Pickersgill v Tsoukalas - [2009] SASC 357

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
PICKERSGILL & HARVEY v TSOUKALAS
[2009] SASC 357
Judgment of The Full Court
(The Honourable Justice Anderson, The Honourable Justice White and The Honourable Justice Kourakis)
23 November 2009
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - ILLEGAL AND VOID CONTRACTS
CONTRACTS - PARTICULAR PARTIES - PRINCIPAL AND AGENT - RELATIONS BETWEEN PRINCIPAL AND THIRD PERSONS - RIGHTS AND LIABILITIES OF PRINCIPAL IN RESPECT OF CONTRACTS OF AGENT - FRAUD AND MISREPRESENTATION - OF AGENT
DAMAGES - MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS FOR BREACH OF CONTRACT - PARTICULAR CONTRACTS
Appeal against judgment for plaintiff on a quantum meruit - appeal and notice of cross-contention arises from a building dispute - appellant undertook development of land - appellants sub-divided land and sold one parcel to a non-party as part of a house and land package - appellants retained one parcel for themselves - respondent engaged by appellants to build homes on both parcels - appellants executed a written fixed price contract with the respondent for the construction of their home - respondent alleged that the contract was a sham and that the true agreement was an oral "cost plus" contract - trial Judge found that the written contract was a sham, but that the parties had not concluded an oral "cost plus" agreement.
Whether trial Judge erred in finding that the written fixed price contract between the appellants and respondent was a sham - whether the second appellant's lack of awareness that the fixed price contract was a sham makes the finding that the fixed price contract was a sham erroneous - whether trial Judge erred in failing to find that the parties' true agreement was a "cost plus" agreement - whether trial Judge erred in making an award on a quantum meruit.
Held: appeal dismissed - notice of cross-contention upheld - first appellant acting as agent for second appellant in contract negotiations - finding that the fixed price contract was a sham not erroneous - Judge should have found parties had an oral "cost plus" building agreement - award on a quantum meruit not appropriate but respondent entitled to same awards as damages.
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471; Scott v Federal Commissioner for Taxation (No 2) (1966) 40 ALJR 265; Sharrment Pty Ltd v Official Trustee and Bankruptcy (1988) 18 FCR 449; Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11, 110; Ford Excavations Pty Ltd v Do Carmo [1981] 2 NSWLR 253; Coppleson v Federal Commissioner of Taxation (1981) 52 FLR 95; Blackburn, Low & Co v Vigors (1987) 12 AC 531; H Stanke & Sons Pty Ltd v O'Meara (2007) 98 SASR 450; Vestris v Cashman (1999) 72 SASR 449, applied.
Snook v London & West Riding Investments Ltd [1967] 2 QB 786, distinguished.
Raftland Pty Ltd v Federal Commissioner of Taxation (2008) 82 ALJR 934; Permanent Trustee Australia Ltd v FAI General Insurance Company Ltd (in liq) (2003) 214 CLR 514, discussed.
L'Estrange v F Graucob Ltd [1934] 2 KB 394, considered.

PICKERSGILL & HARVEY v TSOUKALAS
[2009] SASC 357
Full Court: Anderson, White and Kourakis JJ

ANDERSON J. I would dismiss the appeal for the reasons given by White J.
WHITE J: This appeal arises out of a building dispute.
In 2002 the defendants at trial (who are husband and wife and the present appellants) undertook the development of land at Bowden. The development involved the sub-division of the land into two parcels and the construction of a dwelling on each. One parcel was sold as a house and land package to a Mr Price. The contract with Mr Price was subject to a condition requiring the defendants to execute a contract with a builder for the construction of the dwelling on his parcel for a price of $115,000, with construction to be completed before 30 September 2002. A dwelling, with a common wall with the house of Mr Price, was to be built as the defendants’ residence on the second parcel.
The plaintiff at trial (a licensed general builder and the present respondent) carried out the building work on both parcels of land at the same time. He completed Mr Price’s dwelling and substantially completed that of the defendants. The plaintiff stopped work on 22 July 2003 when the defendants refused to make further progress payments to him.
The plaintiff claimed damages comprising the cost of the work carried out by him to 22 July 2003 together with a 10 per cent margin. The defendants sought damages by way of counterclaim for the costs incurred by them in having the construction of their dwelling completed by others.
At the trial, the defendants asserted that the plaintiff had performed the building work under two fixed price contracts – one with Mr Price and one with themselves. The plaintiff acknowledged the contract with Mr Price and acknowledged that he had, on 4 September 2002, signed a document which on its face was a fixed price contract with the defendants for the construction of their dwelling. The trial Judge referred to the latter contract as “the September document” and it is convenient to adopt the same description. The plaintiff contended that the September document was a sham. He said that his real agreement with the defendants was an oral “cost plus” agreement under which he would charge them the costs he incurred in building both dwellings plus an agreed margin of 10 per cent but with credit given to the defendants for the sum of $115,000 to be paid to the plaintiff by Mr Price.
The Judge found that the September document was a sham, but was not satisfied that the parties had agreed upon an oral cost plus arrangement. He was, however, satisfied that the defendants had agreed with the plaintiff that they would pay to him the amount by which the costs of construction of Mr Price’s dwelling (excluding any variations requested by Mr Price) exceeded $115,000.
The Judge awarded the plaintiff the amount of his claim on a quantum meruit. The counterclaim of the defendants was dismissed.[1]
[1] Tsoukalas v Pickersgill & Harvey [2008] SADC 32.
The defendants’ notice of appeal contains 27 paragraphs of claimed errors by the Judge. Several of these paragraphs contain sub‑paragraphs containing still further alleged errors. In total the Judge is said to have erred in more than 50 separate respects. It is not in the least bit likely that the Judge would have made so many errors, a fact evidenced by the limited number of complaints which the defendants pursued on the appeal. Accordingly, the notice of appeal does not serve the intended purpose of identifying the issues arising for determination on the appeal. Based on the submissions of counsel, the substantive grounds of appeal appear to be these:
1.The Judge should not have found that the written agreement between the plaintiff and the defendants was a sham. It was contended that the state of mind of the second defendant (Ms Harvey) when she signed the September document on 4 September 2002 meant that it could not be said that each of the parties had a common intention that the document should not reflect their true agreement.
