mrs Morris said that in or about September 2015 she had a conversation with the defendant in the following terms:^[22]

    22. Affidavit, Tania Morris, 27 June 2019 at [36].

Tania Morris:	“You should be putting our job out to tender to builders now or it will be Christmas before anyone will be available and I have been made aware that the tender process itself takes time.”
Defendant:	“If you want your project moving forward, the cost plus contract is your only option.”

59. The defendant disputed this conversation. I am not satisfied that it occurred simply because it is inconsistent with the emails of 8 September 2015 and the following efforts made by the defendant to get the names of builders who were interested in the project and able to commence relatively quickly.

60. On 16 October 2015 the parties met again at the property. There is considerable dispute about what occurred during this meeting. Tania Morris’s evidence^[23] was that there was the following conversation before Mr O’Hagan arrived:

    23. Affidavit, Tania Morris, 27 June 2019 at [41].

Defendant:	“I think Terry understands your job better than BDM do. I think you should engage him to undertake your project on a cost plus basis.”
Tania Morris:	“We will go along with your recommendation on this, so long as we can establish with Terry that he can do the job for under $600,000 and within 6 months.”
Defendant:	“Okay, great, we will confirm those details with Terry when he gets here.”

61. Mrs Morris then says that Mr O’Hagan arrived and there was the following conversation:

Tania Morris:	“We have obtained a quote from BDM and they provided a time frame of 6 months; can you match that timeframe?”
O’Hagan:	“Yes, if they can do it, so can I.”
Defendant:	“What about the cost? Can you do the works for under $600,000?”
O’Hagan:	“Yes, I can achieve these works under the proposed budget of $600,000.”
Tania Morris:	“Based on the budget and timeframe you have provided, we are happy to engage you for our project.”
Defendant:	“We assume you will provide us with the contract before starting the work?”
O’Hagan:	“I am doing my current job only on a handshake.”

62. Mr Morris gave similar evidence. ^[24]

    24. Affidavit, Alan Morris, 27 June 2019 at [12].

63. The defendant disputed the first conversation and could not recall the second conversation. His evidence^[25] was that, when Mr O’Hagan arrived, there was the following conversation:

    25. Affidavit, Dustin Leaney, 18 November 2019 at [33].

Alan Morris:

“BDM have told us that they can do the build for $550,000. Can you beat that price?”

O’Hagan:

“I used to work for BDM as a supervisor. I’m pretty familiar with the rates they charge. I’m a smaller operation with lower overheads and can charge you a lower rate. Given I’m a smaller operation I also only work on one job at a time. I’ll be the project manager and maintain the quality of the project.”

Alan Morris:

“Why can’t you give us a fixed price?”

O’Hagan:

“I can’t give you a fixed price because the nature of your renovation includes a lot of unknowns. If you want a fixed price I’ll have to include a large contingency to cover the cost of any unknowns. With a cost plus contract, you’ll pay exactly what the construction costs, and no more.

If you want to go with a fixed price contract we’d have to obtain all of the quotes up front, you’d have to complete all of your selections and we won’t be able to start on site for at least another 3 months. With Cost plus, we can start demolitions at the same time as getting the quotes organised, while you are finalising your details.”

Alan Morris:

“But if we have a cost plus contract do you think you could get started before Christmas?”

O’Hagan:

“Possibly, provided all of your approvals are in place.”

64. The defendant then says that there was a further part of the conversation in which Mr O’Hagan was asked and answered questions about cost plus contracts before Mr Morris said:

“That sounds pretty good. Tania will be happy with that too. Let’s do that then.”

65. Mr O’Hagan gave oral evidence about this meeting. ^[26] He said that Mr Morris was disappointed, almost angry, when he told them that he could start the job in about three to four weeks but, that once he explained why, Mr Morris calmed down. He said that there was no conversation at that time about costs and that no budget was ever communicated to him (although he later said ^[27] that he was told of a budget towards the end of the project).

    26. Tcpt, 26 August 2020, p 165-166.

    27. Tcpt, 26 August 2020, p 176(1).

66. In cross-examination Mr O’Hagan said that he had not costed the job because the Morris’s were in such a hurry to get started that they were not prepared to wait for a full quote. ^[28] When it was put to him that Mrs Morris told him that they had obtained a quote from BDM with a timeframe of six months and that he said “Yes, if they can do it, so can I”, Mr O’Hagan replied categorically: ^[29]

“Absolutely not. I don’t, I don’t, I don’t work like that. I don’t gauge my work or my costs on other people …”

28. Tcpt, 26 August 2020, p 175(24).

29. Tcpt, 26 August 2020, p 200(7).

67. For the reasons I have given above, I prefer Mr O’Hagan’s evidence to that of the plaintiffs. He is independent of the parties, and his recollection was not tainted by discussing the events with other witnesses. It is also consistent with the defendant’s evidence. For those reasons, I find that Mr O’Hagan did not say that he could do the project for less than $600,000 or within six months. Further, I find that the reason that Mr O’Hagan was chosen by the plaintiffs as the preferred builder, on a cost plus contract, was that they were in a hurry to start the project and he was the one who could start the earliest. I also find that the defendant did not recommend to the plaintiffs that they should engage Mr O’Hagan to undertake the works on a costs plus contract. The only advice that he gave to them in relation to the appropriate building contract was that contained in his email of 8 September 2015 (see [51] above).

68. Those conclusions are supported by the defendant’s evidence that, after the meeting with Mr O’Hagan, Mr Morris said to him:

“We’re going with Terry because he can start before Christmas and his hourly rates are lower than BDM’s.”

69. On 25 November 2015 development consent for the construction was given by the Port Macquarie Hastings Council.

70. On 1 December 2015 the plaintiffs moved out of the property and moved to a rental property nearby. Mr O’Hagan commenced the works on the property on 16 December 2015.

71. On 8 January 2016 the defendant sent the plaintiffs an email updating them on progress. In particular he informed them of a meeting he had had with Mr O’Hagan and certain changes that he had discussed with the plaintiffs. One of the changes concerned the height of the roof over the bedrooms, which the change, he said, would be a “negligible cost difference”.

72. On 19 January 2016 the defendant gave the plaintiffs the cost plus contract which had been signed by Mr O’Hagan. Although it will be necessary to examine this in further detail later in these reasons, it is important to note for present purposes that the first substantive page of the contract contained a warning described to be for the purposes of the Home Building Act 1989. It stated that the contract sum or the amount to be paid by the owner was not known at the date of the contract. Further, in the space for the estimated costs of works and fees inclusive of GST it was written “not known”.

73. In her affidavit, Mrs Morris said^[30] that she noticed that aspect of the contract and had the following conversation with the defendant:

    30. Affidavit, Tania Morris, 27 June 2019 at [45].

Mrs Morris:	“Why is the estimate of costs stated as not known?”
Defendant:	“We can’t fill in an amount because we don’t know an exact price.”
Mrs Morris:	“We agreed on the 6 months’ timeframe with Terry, why is the timeframe 8 months in the contract?”
Defendant:	“Terry just needs to make it more than 6 months to cover himself for any unforeseen delays.”

74. The defendant did not dispute this evidence. It is telling that Mrs Morris did not say at this point that Mr O’Hagan had agreed to do the project for less than $600,000, and the fact that she did not, confirms my conclusion that there was no such statement by him. Further, the fact that Mrs Morris was concerned about the extra time for completion shows that time was a major concern for the plaintiffs.

75. Before the plaintiffs signed the contract, the defendant went through the contract with the plaintiffs and, in particular, went through each item on the page entitled “Statutory Owner’s Checklist and Questions”. ^[31] Paragraph 5 on that page asked, “Does the contract clearly state a contract price or contain a warning that the contract price is not known?” “Yes” was ticked. This makes it clear that, at the time of signing the contract, the plaintiffs knew that the contract price was unknown and that no estimate of that price was given.

    31. Exhibit TM-1, p 136 to the Affidavit, Tania Morris, 27 June 2019.

74. It appears, somewhat surprisingly, that at this late stage the plaintiffs still had not obtained finance for the project. Although, not the subject of direct evidence, I infer from email correspondence between the parties ^[32] that the Morris’s discussed the requirements of the bank for the purposes of a loan. The first of these emails was sent by the defendant at 10:55am on 1 February 2016 in which the defendant said:

“With the contract for the bank, sometimes banks don’t like cost plus contracts, because the final cost of the works, and what you are getting for that money are not detailed in the contract. If this does turn into an issue with your bank, there are ways around it.

We can re-negotiate a contract with Terry, and put the fixed price components into the contract.

…

This then becomes a fixed price contract. (but still has provisional sums which work on a cost plus basis.)

Banks usually don’t have any problems with this type of contractual arrangement as it is pretty clear what you will be getting for your money.”

(Without alteration)

32. Exhibit TM-1, p 169 to the Affidavit, Tania Morris, 27 June 2019.

77. Mrs Morris replied several minutes later (without correction):

“Thanks. Yes I think we’ll just wait and hopefully they won’t ask for any extra.

I explained that the estimate of costs was based on a per meter squared rate.

So perhaps, we could just give them those estimates.”

78. It is not clear from this what the “estimate of costs” that was referred to in this email was. However, given the reference to “per meter squared rate” I infer that it was the opinion of probable costs that was given to the plaintiffs by the defendant on or around 11 April 2015.

79. Shortly after this, a personal dispute arose between the parties. This arose from some action by Mr Morris towards one of the defendant’s children. Although the defendant continued to be involved in the construction process this was principally in respect of matters of design. From some point in February 2016, although he was authorised to administer the building contract as an agent for the plaintiffs, Mrs Morris took over the role of receiving, considering and paying invoices from the builder.

80. The contract provided that the builder would provide an updated budget estimate on a regular basis. Although the defendant did make efforts to obtain these updates from Mr O’Hagan it was not until 16 June 2016 that Mr O’Hagan provided the requested cost estimate. In an email dated 18 June 2016 ^[33] the plaintiffs wrote to the defendant saying that they would be unable to proceed with the pool construction “at this point of time along with several other aspects of the build”. This was because, they said, they were presented with a “huge discrepancy between the building estimates of yours and the estimates we received from Terry O’Hagan on Wednesday 16th June”. Although the email referred to an attached estimate, that estimate is not in evidence. I note that no reference was made to any previous estimate given by Mr O’Hagan.

    33. Exhibit TM-2, p 65 to the Affidavit, Tania Morris, 13 May 2020.

81. The defendant replied by email of 21 June 2016 ^[34] giving a detailed response to the plaintiffs’ complaints and explaining some of the discrepancies between the opinion of probable costs and the estimate that appears to have been given by Mr O’Hagan. Amongst other things, he explained the increase in cost of the swimming pool, the tennis court, underground tanks, sceptic system and electricals referring amongst other things to these being “above average” expenses.

    34. Exhibit TM-2, p 66 to the Affidavit, Tania Morris, 13 May 2020.

82. In total, the plaintiffs paid Mr O’Hagan $555,527.96 for the work completed by him. In her evidence, Mrs Morris also said that the plaintiffs spent an additional $225,531.27 on material for the construction.

83. The following are agreed facts:

1. the plaintiff spent $781,059.23 on the works;

2. the current market value of the plaintiffs’ property is $885,000; and

3. the probable current market value of the plaintiffs’ property if they had not undertaken the works was $555,000. ^[35]

Consideration

35. See Exhibit 20.

Issue 1: Whether the plaintiffs informed the defendant that their maximum budget was $600,000

84. The answer to this issue is “no” for the reasons given at [23] – [67] above and in particular [41] and [67].

Issue 2: Whether the defendant represented that the plaintiffs’ objectives could be achieved with a budget of $600,000

85. The answer to this issue is “no” for the reasons given at [23] – [64] above, especially at [41] and [48].

Issue 3: Whether the defendant conveyed the substance of the document at Tab 22 of exhibit DL-1 to the plaintiffs

86. The document at tab 22 of exhibit DL-1 is entitled “Post-Council Process Checklist”. I have found that there was no meeting between the parties at which the defendant went through the items in that document (see [50] above). That finding is not conclusive of this issue because the defendant did give advice to the plaintiffs about one type of building contract. That was in his email of 8 September 2015 (see [51] above) and, to a much more limited extent, in his email of 1 February 2016 (see [76] above). However, the only matter dealt with in either of those emails was cost-plus contracts. Thus, while the 8 September email contained advice about the pros and cons of that type of contract including that the defendant was “not supposed to recommend” them, neither email informed the plaintiffs about other options available to them that were set out in the checklist. For that reason, the answer to this issue is “no”.