2.The Judge erred in awarding compensation on a quantum meruit basis because:
2.1    he failed to have regard appropriately to the circumstances of the plaintiff in relation to Mr Price, including the building contract between them;
2.2    the absence of any benefit to the defendants from the plaintiff building Mr Price’s dwelling;
2.3    the plaintiff had continued to perform work on Mr Price’s dwelling even after he had been told that the defendants would make no further payments to him;
2.4    the plaintiff had not pleaded a claim for a quantum meruit nor presented his case at trial as one of quantum meruit.
3.The Judge erred in ordering the defendants to pay all of the costs incurred by the plaintiff in relation to an expert witness, a Mr Williams.
By a notice of contention, the plaintiff raised two alternative contentions. First, that the Judge should have found that the parties had agreed upon a costs plus building contract and should have assessed damages on that basis. Alternatively, if the Judge was in error in awarding damages on the bases of quantum meruit, he should have assessed the damages to which he was entitled by reason of the defendants’ breach of their agreement to pay the amount by which the costs of constructing Mr Price’s dwelling (excluding any variations requested by him) exceeded $115,000.
Was the September Document a Sham?
The Judge recognised that a finding of sham was not to be made lightly, but nevertheless made that finding. He said:
I am satisfied that neither of the parties intended to be bound by the September document notwithstanding that they signed it. I am satisfied that they both signed it only so that the bank would lend the defendant the money to proceed with the project. I am satisfied they both regarded the September document as a sham. Their subsequent behaviour confirms my view about that.[2]
The Judge found that the first defendant, Mr Pickersgill, acted as the agent for his wife, Ms Harvey, in relation to the defendants’ dealings with the plaintiff and that Ms Harvey had had little to do with any discussions with the plaintiff.[3]
[2] Ibid at [41].
[3] Ibid at [3].
Before addressing the defendants’ criticisms of the finding of sham, it is appropriate to say a little more of the factual background. It will aso be necessary to address the plaintiff’s contention that the Judge should have found that the parties had a cost plus agreement.
Factual Background
The defendants are both architects. In December 1999 they purchased a block of land in the suburb of Bowden for $100,000. Initially, they planned to build a home for themselves on the land, but later decided to sub-divide it into two unequal blocks, to sell the smaller block as a house and land package, and to build their own home on the larger block. They obtained Council approval for the development in about February 2001, but as at February 2002, had still not obtained a sub-division of the land.
On 2 February 2002, the defendants entered into a contract with Mr Price for the sale of the smaller block of land at a price of $80,000. The contract was subject to a number of special conditions of which two are presently relevant. The first was the obtaining of the sub-division of the land. The second was a condition that the defendants were, on or before 18 February 2002, to enter into a building contract for the construction of a townhouse dwelling on the smaller block in accordance with certain specifications and a schedule, and at a fixed price of $115,000. It was also a condition that the building contract should provide for completion of the home on or before 30 September 2002. The parties contemplated that the defendants would assign their interest in the building contract to Mr Price. The contract provided for settlement on 15 March 2002, or within seven days of the date upon which the plan of the sub-division was deposited in the Lands Titles Office, whichever was the later. Settlement eventually took place on 14 August 2002.
The Judge found that, as at 2 February 2002, the defendants had no immediate prospect of entering into a contract with a builder in the terms contemplated by their contract with Mr Price. As at that date, they had not even received any quotation from a builder.
A quotation which Mr Pickersgill obtained for the construction of the two houses on 8 March 2002 was for an amount of $361,493 in addition to the costs of demolition of an existing building. Mr Pickersgill regarded this quotation as too expensive.
During March, April and May 2002 Mr Pickersgill consulted with another builder, a Mr Karidis. However, by May 2002, Mr Pickersgill had concluded that Mr Karidis’ costings were too expensive as well.
Mr Pickersgill then sought a quote from the plaintiff. However, the plaintiff informed Mr Pickersgill that he did not work with steel framed construction, as contemplated by the defendants’ design. Mr Pickersgill checked with his designer and shortly afterwards agreed to a timber framed construction. The plaintiff recommended a Mr Williams to do the drawings for the timber framed buildings.
The Judge summarised the conflicting evidence of the plaintiff and Mr Pickersgill concerning the events which occurred between June 2002 and 4 September 2002 when the September document was signed. The plaintiff’s evidence was to the effect that the defendant asked him for a written quote; that he said it would take six to eight weeks to prepare; that the defendant said he did not have that sort of time; that he then proposed doing the job on a cost plus basis; and that he agreed to reduce his usual commission of 15 per cent to 10 per cent. His evidence was that there was tacit agreement to that arrangement.
The defendant, on the other hand, said that when the plaintiff raised working on a cost plus basis, he responded by saying that he preferred a fixed price arrangement, and further that he had told the plaintiff that his bank would not lend on a cost plus contract.
Although it can be inferred that the Judge had a general preference for the plaintiff’s evidence, as he rejected that of Mr Pickersgill in a number of respects, he did not make findings to resolve those conflicts in the evidence. However, some things are clear, either because they were common ground or because of findings which were expressly or implicitly made by the Judge.
First, Mr Pickersgill was anxious to secure a builder so as to be able to proceed with the construction. He was conscious of the special condition in his contract with Mr Price. On 21 June 2002 he wrote to Mr Price offering to pay some compensation in respect of the additional costs which would be incurred by Mr Price because of the delay. The compensation was to comprise the cost of Mr Price’s mortgage for the period between settlement on his land contract and the date of commencement of construction, together with an additional $150 per week for the same period (which Mr Pickersgill then contemplated would be a period of 15 weeks). In addition to that reason for expedition, Mr Pickersgill appreciated that he and his wife and their two children would have to continue living in a single bedroom unit until the completion of the construction of their new home.