Issue 4: Whether the defendant accurately and/or adequately advised the plaintiffs on the likelihood of achieving their objectives within their budget of $600,000

87. This issue arises in respect of the claims in both negligence and contract.

88. The standard of the duty of care owed by an architect to a client was explained as follows by Windeyer J in Voli v Inglewood Shire Council (1963) 110 CLR 74; [1963] HCA 15 at 84 [8]:

“An architect undertaking any work in the way of his profession accepts the ordinary liabilities of any man who follows a skilled calling. He is bound to exercise due care, skill and diligence. He is not required to have an extraordinary degree of skill or the highest professional attainments. But he must bring to the task he undertakes the competence and skill that is usual among architects practising their profession. And he must use due care. If he fails in these matters and the person who employed him thereby suffers damage, he is liable to that person. This liability can be said to arise either from a breach of his contract or in tort.”

89. The defendant’s retainer with the plaintiffs expressly provided ^[36] that the defendant was to “conform to the Architect’s Regulation 2004, Schedule 1 – NSW Architect’s Code of Professional Conduct” (Code). The following clauses from the Code are relevant:

    36. Affidavit, Dustin Leaney, 18 November 2019, exhibit DL-1, tab 2, first dot point on last page.

“2(2)   If a provision of this Code provides that an architect should provide information or disclose a matter to a client, the architect is to provide that information or disclose that matter in writing except where it is reasonable in the circumstances for it to be done orally.

…

6(1)   An architect should provide sufficient relevant information with reasonable promptness to enable a client or prospective client to make an informed decision in relation to the provision of architectural services.

6(2)   In particular, the architect should take all reasonable steps to:

(a)   ensure that all information and material provided is truthful, accurate and unambiguous and relevant to the client’s interests …

6(3)   An architect should take all reasonable steps to ensure that the client is informed of:

(a)   the decisions required of the client in respect of the architectural service being provided by the architect; and

(b)   the implications of those decisions for the performance of the service (particularly those implications related to timeliness, cost and changes to the service and any building or building related work consequential to the service).

6(4)   An architect should advise a client on the likelihood of achieving the client’s stated objectives having regard to the client’s stated budget and time requirements for the architectural service concerned.”

90. The term “architectural service” was defined to have the same meaning as in the Architects Act 2003 (NSW), namely: “a service provided in connection with the design, planning or construction of buildings that is ordinarily provided by architects”. It was not disputed that the services which the defendant was to provide to the plaintiffs were architectural services.

91. In spite of knowing of the plaintiffs’ budget or goal, the defendant did little or nothing to advise the plaintiffs as to either the impact of their particular decisions on the likely cost of the building, or on the likelihood of them achieving their objectives having regard to their budget.

92. It was uncontested that the plans were refined with time and, in particular, that greater details as to finishes were being decided up to and well past the grant of development of approval. In spite of that, the only evidence of any advice given by the defendant in respect of the potential cost of the building was in the opinion of probable costs, in the email of 21 August 2015 ^[37] and in his email of 1 February 2016. ^[38]

    37. Exhibit DL-1, tab 10 to the Affidavit, Dustin Leaney, 18 November 2019.

    38. Exhibit DL-1, tab 31 to the Affidavit, Dustin Leaney, 18 November 2019.

93. Two experienced architects gave expert evidence about what would be widely expected by peer professional opinion in relation to a number of matters including updating clients about the potential costs of building projects. Mr Moschoyiannis, who was qualified by the plaintiffs, gave evidence that peer professional opinion would require costs estimates to be broken down into a summary sheet which was regularly updated with explanations for over-runs and proposals to adjust or recover costs. He concluded that the defendant did not meet this standard.

94. Mr Kemeny, who was qualified by the defendant, also concluded that the defendant did not meet the standard expected by peer professionals. In his view, the standard required was significantly lower than that propounded by Mr Moschoyiannis. In his view, the opinion of probable costs should have been monitored and updated as the project increased in scope and was being changed by the plaintiffs or the plaintiffs ought to have been warned in writing about the increase in costs. I prefer this evidence given the scale of the project.

95. While I prefer the opinion of Mr Kemeny, the effect of the experts’ opinions is that the defendant failed to meet the standard of care required of him as an architect insofar as that standard related to the probable costs of the building. The opinion of probable costs was fit for the purpose of demonstrating to the plaintiffs that their stated budget of $300,000 was very unlikely to allow them to achieve their dream home. However, once the schematic concept was decided upon by the plaintiffs and the sketches became more detailed plans, the defendant ought to have kept the plaintiffs updated on the impact of changes and design choices on the probable cost of the building. The email in August was an inadequate response to this obligation, as was the email in February 2016.

96. It may be accepted that an architect does not have the ability to give an accurate costs estimate. That expertise is held by quantity surveyors and, sometimes, by builders. However, that does not excuse an architect from giving any advice about the costs consequences of his or her design. If the defendant felt himself unable or unqualified to give an accurate estimate of costs, he should have warned of that in writing and advised the plaintiffs to obtain an estimate from a properly qualified professional.

97. For those reasons, the defendant was in breach of both his contractual obligations and professional duty of care by failing adequately to advise the plaintiffs of the likely costs of the building.

Issue 5: Whether the defendant adequately advised in relation to the selection and form of the building contract

98. This issue also arises in relation to the claims in both contract and negligence. Part of the services that the defendant agreed to provide to the plaintiffs was advice on the selection of an appropriate building contract. ^[39] There was no issue that the defendant owed a parallel duty of care to take reasonable care in giving that advice. The issue was whether either of those obligations was breached.

    39. Exhibit TM-1, p 3 to the Affidavit, Tania Morris, 27 June 2019.

99. The only significant advice given by the defendant to the plaintiffs about the appropriate contract was in his email of 8 September 2015. As I have already noted, that advice was limited to the various pros and cons of one type of contract, the cost plus contract. There was also advice given in the email of 1 February 2016, but that was after the plaintiffs had already entered into the building contract with Mr O’Hagan.

100. The plaintiffs’ expert witness, Mr Moschoyiannis, said in his report ^[40] that a “competent peer professional would only advise and steer the client to the selected Cost - Plus Building Contract” if they also provided a number of other architectural services, advice and action to assist the client in meeting their expectations and outcomes in relation to the budget and final cost. This included ensuring that an estimated cost of works was inserted into the contract and not simply that the costs were “not known”.

     40. Exhibit 16 at [7.45].

101. The opinion does not sufficiently address either the issue raised by s 5O of the Civil Liability Act or the facts of this case. For that reason, it is sufficient to note that Mr Kemeny, an expert qualified by the defendant, disagreed with this opinion ^[41] and it is unnecessary to resolve the dispute about it. However, in his oral evidence, Mr Kemeny was clear that peer professional opinion would not regard it as competent for an architect to permit their client to enter into a cost plus contract with a builder who had not given a price. ^[42] He went on to say that an architect would be expected to advise a client that a cost plus contract was extremely risky when the client wanted to get the building started and went against advice not to enter into such a contract without an estimate of price. ^[43] He also said that peer professional opinion would expect that advice to be in writing. ^[44]

     41. Exhibit 19 at [4.2.45].

     42. Tcpt, 9 February 2021, p 470(11).

     43. Tcpt, 9 February 2021, p 472(13).

     44. Tcpt, 9 February 2021, p 472(28); p 473(9-13).

102. I accept Mr Kemeny’s opinion on this matter. The defendant’s advice to the plaintiffs about the building contract that was appropriate to them in their particular circumstances fell well short of what was required by both his contractual obligations and his professional duty of care as an architect.

Issue 6: Whether the defendant was relieved of the obligation of administering the building contract

103. There is little utility in answering this question. The damages claimed are said to have arisen upon entry into the building contract rather than in its performance or by reason of the defendant’s failure to perform as the plaintiffs’ agent under it. However, as a breach of contract gives rise to at least the right to nominal damages, it is necessary to address the question. The answer to it is “no”.

104. Paragraph (g) in Schedule 2 of the Contract ^[45] provided that the administration of the contract was to be by a third party. Special conditions relating to the defendant’s role included a provision that, in order to determine the amount of money, if any, payable to the builder by the owner, the architect was to assess and certify claims by the builder pursuant to the terms of the contract. ^[46] Importantly, clause 7(a) of the special conditions provided that “where the Architect is replaced by the Owner for the purposes of administering the contract then the Owner must as soon as practicable advise the Builder in writing of the termination of the Architect’s services.”

     45. Exhibit TM-1, p 141 to the Affidavit, Tania Morris, 27 June 2019.

     46. Clause 3: exhibit TM-1 p 160 to the Affidavit, Tania Morris, 27 June 2019.

105. The critical aspect of the administration of the contract for present purposes was the requirement to check invoices against the work done. Mr O’Hagan started handing invoices directly to Mrs Morris in February as a matter of convenience. This did nothing to interfere with the defendant’s obligations. However, once the personal issue between the parties arose, Mrs Morris took it upon herself, not only to receive the invoices from the builder but also to check them and keep track of them. Although this undoubtedly interfered with the defendant’s ability to check each invoice provided by Mr O’Hagan, especially in light of the five day period for payment, it did not prevent him from doing that. Certainly, he continued to engage with the plaintiffs in other respects, including the provision of quotes ^[47] and updating drawings. ^[48] Mr O’Hagan gave evidence that the defendant was “sacked” ^[49] which may have accurately reflected what he saw, but there was no written notice of termination and, as a matter of contract, the defendant was still obliged to administer the contract.

     47. Exhibit TM-2, p 9 to the Affidavit, Tania Morris, 13 May 2020.

     48. Exhibit TM-2 p 3 to the Affidavit, Tania Morris, 13 May 2020.

     49. Tcpt, 26 August 2020, p 168(27).

Issue 7: Whether the defendant adequately administered the building contract.

106. Again, for the reason given in [103] above, there is little utility in answering this question but it is still necessary to deal with it. The answer to this issue is “no”.

107. The defendant did nothing to check the amounts claimed by the builder against the work actually done or to compare it with the plaintiffs’ budget. However, no loss flowed from that failure. The plaintiffs do not say that they would have attempted to rescind or vary the building contract if they had been apprised of the unlikelihood of achieving their objectives at some point after February and there is no contest that they were not overcharged for the work performed.

Issue 8: Whether the costs representations were misleading or deceptive

108. This issue is determined by my conclusion that the pleaded representations were not in fact made. In light of that conclusion, the answer must be “no”. Conscious, however, that I may be wrong in that conclusion, I will briefly address the consequences that some or all of the representations, as pleaded, were made.

109. The Competition & Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law (ACL), s 18 provides that “a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive”. The plaintiffs claim that the defendant contravened this provision by making three oral and written representations about the costs of building the home that they had engaged him to design.

110. The prohibition in s 18 does not turn on the form of the words used but, rather, on the nature of the impugned conduct: Norton Property Group Pty Ltd v Ozzy States Pty Ltd (in liq) [2020] NSWCA 23 at [89] (Leeming JA, Payne JA and White JA agreeing). Thus, in Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 (Campbell) French CJ said, at [32]:

“If the conduct is said to consist of a statement made orally or in writing, the first question to be asked is what kind of statement was made. Was it a statement of historic or present fact made on the basis that its truth was known to its maker? Was it a statement of opinion? That is to say was it a statement of “judgment or belief of something as probable, though not certain or established”?”