Secondly, there were some discussions between the plaintiff and Mr Pickersgill about the former carrying out the work on a cost plus basis or on a fixed price basis. At one stage, the plaintiff gave Mr Pickersgill a blank Master Builders’ Association Cost Plus Contract.
Thirdly, it was common ground that the plaintiff did not provide a formal fixed price quotation to the defendant. In order for the plaintiff to have done so, he would, in accordance with his own and usual industry practice, have first required finalised specifications, sought quotations from tradespersons for particular aspects of the work, and then prepared a summary of costs. That process would have taken some time which, for the reasons given earlier, Mr Pickersgill was seeking to minimise.
Fourthly, both before and after 4 September 2002, the plaintiff and Mr Pickersgill obtained quotations from various tradesmen and suppliers for aspects of the work. From time to time Mr Pickersgill prepared building cost summaries, apparently by reference to these quotations. These summaries separately identified each aspect of the work or trade involved in the construction, the name of a supplier or tradesperson from whom a quotation had, or would be, obtained and a statement of the anticipated cost for that item (firm when quotations had already been received and estimated when they had not). All but one of the building cost summaries prepared by Mr Pickersgill had the words “10 per cent cost plus” entered on them. Two of the building cost summaries were prepared in July or August 2002.
Fifthly, the plaintiff and Mr Price entered into a written contract on 17 August 2002 for the construction of Mr Price’s home for a fixed price of $115,000. At that time, the plaintiff did not have specifications for Mr Price’s home and had not obtained quotations from tradespersons for the work to be performed on that home. Nor had he prepared a quotation for Mr Price. He inserted the sum of $115,000 into the contract which he prepared for Mr Price’s signature at the direction of Mr Pickersgill. The Judge recorded that it was common ground that the price of $115,000 was “effectively guaranteed” by the defendants.[4] Apart from any extras for which Mr Price would be responsible, Mr Price would pay the plaintiff $115,000 and the defendants would pay the balance of the cost of building his house.
[4] Ibid at [22].
The plaintiff’s building contract with Mr Price contained the following handwritten special condition:
This contract is to work in conjunction with the Scope of Works Schedule drawn up by Sean Pickersgill, No 0248, number of pages 12, dated 17 August 2002.
The Scope of Works Schedule to which this special condition referred had been prepared by the defendants’ designers and it referred to both houses. Both the plaintiff and Mr Price signed the Scope of Works Schedule. The plaintiff said that he had inserted the special condition because of his reservations about committing himself to a fixed price contract with Mr Price without an acknowledgment that the work which he was to perform formed part of a larger project.
At some stage, probably in late August 2002, Mr Pickersgill told the plaintiff that the bank from which he was borrowing money would not lend on the basis of a cost plus agreement. The plaintiff asked Mr Pickersgill where that left him. The plaintiff said that Mr Pickersgill responded:
“We will work something out. We’ll work out a figure and then I’ll work out the rest with you. What we do between us is our business” and that was my agreement with him, basically everything was over a handshake, over a coffee, over a drink. We had a very good relationship and I trusted him (T226)... He [the defendant] said we can sign something at a later date after this contract was written but we never did it (T227)… In my mind I was going to use the building cost summary which had my cost plus and everything stated on there. Basically that’s what I worked on with him. That what’s was – what clicked in my mind is that I have to have some document to prove my situation… I did not speak to him about it, that’s what I thought (T227).[5]
[5] Ibid at [26].
As noted earlier, the September document was signed on 4 September 2002. It is in the printed form issued by the Master Builders Association for a fixed price contract. The plaintiff inserted the necessary handwritten entries, including the price of $228,000. He also wrote in two special conditions which are of present relevance:
…
(2)This contract is to work in conjunction with Specifications/Building Cost Summary drafted by Sean Pickersgill numbered 0124 dated 4 September 2002.
(3)This contract shall be ministered with the adjoining building to be built at the same stage and progress, namely 2 x duplex site, one eastern dwelling and one western dwelling.
The Building Cost Summary numbered 0124 to which special condition (2) referred was had been prepared by Mr Pickersgill on 4 September 2002. It was in the same format as the two previous summaries save that it did not contain any reference to the 10 per cent builder’s commission. The Summary indicated that the total anticipated cost of construction of the two dwellings was $301,210 in addition to GST.

The plaintiff took the September document to the defendants’ home on the evening of 4 September 2002. He spoke to Mr Pickersgill. Ms Harvey did not participate in any discussion except when she came into the room to sign the document.
There are significant differences in the accounts of the plaintiff and Mr Pickersgill as to what was said between each of them immediately preceding the signing of the September document. The plaintiff asserted that he had told Mr Pickersgill that he was signing the September document purely for the purpose of assisting the defendants to obtain finance from their bank and sought an acknowledgment from the defendants that their agreement was really a cost plus agreement for both dwellings. He said that Mr Pickersgill agreed to this. Mr Pickersgill, on the other hand, denied that there had been any discussion at all about proceeding on a cost plus basis. The Judge did not make specific findings regarding the content of the discussion which occurred immediately prior to the signing of the September document.
Each of the plaintiff, Mr Pickersgill and Ms Harvey signed the September document while the plaintiff was at the defendants’ home.
Shortly after 4 September 2002, the plaintiff realised that the Building Cost Summary numbered 0124 to which the special condition referred did not include the 10 per cent builder’s commission. He spoke to the first defendant about that. Mr Pickersgill agreed that the Summary could be amended to include reference to the 10 per cent commission. The plaintiff then entered in handwriting, immediately after the total figure of $301,210, the words “+ 10% builder’s commission”. He took the Summary to Mr Pickersgill and both the plaintiff and Mr Pickersgill then signed it. Ms Harvey did not sign the Summary as she was not present when the plaintiff presented it to Mr Pickersgill for his signature.
The Judge accepted that the “most likely” explanation for the plaintiff inserting the reference to the Building Cost Summary in the second special condition was “an imperfect attempt to record the true nature of [the parties’] cost plus dealings.”[6] The Judge accepted that the plaintiff wanted some written reference to what he saw as the oral cost plus agreement.