111. If the representation is properly characterised as a statement of a future matter, issues arise under s 4 of the ACL as to whether there was a reasonable basis for the representation. The same issue may arise if the nature of the conduct is the expression of an opinion.

112. In Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82, the Full Court of the Federal Court said, at 88:

“An expression of opinion which is identifiable as such conveys no more than that the opinion expressed is held and perhaps that there is basis for the opinion. At least if those conditions are met, an expression of opinion, however erroneous, misrepresents nothing.”

(Emphasis added)

113. The characterisation of a statement as either one of opinion or of fact is not always a straightforward matter. As President Bell pointed out in Ireland v WG Riverview Pty Ltd [2019] NSWCA 307 (Ireland) at [30], there will frequently be debate about the proper characterisation of the statement in question. Forrest v Australian Securities and Investment Commission (2012) 247 CLR 486; [2012] HCA 39 was a case in point. The “characterisation of a statement as to one of belief or opinion, on the one hand, or as to a matter of fact, on the other hand, is to be viewed from the perspective of the person or “ordinary or reasonable” audience to whom the statement or representation is directed” (as opposed to the perspective of the maker of the statement): Ireland at [30] (Bell P, referring to Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45 at 85; [2000] HCA 12 at [102]. Here, that audience was Mr and Mrs Morris.

114. In Ireland, President Bell explained the consequence of this approach:

“[33]   It follows … that there will be cases where a statement made by a person honestly believing it to be true will give rise to liability, notwithstanding that person’s honest belief in its truth because, to the target audience, that statement has presented as one of fact, and not of opinion or belief: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 197; [1982] HCA 44. In this sense, liability for misleading or deceptive conduct is sometimes described as strict (in that it does not require any fault or intent on the part of the representor to be established: see, for example Heydon at [160.250]).

[34]   Where, however, it is established that a statement or representation is or must have been understood by its target audience as one of opinion or belief, even though presenting at one level as one of fact, liability will not be strict; rather, it will generally depend upon an assessment as to whether or not the belief or the opinion was honestly held and “perhaps” (see [24] above) whether or not the maker had a reasonable basis for the belief or opinion. Other than in cases of statements as to future matters (where the statutory presumption is engaged: see, for example, Competition and Consumer Act (Cth), Sch 2 – Australian Consumer Law, s 4), it will be for a plaintiff to establish the lack of reasonable basis for belief if misleading or deceptive conduct is to be established.”

115. The conduct of the person alleged to have engaged in misleading or deceptive conduct must be viewed as a whole in light of the surrounding facts and circumstances: Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60. It is an error, for example, to consider a written statement in isolation from a contemporaneous disclaimer notice: Ireland.

116. In oral submissions, counsel for the plaintiffs argued that the representations as to the likely costs of construction made in April 2015 were added to by the failure by the defendant to advise them at any later stage that the costs would be increased by their choices of various items or by their decision to “fast-track” the construction. In other words, he relied on the defendant’s silence as part of the contravening conduct. Silence, or non-disclosure, can constitute misleading or deceptive conduct where there is a reasonable expectation that disclosure should be made or silence broken: Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357; [2010] HCA 31; Nadinic v Cheryl Drinkwater as trustee for the Cheryl Drinkwater Trust [2020] NSWCA 2.

117. Those submissions may have had some force in light of the contractual obligation of the defendant concerning the plaintiffs’ budget or goal (as to which, see [87] – [97] above). However, this was not pleaded and it would be unfair to allow the plaintiffs to raise an argument after evidence had closed, particularly where they had been given leave to, and did, amend their pleading only days before the commencement of the trial. I do not accept counsel’s submission that it was unnecessary to expressly plead this point because it arose from the claims in contract and negligence. While pleadings may not be enforced with the same rigour as they once were, defendants should not be required to engage in significant excavation to uncover the case truly brought against them.

118. Viewed from the perspective of the plaintiffs, the costs representations were no more than an expression of an opinion, although, given the way in which the first representation was made, the opinion also carried the representation that there was a reasonable basis for it.

119. The first representation set the context for the later representations and, on its face, it was described as an opinion. There is no issue that the opinion was one that was actually held by the defendant. Further, there is no real issue that there was a reasonable basis for that opinion: the calculations for it were set out in a document given to the plaintiffs and explained to them by the defendant in the first April meeting. Importantly, the opinion was qualified by the defendant’s explanation at that meeting that the figures were industry based and not necessarily reflective of what the plaintiffs’ building would cost. This, it was explained, depended on a number of matters including the level of finishes and their input into the construction. The further important qualification, consistent with the first, was that the estimate did not include either GST or furnishings. In that context, the later representations were also no more than expressions of opinion, were truly held by the defendant, and there was a reasonable basis for them.

120. For those reasons, in making the costs representations, the defendant did not engage in conduct that contravened s 18 of the ACL.

Issue 9: Whether the plaintiffs relied on those representations

121. Given that the representations were neither made as alleged, nor misleading or deceptive, this issue does not arise. However, if I am wrong about both of those conclusions, then I find that the plaintiffs did rely on the representations.

122. Section 236 of the ACL provides that if a person “suffers loss or damage because of the conduct of another person” and the conduct contravened, relevantly, s 18 ACL, “the claimant may recover the amount of the loss or damage”.

123. Reliance on contravening conduct is often, as in this case, put forward as the causal connection required between the conduct and the loss claimed. Whilst proof that the claimant took action in reliance upon the conduct will often suffice to prove the necessary causal connection, “reliance is not a substitute … for the essential question of causation”: Campbell at [102] and [143]; Jewelsnloo Pty Ltd v Sengos [2016] NSWCA 309 at [58].

124. The loss said to arise in these proceedings is said to have arisen by the plaintiffs’ entry into the building contract with Mr O’Hagan. It is said that the plaintiffs relied on the costs representations in entering into that contract. This issue, then, deals with the first aspect of the plaintiffs’ claim for damages. The reasons for which I would have found that the plaintiffs relied on the costs representations if I had arrived at different conclusions about those representations, are as follows.

125. First, although there is no direct evidence about how much the plaintiffs could actually afford to spend, there was uncontested evidence of what they thought they could obtain in order to fund the construction of a new home. Mrs Morris says^[50] that, after they had been told that they could not get what they wanted for $300,000 ^[51] , she and her husband did some calculations and thought that they could extend their budget up to $600,000 if they borrowed more money. That figure was arrived at against the background of the amounts set out in the opinion of probable costs.

     50. Affidavit, Tania Morris, 27 June 2019 at [22].

     51. The budget of $300,000 had been made up of the amount available to the plaintiffs on redraw from their mortgage account added to a small amount of savings.

126. That was in April 2015. Although they did not approach the bank for a loan until February 2016, as the defendant himself knew, the plaintiffs moved forward into the design stage of the project with the goal of maintaining a budget of $600,000. The defendant never updated the figures in the opinion of probable cost and when he referred to the lower figure in the development application, he explained only that the true building cost would be at least 25% more than that figure (which would make the final cost less than $600,000).

127. The only matter that might have disabused the plaintiffs of the idea that they had any chance of achieving their objectives within their budget was the BDM quotation sent to them on 1 October 2015. The quote included a “suggested budget range with Deluxe finishes and some specific unique requirements” of between $550,000 and $600,000 inclusive of GST. However, as Mrs Morris quickly noticed, the cost of the pool, sauna, tennis court, driveway, water tank and removal of trees were not part of this estimate of costs. The opinion of probable costs had included an estimate of $114,500 for a tennis court, pool, septic treatment and gravity fed water tank without GST. Adding the cost of a driveway and removal of trees to this meant that the cost of the entire works envisaged at that stage would have well exceeded $600,000, if not $800,000.

128. On my findings [67] the plaintiffs did not obtain any quote from Mr O’Hagan about the cost of the project and proceeded to retain him because he could start work earlier than anyone else. BDM was proposing to obtain further quotations to enable certain works to proceed on a fixed sum basis; however that would take time and the Morris’s main objective by that stage was to start and finish the project as soon as possible so that they could get on with their plan of having more children. Even though that was their main priority, this does not mean that the costs representations did not form part of their rationale for proceeding with the contract. Given that cost had, up to that point, been an important matter for them, I find that it remained part of the reason for their decision to continue with the project and to engage Mr O’Hagan.

129. If, however, contrary to my conclusion, Mr O’Hagan had told them that he could complete the construction of the building and the external works for less than the BDM quote, then they would no longer have been relying on the defendant’s representations, but on that of the builder.

Issue 10: Whether the plaintiffs suffered loss and damage and, if so, what is the proper basis for assessing damages

130. The pleaded case is that the plaintiffs suffered loss and damage when they entered into the building contract and spent $781,059.23 and that they did so in reliance on the costs representation and the contract advice. Although I have rejected the representational and advice aspects of the claim, it remains to consider whether the defendant’s negligence and breach of contract have caused the plaintiffs any loss.

131. It is important to note at the outset that the same damages are claimed by the plaintiffs in respect of each cause of action, namely, the amount of money they say would put them, as far as money can do, in the same position had they not entered into the building contract. I accept that, where, as here, the broken contractual obligation and duty of care align, the loss suffered by a claimant aligns. The same would have been the case had there been a contravention of s 18 of the ACL.

132. The plaintiffs argue that the proper calculation of damages is to start with the amount of money spent by them on the building ($781,059.23), then deduct $275,000 being the difference between the current market value of the property ($835,000) and the probable market value of the property had the work not been undertaken at all ($550,000).

133. The only authority relied on by the plaintiff that is directly on point is Robinson v Kenny [2014] FCA 988, a decision of Farrell J. Her Honour found, at [278], that the conduct of the respondent, an architect, had misled the applicant, the owner of property, as to the likely cost of the works to be undertaken by a builder on the property. Her Honour then found, at [300], that, if the applicant could not find a builder who would build the works for a fixed price of about what the applicant was led to believe they would cost then he would, amongst other things, have abandoned the plan to build the works and continued to lease the existing house. On the basis of that counterfactual, her Honour said, at [301], that she accepted the applicant’s “submission that he is entitled to statutory compensation” calculated by adding the amount spent on the works, interest on that amount and the amount of foregone rent and deducting from the total a sum equal to the change in the improved value of the property due to the construction of the works.

134. Unfortunately, other than a reference to the broad approach to damages under the relevant statutory regime at [35], her Honour did not expose her reasons for accepting the applicant’s submission. However, the plaintiff submitted that the conclusion was consistent with the principles explained by the Full Court of the Federal Court in Wyzenbeek v Australasian Marine Imports Pty Ltd (in liq) (2019) 272 FCR 373; [2019] FCAFC 167 (Wyzenbeek).

135. The appellants in Wyzenbeek were induced to buy a motor yacht by representations to the effect that the yacht was an ocean-going vessel. It was not. The relevant issue on the appeal was the assessment of loss where, but for the respondents’ conduct, the transaction in question would not have occurred. The Court found, at [120], that the loss resulting from or caused by the misleading or deceptive conduct was “the expenditure of the purchase price and the sums the subject of the consequential or additional loss claim less the current value” of the yacht.

136. The approach of the primary judge was found, at [100], to have left two critical factors out of account: first, that the misrepresentations had caused the appellants to buy and maintain the yacht for their pleasure (in particular, to sail her on the open ocean); and secondly, that the incapability of the yacht to do what was represented had a financial value to the appellants. It was in light of those factors that the Court held that the appropriate remedy was the recovery of the purchase price plus whatever was spent on the yacht less what was “left in their hands”, that is, the current value of the yacht.

137. This case is different to Wyzenbeek. First, there were no goods or asset purchased. Rather, there was a contract entered into pursuant to which the plaintiffs’ desired home was to be built. There is no question that, subject to some minor defects valued at around $50,000, Mr O’Hagan performed the work he was paid to do. The plaintiffs’ case against him in the New South Wales Civil and Administrative Tribunal failed except to the extent of the minor defects. In other words, they got what they paid for and, to the extent that the works were completed, they got what they wanted. The only issue is that they did not get everything that they wanted. In particular, they did not get the external works such as the pool and tennis court.