[6] Ibid at [38]-[39].
Approach to a Claim of Sham
The conventional contractual principle is that, absent some vitiating element such as misrepresentation, duress or mistake, or a claim for equitable or statutory relief, a person signing a document which is intended to effect legal relations is bound by its terms.[7] A second principle is that ordinarily direct statements by contracting parties of their subjective intentions are inadmissible to contradict the language of the written contract.[8] These were the principles upon which the defendants relied, both at trial and on appeal.
[7] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165; Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55 at [33]-[34]: (2004) 218 CLR 471 at 483; L’Estrange v F Graucob Ltd [1934] 2 KB 394 at 403-4.
[8] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347.
The contractual principles just mentioned apply when the parties intend the signed document to effect their legal relations. They do not apply in the same way when the parties intend the document to be a sham, ie, that the document should not have any legal effect, or the apparent legal effect which it suggests on its face.[9]
[9] Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55 at [46]: (2004) 218 CLR 471 at 486.
The term “sham” is one which can be given a variety of meanings. In this case, the plaintiff contended that the September document was not intended to have effect as a fixed price contract but was expressed as such a contract with a view to facilitating the defendants obtaining bank finance. The plaintiff’s claim, in other words, was that the September document had been drawn as a fixed price contract for the purpose of assisting the defendants in a deception of their bank but not to reflect their true agreement. This is a sham in the strict sense discussed in the authorities.[10] In Sharrment Pty Ltd v Official Trustee and Bankruptcy[11] Lockhart J said:
A “sham” is therefore, for the purposes of Australian law, something that is intended to be mistaken for something else or that is not really what it purports to be. It is a spurious imitation, a counterfeit, a disguise or a false front. It is not genuine or true, but something made in imitation of something else or made to appear to be something which it is not. It is something which is false or deceptive.[12]
[10] Raftland Pty Ltd v Federal Commissioner of Taxation [2008] HCA 21 at [35]; (2008) 82 ALJR 934 at 944.
[11] (1988) 18 FCR 449.
[12] Ibid at 454.
In Scott v Federal Commissioner for Taxation (No 2)[13] Windeyer J expressed the concept in similar terms:
On the other hand, if the scheme, including the deed, was intended to be a mere façade behind which activities might be carried on which were not to be really directed to the stated purposes but to other ends, the words of the deed should be disregarded … A disguise is a real thing: it may be an elaborate and carefully prepared thing; but it is nevertheless a disguise. The difficult and debatable philosophic questions of the meaning and relationship of reality, substance and form are for the purposes of our law generally resolved by asking did the parties who entered into the ostensible transaction mean it to be in truth their transaction, or did they mean it to be, and in fact use it as, merely a disguise, a façade, a sham, a false front – all these words have been metaphorically used – concealing their real transaction …[14]
In Raftland, Kirby J reviewed some of the Australian authorities and concluded that an essential element in the legal notion of sham was an intention by the parties not to give effect to the legal arrangements set out in their apparent agreement, understood only according to its terms.[15]
[13] (1966) 40 ALJR 265 at 279.
[14] Ibid at 279.
[15] Raftland Pty Ltd v Federal Commissioner of Taxation [2008] HCA 21 at [112]; (2008) 82 ALJR 934 at 957.
The determination of whether a document is a sham in the sense discussed above involves an examination of the parties’ subjective intentions.[16] Despite the law’s aversion to admitting evidence of subsequent conduct as an aid to the construction of contracts, such evidence is admissible in cases of alleged sham in relation to the subjective intentions of the parties at the date they entered into the impugned document.[17] It is evidence going to the existence of the parties’ contractual relationship rather than to the terms of that relationship.
[16] Coppleson v Federal Commissioner of Taxation (1981) 52 FLR 95 at 99; Sharrment Pt Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449 at 456-7.
[17] Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149 at [117]; Laidlaw v Hillier Hewitt Elsley Pty Ltd [2009] NSWCA 44 at [58]-[59]; Neufeld v Secretary of State for Business, Enterprise and Regulatory Reform [2009] EWCA Civ 280 at [37]; [2009] 3 All ER 790 at 804.
Evidence of Cost Plus Agreement
As noted earlier, the principal submission of the defendants was that the September document should not have been found to be a sham because the Judge had not made a finding which was essential to that conclusion, namely, that the second defendant, Ms Harvey, intended the document to be a sham. It is appropriate to put that issue to one side for the moment, and to address the plaintiff’s contention that the Judge should have found that the parties had agreed on a cost plus arrangement.
Apart from the oral evidence of the parties, there were a number of indications in the evidence that the plaintiff and Mr Pickersgill had agreed upon a cost plus arrangement. In relation to the period before 4 September 2002, there was the following evidence.
The plaintiff and Mr Pickersgill had, at the least, discussed the possibility of the plaintiff carrying out the construction on a cost plus basis and the two building cost summaries prepared by Mr Pickersgill before 4 September 2002 both provided for a builder’s commission of 10 per cent.
The plaintiff entered into a contract with Mr Price to build his house for $115,000 without having obtained the final specifications, without seeking any quotation from the individual tradespersons who would be involved, and without preparing a quotation for Mr Price. That conduct is explicable only if the plaintiff knew that he could recover any additional costs from the defendants. The defendants accepted that it was likely to cost more than $115,000 to build Mr Price’s house, and that they would have to pay the excess.
The defendants’ grounds of appeal challenged the Judge’s finding that that price was effectively guaranteed by the defendants. However, the finding concerns the amount to be paid by Mr Price, and not his payment of that sum. The Judge’s meaning is made plain by the sentence which immediately follows the impugned finding:
Apart from extras to be negotiated separately by Mr Price, he would have to pay the plaintiff $115,000 for his house and the defendant would pay the rest.[18]
The finding was in any event well established by the evidence. In the letter of 21 June 20002 which Mr Pickersgill wrote to Mr Price concerning the compensation which the defendants would pay for the delay, he said:
We will pay this sum up front on settlement of the original contract of sale when we sign the building contract (you for $115,000, us for the balance of the building contract value).