138. The evidence, though, is that they could never have got everything that they wanted for the price they were willing or able to pay. What they are left with is a house far more suitable to their, now increased family, made of natural materials and with additional bedrooms, larger kitchen and space for home-schooling. Thus, unlike the appellants in Wyzenbeek, they have the enjoyment that they were after, less the additional benefits that they could never afford.

139. The issue of the appropriate measure of damages for negligent estimation of building costs is dealt with in Walmsley, Abadee, Zipser and Sirtes, Professional Liability in Australia (3^rd ed, 2016, Law Book Company) at [6.1950] where the learned authors relevantly state:

“Where a building professional negligently underestimates the proper cost of construction but the owner completes construction, in many cases the damages recoverable by the owner against the building professional in respect of the additional cost of construction will be nominal, since the owner will have received a building to the value of the actual construction cost: see Auburn Municipal Council v ARC Engineering Pty Ltd [1973] 1 NSWLR 513; McBratney v Boston (1994) ATPR ¶41-355; Beregold Pty Ltd v Mitsopoulos (1999) 15 BCL 290; Doepel & Associates Architects Pty Ltd v Hodgkinson [2008] WASCA 262 at [45]. …”

140. In Auburn Municipal Council v ARC Engineering Pty Ltd [1973] 1 NSWLR 513 (Auburn Council) the respondent negligently designed inadequate footings for buildings that led to serious defects that required the principal building to be demolished and rebuilt. One of the issues on appeal was whether the Council ought to be permitted to withdraw the concession made at trial that the appropriate measure of damages, while including the cost of demolition and rebuilding (including piles), had to be reduced to allow for the additional cost that would have been incurred had the building been designed and erected with piles in the first place. This question raised the proper application of the principle in Bellgrove v Elridge (1954) 90 CLR 613; [1954] HCA 36. The breach of duty and loss were different in nature in that case and so the interesting divergence of views on that issue^[52] is of little assistance here.

     52. See Roluke Pty Ltd v Lamaro Consultants Pty Ltd [2008] NSWCA 323.

141. In Beregold Pty Ltd v Mitsopoulos (t/a D Mitsopoulos & Associates) (1999) 15 BCL 290, Cole J in the Supreme Court of New South Wales considered similar issues to those in Auburn Council and so that decision is also of little assistance here.

142. McBratney v Boston [1994] ATPR ¶41-355 (McBratney), a decision of the West Australian Court of Appeal, is of greater assistance. The appellants bought land with the plan to build a house on it and then live in it during retirement. The respondent was an architectural draftsman engaged by the appellants to design the house and supervise its construction. The respondent was aware that the appellants had a budget of $90,000 and could not afford to spend any more than that. He estimated that the construction would cost $89,679. On the basis of that estimate, the appellants entered into a building contract. However, the relationship between the parties soured as the costs of construction mounted and, not long before completion, the appellants took possession of the house without notice to the respondent.

143. The respondent sued the appellants for the balance of the costs of building the house (the total of which was $114,126.87) plus his supervision fee and less amounts paid by the appellants (a deposit and construction costs of $95,559.50). The appellants cross-claimed for damages caused by the respondent’s misrepresentation that the house could be built for $89,679.

144. The trial judge found for the respondent on his claim and gave judgment for $15,449.79. On the cross-claim, his Honour found that the respondent led the appellants to believe that his estimate was a reasonably accurate one but, as there was no reasonable ground for it, the respondent had engaged in misleading and deceptive conduct. His Honour also found that the appellants had entered into the building contract in reliance on the respondent’s conduct; however, he found that the appellants had suffered no loss because the improvements were worth $112,000 which was greater than the sum for which they were liable to the respondent.

140. The only question on appeal was whether the trial judge was correct in his conclusion that the appellants had not suffered any loss. The appeal was dismissed. Justices Wallwork and Owen gave joint reasons and Justice Franklyn delivered separate reasons. Both sets of reasons were to similar effect. First, the question of loss was determined by assessing how much worse off the appellants were by reason of the respondent’s conduct. Secondly, the critical fact was that the value of the house (as opposed to the land and the house) was $112,000. As a consequence, since that value exceeded the amount that the appellants had to pay for it, they were no worse off and suffered no loss.

141. The case of Doepel & Associates Architects Pty Ltd v Hodgkinson [2008] WASCA 262 (Doepel) involved an estimate given by an architect of the costs of construction of a residential house. The trial judge held that this estimate amounted to misleading and deceptive conduct and that the respondent suffered loss in reliance on the estimate by entering into a contract for the house. The loss arose because if it were not for the conduct, the respondent would have engaged another builder to build a cheaper home. The amount of loss was calculated as the profit that would have been made on the sale of the cheaper home less the profit actually realised on the sale of the partially constructed house.

142. The Western Australia Court of Appeal dismissed the appeal by majority (Martin CJ, Le Miere J agreeing). In his judgment, the Chief Justice referred, at [45], to the cases relied on by the appellant in relation to the damages flowing from negligent estimates of construction costs, saying:

“…

Those cases establish, not surprisingly, that if a party relies upon such a representation and proceeds to undertake construction, and receives full value for the construction work undertaken, damages will ordinarily be nominal – at least in the absence of evidence to the effect that the cost could have been reduced had some other form of construction been undertaken. On the other hand, if market value following construction is less than the cost of construction (added to the land acquisition cost), damages in the amount of the difference may be awarded (J & J C Abrams Ltd v Ancliffe [1978] 2 NZLR 420). This is not a special rule applicable to the negligent assessment of construction costs, but the application of general principle.”