[18] Tsoukalas v Pickersgill & Harvey [2008] SADC 32 at [22].
The plaintiff prepared the September 2002 document without the specifications having been finalised, without having obtained quotes from the individual tradespersons who would be involved, and without providing a firm quotation to the defendants. The engineering drawings and changes to the footings had not been prepared as at 4 September 2002. In fact they were not completed until 8 November 2002. As the Judge found, it would be remarkable for a builder to enter into a fixed price agreement without knowing the engineering requirements for the job. Further, although Mr Pickersgill had agreed to a timber framed construction, the Building Cost Summary prepared as at 4 September 2002 still provided for a steel framed building.
Both before and after 4 September 2002, Mr Pickersgill obtained numerous quotations from individual tradespersons. There was no need for him to have done so had the parties contemplated a fixed price contract arrangement.
It was Mr Pickersgill and not the plaintiff who proposed the figure of $228,000 which was inserted into the September document.
The sum of $115,000 in the Price contract, and the sum of $228,000 in the September document cannot, in the aggregate, be reconciled with the amount shown in the Building Cost Summary prepared by Mr Pickersgill on 4 September 2002, even without regard to a builder’s commission of 10 per cent.
Finally, Mr Pickersgill acknowledged that he hoped that the defendants would benefit from any savings on materials or labour which the plaintiff was able to achieve in practice. As the Judge found, such a hope was inconsistent with a belief that they had a fixed price contract.[19]
[19] Ibid at [58].
The events which occurred after 4 September 2002 also indicate strongly that the parties were proceeding under a cost plus agreement. I will refer to some of the principal matters.
First, as noted earlier, with the consent of Mr Pickersgill, the plaintiff entered the words “+ 10% builder’s commission” on the Building Cost Summary of 4 September 2002 and to which the September document referred. The consensual inclusion of those words suggests an understanding by both men that the plaintiff was entitled to a commission of 10 per cent on the costs set out in the Building Cost Summary, ie, a cost plus arrangement. The Judge regarded these words as equivocal. He considered that the parties may simply have intended (albeit unusually) to identify in the documentation the component in a fixed price contract which would represent the builder’s margin.[20] I do not share the Judge’s hesitation. It is difficult to identify any purpose for the insertion of the words “+ 10% builder’s commission” if the parties did not contemplate a cost plus arrangement. In particular, it is difficult to identify any reason why the plaintiff would have wished to have his 10 per cent margin formally identified in a fixed price contract.
[20] Ibid at [30].
Secondly, once the work commenced, the plaintiff sought periodic progress payments. The plaintiff did not follow either of the means contemplated by the September document for the claiming of progress payments. The plaintiff’s claims each identified the costs incurred in the period to which the claim related, provided the supporting invoices, and claimed the 10 per cent commission, separately identified. The defendants either paid themselves, or arranged for their bank to pay, the amounts claimed by the plaintiff. It was not until Mr Pickersgill and his solicitor had a meeting with the plaintiff in September 2003 that Mr Pickersgill asserted reliance on the September document and, by implication, disputed that the defendants were obliged to pay the 10 per cent commission.
Thirdly, Mr Pickersgill said that he did not take any particular notice of the trades invoices or of the summaries attached to the claims for progress payments. He also said that he did not know why he was being given them and thought that they were just for information. The Judge rejected that claim.[21] It is not possible to identify any sensible purpose for the plaintiff providing the defendants with the invoices relating to the work of the various trades if they were not provided as evidence of the costs in fact incurred by the plaintiff during the period to which each claim related, ie, as proof of the costs actually incurred.
[21] Ibid at [47].
There is a still more telling feature of the plaintiff’s claims for progress payment. It was described by the Judge as follows:
On several occasions the defendant presented invoices to the plaintiff which were fictitious, in the sense that they had nothing to do with the house construction. The defendant needed money on several occasions and he presented fictitious invoices to the plaintiff asking him to include them in his claim for periodic payments. The plaintiff said that because he did not regard himself as bound by a fixed price contract he agreed to the defendant’s request and included the invoices in the summaries. In my view the plaintiff would be unlikely to permit that to happen if he had a fixed price contract.[22]
[22] Ibid at [59].
The evidence to support this summary by the Judge was not contested. Mr Pickersgill wished to obtain advances of credit from his bank which were not otherwise available to him. He sought the plaintiff’s assistance, and the plaintiff agreed to help him. The stratagem agreed upon was that Mr Pickersgill would present to the plaintiff invoices claiming payments from the plaintiff for work and services said to have been provided by Mr Pickersgill in relation to the construction work, even though that work and those services had not been provided. The plaintiff would include the amounts claimed by Mr Pickersgill in his claim for progress payments, which Mr Pickersgill would then present to his bank. When the bank made the payment to the plaintiff, he would remit to Mr Pickersgill the amount claimed by him, including the amount of GST which he had claimed.
The arrangement reflects badly on both the plaintiff and Mr Pickersgill, as it amounted to the obtaining by deception of monies from Mr Pickersgill’s bank. It also involved possible irregularities in the taxation accounting arrangements with the GST. Despite the plaintiff’s involvement in the arrangement, it was not suggested that this should constitute a ground for denying his entitlement to recovery from the defendants, if that entitlement was otherwise found to exist.[23]
[23] Cf Snook v London & West Riding Investments Ltd [1967] 2 QB 786 at 799.
The significance of the arrangement is that it is improbable that Mr Pickersgill would have proposed, and the plaintiff agreed to, such an arrangement if either considered that their arrangement was a fixed price contract. In that event, the plaintiff’s participation in the scheme would have been to his own disadvantage as it would have reduced the amount of his own margin within the fixed price. On the other hand, the arrangement is explicable if the plaintiff and Mr Pickersgill knew that the plaintiff was performing his work under a cost plus arrangement.
Another feature of the claims for progress payments is the intermingling of the costs incurred in relation to both the Price and Pickersgill dwelling. This was done without any complaint by Mr Pickersgill.
Mr Pickersgill continued, after 4 September 2002, to deal directly with sub-contractors. It is not consistent with the contract being a fixed price contract for Mr Pickersgill to have continued to seek out quotations and to negotiate quotations with tradespersons.
Mr Pickersgill did not raise a claim that he had a fixed price contract with the plaintiff until after the defendants had stopped paying the progress payments. He claimed that he realised at that time that the cost of construction would exceed the amount of $228,000. However, as the Judge found, Mr Pickersgill did not remonstrate with the plaintiff about the amounts claimed, did not remind the plaintiff of the fixed price, and nor did he demand an explanation for the apparent blow out in costs. After some initial changes of position, Mr Pickersgill acknowledged in his evidence that he had not raised his claim to have a fixed price contract until a meeting at his lawyer’s office at which the plaintiff was present. The Judge found that Mr Pickersgill had not, before the meeting at the lawyer’s office, protested to the plaintiff that he had a fixed price contract because that would not have been true.[24]
[24] Tsoukalas v Pickersgill & Harvey [2008] SADC 32 at [51].
There are other matters which point to the plaintiff and Mr Pickersgill having agreed to proceed on a costs plus basis. As already noted, the Judge considered that the most likely explanation for the plaintiff having inserted special condition (2) into the September document was “an imperfect attempt to record the true nature of [the parties’] cost plus dealings”. The Judge said in addition:
Even if he saw the September document as a sham, the plaintiff wanted some written reference to what he saw as the oral cost plus agreement.[25]
[25] Ibid at [39].
The Judge also rejected Mr Pickersgill’s evidence that he told the plaintiff that he would not proceed on a cost plus basis. The Judge went on to say:
However, it does not follow that he agreed with the plaintiff to proceed on the basis of a cost plus oral agreement. What is I think clear, is that he did nothing by words or actions to disabuse the plaintiff of his impression that there was a cost plus agreement. I do not think that he set out to deliberately mislead the plaintiff. He may not have thought about it at all.[26]
[26] Ibid at [59(2)].
Apart from the September document itself, it is less easy to find evidence to support the parties’ agreement being a fixed price contract. It is true that Mr Pickersgill’s evidence was to that effect, but the Judge rejected his evidence concerning a number of material matters. The Judge was not prepared to draw certain adverse inferences sought by the defendants from the terms of the plaintiff’s pleadings, or from the terms upon which an expert retained by the plaintiff had been instructed. It was not suggested that the Judge was in error in this respect. The defendant did submit that the evidence of the discussions and dealings between the plaintiff and Mr Pickersgill was too vague and imprecise to give any reliable basis for a finding that there had been any agreement reached before 4 September 2002.
The Conclusion of the Judge Concerning An Oral Cost Plus Agreement

The conclusion of the Judge that the plaintiff and Mr Pickersgill had not agreed on an oral cost plus arrangement is, in my respectful opinion, surprising. First, it does not give effect to the strength of the evidence pointing to a cost plus agreement, and, in particular, the matters which I have summarised above.
Secondly, the conclusion is seemingly inconsistent with the Judge’s finding that the September document was a sham. A finding that the parties had, at least by 4 September 2002, agreed upon some other kind of arrangement than that disclosed in the September document was a necessary step in the reasoning that the September document was a sham. If the parties had not in truth reached some other agreement, how could it be said that the September document was “merely a disguise, a façade, a sham, a false front” (to use the words of Windeyer J in Scott v Federal Commissioner of Taxation (No 2)[27]) for some other kind of arrangement. The defendants relied upon this inconsistency in their challenge to the finding that the September document was a sham, contending that it was a reason to set aside that finding. However, the finding of sham was a firm finding of the Judge, made with regard to the seriousness with which such a finding should be approached. I do not consider it appropriate to resolve the inconsistency in that way.
[27] (1966) 40 ALJR 265 at 279.
Thirdly, the rejection of the defendants’ claim of a fixed price contract, and the plaintiff’s claim of a cost plus agreement meant, as the Judge found, that the parties had gone ahead with the project without having settled on an agreement at all. While it is not impossible for that to have been the case, it is, in my respectful opinion, unlikely.
The Judge seems to have been influenced to his conclusion that the parties had not agreed on a cost plus basis by the absence of express evidence showing when and where an agreement to that effect was reached. The Judge looked for evidence of a “meeting of the minds” but thought it lacking. He said:
…[Mr Pickersgill] may have been willing to proceed with the plaintiff on a cost plus basis, but on the evidence I have heard I am not satisfied that there was an oral agreement reached on 4 September. I am not satisfied that there was a meeting of minds on a cost plus contract.[28]
[28] Tsoukalas v Pickersgill & Harvey [2008] SADC 32 at [42]. See also [59(2)].
My impression is that the Judge thought it necessary to be able to identify an occasion when the plaintiff and Mr Pickersgill expressly agreed to proceed on a cost plus basis. It was the absence of evidence of such an occasion which meant that there could not be a finding of a meeting of the minds.
In my respectful opinion, the Judge’s reasoning in this respect does not give full effect to the passage in the plaintiff’s evidence (which was apparently accepted by the Judge) quoted earlier in these reasons at [28]. Mr Pickersgill’s response to the plaintiff’s inquiry as to where the bank’s refusal to accept a cost plus agreement left him is capable of being construed as a commitment, nevertheless, to continue working on the cost plus basis upon which the parties had, to that stage, been proceeding. The effect of Mr Pickersgill’s response was to reassure the plaintiff that they would continue to work on that basis. That is apparent in the words:
We will work something out. We’ll work out a figure and then I’ll work out the rest with you. What we do between us is our business.[29]
The reference to working out “a figure” can be understood as working out a lump sum figure, but nevertheless proceeding on their private agreement of a cost plus contract for the construction of both dwellings (with credit allowed for the $115,000 to be paid by Mr Price. Counsel for the defendants on the appeal agreed that an analysis of the evidence in these terms was open.