148. Justice McLure dissented. Although it was unnecessary for her Honour to do so, she briefly addressed the question of damages at [127] – [128]. After referring to McBratney, her Honour said, at [128]:

“The better view seems to be that an unreasonable underestimation of the cost of construction will not ordinarily result in loss or damage if the owner received a building to the value of the construction cost unless there is a finding that the proprietors would have taken a different course to their financial advantage and that such damage was not too remote.”

149. For the purposes of this case, once it is accepted, as it was by the parties, that the measure of damages for each of the claims made by the plaintiffs is relevantly the same, the first question is whether the plaintiffs were worse off because of the conduct of the defendant. I find that they were not. They obtained the full value of the money that they spent on the construction of the house and have not shown that they otherwise suffered any financial disadvantage.

150. The plaintiffs argued that their loss was the difference between what they spent on the house and the improved value of the land. They argue that this follows from the principle that the improvements form part of the land^[53] and the principle that the value of land is not informed by the cost of building works but by what a willing but not anxious buyer negotiating with a willing but not anxious vendor would agree upon for the whole of the land in its current state: Spencer v Commonwealth of Australia (1906) 5 CLR 418 at 441; [1907] HCA 82 (Isaacs J).

     53. Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700 at 702.

151. This submission ignores the facts of the case. Unlike the owner in Doepel, but like the owners in McBratney, the plaintiffs have not sold, and it appears, do not intend to sell the property. Rather, they continue to live in the house designed for them by the defendant to meet the various needs of their growing family and a healthy environment. The focus, then, on the consequences of the sale of the property is misplaced. The plaintiffs do not, and cannot, allege that their property diminished in value by reason of the construction of their home. On that basis, and given that they got exactly what they paid for, they have not established that they are any worse off than they would have been had the defendant not breached his obligations under the retainer and failed in his duty of care. For that reason, the plaintiffs have not suffered any loss and their claim must be rejected for that additional reason.

152. In light of that conclusion, it is unnecessary for me to address the defendant’s argument that there was “special value” in the property. ^[54]

     54. See Kennedy Street Pty Ltd v The Minister [1963] NSWR 1252.

153. As there was no loss, the plaintiffs’ claim in negligence must fail; however, they are entitled to nominal damages in respect of the breaches of contract by the defendant: Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286, 301; [1938] HCA 66; Huppert v Stock Options of Australia Pty Ltd (1965) 112 CLR 414, 424, 431; [1965] HCA 30; Chappel v Hart (1998) 195 CLR 232 [93], [149]; [1998] HCA 55. I would award an amount of $1,000.

Issue 11: Whether Mr O’Hagan was a concurrent wrongdoer

154. The defendant argues that, if he is liable to the plaintiffs in negligence or contract, the proportionate liability provisions of Part 4 of the Civil Liability Act 2002 and Part VIA of the Competition & Consumer Act 2010 apply. On that basis, he says that Mr O’Hagan was a concurrent wrongdoer because he failed to provide appropriate budgeting and forecasting, failed to undertake the construction works with due care and skill, and free of defects, and failed to complete the works.

155. This argument does not arise where there has been no economic damage suffered. In any event, there are a number of short answers to this claim. First, the failure by the builder to provide a budget report, or updated budget report ^[55] did not cause any loss to the plaintiffs for the same reason that the defendant’s breaches of his obligation to administer the contract cause no loss. Secondly, the balance of the particulars of this claim fell away when the plaintiffs no longer pursued their claim that the building work was defective and incomplete.

Issue 12: Whether the plaintiffs caused or materially contributed to any loss suffered by them by their own negligence and failure to take reasonable care in accordance with s 137B of the Competition & Consumer Act 2010

55. See cll 1(e) and 1(f) of the Building Contract: exhibit DL-1, tab 30 to the affidavit, Dustin Leaney, 18 November 2019.

156. The defendant argues that the plaintiffs failed to take reasonable care in a number of respects including failing to obtain independent legal advice, failing to request a fixed price quote from Mr O’Hagan, by changing the design of the house and sourcing more expensive fittings and materials.

157. Again, this claim does not arise in light of my conclusion that no loss was suffered by the plaintiffs by reason of the defendant’s negligence. However, it also fails to take into account the fact that the plaintiffs engaged the defendant as a professional architect. They had no experience with building or building contracts and relied, as they were entitled to, on the defendant’s advice. When, for example, they made decisions as to the type of materials they wished to be included in their home, they were entitled to expect that the defendant would give them advice about the impact of those decisions on their ability to achieve the goal of building the home.

Costs

158. An award of nominal damages does not ordinarily entitle a party to costs: State of New South Wales v Stevens (2012) 82 NSWLR 106 at [22] (McColl JA with whom Ward JA agreed); see also Motium Pty Ltd v Arrow Electronics Australia Pty Ltd [2011] WASCA 65. However, each case turns on its own facts, and the result may be different where one purpose of the proceedings was the vindication of a legal right.

159. While I am in no doubt that the plaintiffs were motivated to bring these proceedings by their belief that they were in the right and so to vindicate that belief, I do not consider that that is sufficient to warrant an award of costs in their favour. First, the primary purpose of the litigation was to obtain a judgment for a significant sum of money; and secondly, the question of whether any loss was suffered was raised by me at the hearing in August 2020 ^[56] and a strong recommendation was made to consider the alternatives to continuing the litigation. ^[57] Of course, parties are free to continue litigation commenced by them, but in my view, taking that course does not support the award of costs based only on the award of nominal damages.

     56. Tcpt, 27 August 2020, p 309.

     57. Tcpt, 27 August 2020, p 312.

160. The appropriate order in those circumstances is that the plaintiffs pay the defendant’s costs of the proceedings. However, I will allow the parties an opportunity to address me on the question of costs before making a final order.

Conclusion

161. I make the following orders:

1. Judgment for the plaintiffs in the sum of $1,000.

2. The plaintiffs file submissions of no more than three pages, if any, in relation to costs within 14 days.

3. The defendant file any submissions of no more than three pages in response within 14 days.

4. Unless the parties consent to the issue of costs being determined without further oral hearing, the matter is to be listed for hearing on costs on a date to be fixed by arrangement with my associate.

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Endnotes

Decision last updated: 10 June 2021