[29] Ibid at [26].
A contract may be found to exist even though it is not possible to identify with certainty the precise moment or the precise occasion when it came into existence. In Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd[30] McHugh JA referred to circumstances of this kind as follows:
It is often difficult to fit a commercial arrangement into the common lawyers’ analysis of a contractual arrangement. Commercial discussions are often too unrefined to fit easily into the slots of “offer”, “acceptance”, “consideration” and “intention to create a legal relationship” which are the bench marks of the contract of classical theory. In classical theory, the typical contract is a bilateral one and consists of an exchange of promises by means of an offer and its acceptance together with an intention to create a binding legal relationship … Nevertheless, a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words … The question in this class of case is whether the conduct of the parties viewed in the light of the surrounding circumstances shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract. … Care must also be taken not to infer anterior promises from conduct which represents no more than an adjustment of their relationship in the light of changing circumstances …
Moreover, in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled.[31] [Citations omitted]
[30] (1988) 5 BPR 11,110.
[31] Ibid at 11.117-8.
In my opinion, the principle stated by McHugh JA is applicable in the present case. The plaintiff and Mr Pickersgill had been discussing proceeding on a cost plus basis. Mr Pickersgill had prepared two building cost summaries, each of which provided for the payment of a builder’s commission of 10 per cent. Despite the anxiety of the defendants to proceed, the plaintiff had not provided a quote and was not, by reason of unfinished engineering specifications, in a position to do so. Mr Pickersgill had, in the passage of evidence referred to earlier, in effect reassured the plaintiff that they would, by reason of a private agreement, still be able to proceed on a cost plus basis despite the bank’s unwillingness to advance finance on the basis of such an arrangement. The conduct subsequent to 4 September 2002 points powerfully to there having been a cost plus agreement.
In these circumstances, it does not matter, in my opinion, that the evidence did not disclose a precise conversation, or a precise meeting, at which the cost plus agreement was finalised, ie, at which it could be said with certainty that there had been “a meeting of the minds”. The evidence indicated clearly enough that there had been such a meeting of minds, even if the precise occasion upon which it occurred could not be identified.
Accordingly, subject to the issue concerning Ms Harvey’s state of mind which I will address shortly, I would conclude that the parties had agreed on a cost plus arrangement, and that they had done so some time before 4 September 2002; that the September document was prepared so as to give the defendants’ bank the impression that the parties had a fixed price contract, and not to reflect the parties’ true agreement; and that the Judge was correct in finding that the September document was a sham, at least insofar as it indicated that the parties had a fixed price agreement.
Sham and Common Intention
The principal matter raised by the defendants in their attack on the Judge’s finding of sham was the necessity for all parties to the agreement to have a common intention that the document was not to have its apparent effect. In this respect, the defendants referred to the statement of Diplock LJ in Snook v London and West Riding Investments Ltd:[32]
[I]f [the word “sham”] has any meaning in law, it means acts done or documents executed by the parties to the “sham” which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities … that for acts or documents to be a “sham,” with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. No unexpressed intentions of a “shammer” affect the rights of a party whom he deceived.[33] [Emphasis added]
In the same vein, the defendants pointed to a passage in the judgment of Hutley J in Esanda Ltd v Burgess:[34]
For an agreement to be found to be a sham it is necessary for both parties to intend to enter into an agreement of a different kind and with different incidents from the legal form which they in fact adopt.[35] [Emphasis added]
[32] [1967] 2 QB 786.
[33] Ibid at 802.
[34] [1984] 2 NSWLR 139.
[35] Ibid at 144.
On the basis of these authorities, the defendants contended that it was not open to the Judge to find that the September document was a sham unless he had found that each of the parties to the agreement, the plaintiff, Mr Pickersgill and Ms Harvey, had a common intention that the document should not have effect as a fixed price contract.
The defendants submitted that the Judge had not made any finding about Ms Harvey’s intention. In particular, the defendants noted (correctly) that the Judge had not made any express finding as to Ms Harvey’s state of mind or intentions at the time that she signed the September document. Further, the Judge had found as a fact that Ms Harvey had “almost nothing to do with any discussions with the plaintiff”. The only additional relevant finding which the Judge made concerning Ms Harvey was that Mr Pickersgill had, in his dealing with the plaintiff, also acted as her agent.[36]
[36] [2008] SADC 32 at [3].
The Evidence Concerning the Subjective Intention of Ms Harvey
Ms Harvey said that after March 2002, she was preoccupied with looking after the defendants’ two children (born in August 2000 and March 2002 respectively). In particular, she left it to Mr Pickersgill to negotiate matters with the plaintiff and to review quotations and invoices. Because of this, she said that she had not seen in 2002 or 2003 any of the building cost summaries or plaintiff’s invoices containing the words “plus 10 per cent builder’s commission”. She had been interested in the design of their new home but otherwise left the practical matters to her husband. By reason of her own training as an architect, she did not view cost plus contracts favourably. Ms Harvey said that she could not recall any meeting with the plaintiff prior to the occasion at their own home when she signed the September document and that prior to that occasion there had been no discussion at all between her and Mr Pickersgill about a cost plus arrangement at all.
Ms Harvey said that while the plaintiff was present at their home on the occasion that the September document was signed she was “in and out of the room” and had only a limited involvement in, and recollection of, any discussions which occurred. She said, however, that she did not hear the expression “cost plus”, or any similar expression, used at any time. If she had thought that she and her husband were committing themselves to a cost plus contract, she would have been concerned.
In cross-examination Ms Harvey said that after she and her husband had agreed that they would develop the land by selling part of it, she left much of the detail to her husband. In particular, she did not have any discussions with him about what they should do if it would cost more than $115,000 to build Mr Price’s unit. Ms Harvey said that she was unaware in June 2002, that if the house on Mr Price’s property could not be built for $115,000, she and her husband would be responsible for the excess.
Ms Harvey’s knowledge of the discussions between her husband and the plaintiff was summarised in the following passage of evidence:
Q.Is this a reasonable summary of where you found yourself in relation to the work that Mr Tsoukalas ultimately undertook: that your husband dealt with him over a period of months and ultimately advised you that he was in a position for the two of you to sign a contract with Mr Tsoukalas?
A.Yes.
Q.And then shortly after he told you that, you signed the document that has been shown to you in Court today?
A.Yes.
Q.And in relation to all of the details of what was occurring, the toing–and–froing, whilst you may not have been generally aware of what was going on you didn’t have any input into the details; that was your husband’s responsibility
A.Yes.
In addition, Ms Harvey confirmed that on 4 September 2002 when Mr Tsoukalas was at their home, she was relying upon her husband to sort things out with him.
Apart from finding that Mr Pickersgill acted as agent for Ms Harvey, the Judge made no finding about the evidence just summarised. There is, however, no reason to suppose that her evidence on these topics was not generally reliable. It was hardly challenged by the plaintiff’s counsel.
Accordingly, I consider it appropriate to consider the submissions on appeal on the basis that Ms Harvey was not a party to the deception of the bank, and that she did not herself intend the September document to be a sham in the sense outlined above.
Attributing an Agent’s Knowledge and Intention to a Principal
In these circumstances just discussed, the parties could have had a common intention that the September document was a sham only if Mr Pickersgill’s state of mind was imputed to Ms Harvey, or in some other way, his state of mind be regarded as the relevant mind of the defendants for the purpose of the transaction.
Ms Harvey’s evidence shows that she had effectively delegated the making of arrangements for the building of the defendants’ home to Mr Pickersgill. He was acting in effect as her agent, save only that he was not authorised to execute on her behalf the formal documents relating to the arrangements. In his capacity as agent, and on his own behalf, Mr Pickersgill approached the plaintiff, negotiated with him, and, as I would conclude, at some stage before 4 September 2002, reached agreement that they should proceed on a cost plus basis. In the same capacity, he secured the plaintiff’s agreement to sign the September document for the sole purpose of presenting a contract of a suitable kind to the defendants’ bank in relation to their application for finance.
An agent may be an agent of a principal for some purposes and not others. I consider it appropriate to proceed on the basis that Mr Pickersgill was his wife’s agent for all purposes of the defendants’ relationship with the plaintiff, apart from the execution of a written contract between them. Ms Harvey’s delegation to Mr Pickersgill can be understood as authorising him to conduct all the arrangements with respect to the building of their home, including the contractual arrangements, on the basis that she would execute those documents which Mr Pickersgill placed before her for that purpose.
In these circumstances, the relationship between Ms Harvey and Mr Pickersgill falls within the first category discussed by Lord Halsbury LC in Blackburn, Low & Co v Vigors[37] as follows:
Some agents so far represent the principal that in all respects their acts and intentions and their knowledge may truly be said to be the acts, intentions, and knowledge of the principal. Other agents may have so limited and narrow an authority both in fact and in the common understanding of their form of employment that it would be quite inaccurate to say that such an agent’s knowledge or intentions are the knowledge or intentions of his principal; and whether his acts are the acts of his principal depends upon the specific authority he has received.[38]
[37] (1887) 12 AC 531.
[38] Ibid at 537-8.
The principle concerning attribution of an agent’s knowledge to a principal was also stated by Hutley JA in Ford Excavations Pty Ltd v Do Carmo[39] as follows:
Where a person employs an agent the knowledge of the agent within the scope of his authority is the knowledge of the principal provided the agent is bound to inform the principal of what he has learned. As Bowstead on Agency, 14^th Ed (1976), Article 106(2), at p 334, says:
When any fact … material to any … matter in respect of which an agent is employed, comes to his knowledge in the course of such employment, and is of such a nature that it is his duty to communicate it to his principal, the principal is deemed to have notice thereof as from the time when he would have received such notice if the agent had performed his duty, and taken such steps to communicate the fact … as he ought reasonably to have taken …
The knowledge of the principal acquired through the agent is not constructive knowledge, it is actual knowledge.[40]
The High Court allowed an appeal from the decision of the Supreme Court of New South Wales in Do Carmo but did not, as I understand the reasons, disapprove of the statement of principle by Hutley J.[41]
[39] [1981] 2 NSWLR 253.
[40] Ibid at 266.
[41] (1984) 154 CLR 234.
In Permanent Trustee Australia Ltd v FAI General Insurance Company Ltd (in liq),[42] Gummow and Hayne JJ approved the following statement of principle by Handley JA at first instance:
Where the agent acts within his authority with the knowledge in question present to his mind, the principal should be bound by that knowledge, however acquired. I see no reason for ignoring any part of the agent’s knowledge, present to his mind, when he is doing the authorised act. The source of the knowledge seems irrelevant. What must matter is the agent’s state of mind when doing the authorised act.[43]
Although Gummow and Hayne JJ dissented in the result in that case, I do not understand their approval of the statement of principle to have been contested.
[42] [2003] HCA 25; (2003) 214 CLR 514.
[43] Ibid at [87]; 548.
The basis for the imputation of the agent’s knowledge to the principal need not be presently addressed. It may be that a principal should not have the advantage of what his or her agent knows without also the disadvantage of it.[44] Alternatively, it may be the impractical consequences which would occur if it was held that a principal who has appointed an agent to investigate a matter is not regarded as having the knowledge obtained by the agent in the course of the investigation unless the agent has in fact communicated those matters to the principal.
[44] NIML v MAN Financial Australia Ltd [2006] VSCA 128 at [40]; (2006) 15 VR 156 at 168.
In the present case, no injustice is done to Ms Harvey by imputing to her the knowledge and intentions of her husband. She was herself prepared to rely upon his knowledge and intentions. Ms Harvey had not placed any limitations on her husband’s authority by, for example, instructing him that he was not to make an arrangement of a particular kind, let alone not to enter into a cost plus arrangement. Mr Pickersgill was not acting outside the scope of the authority vested in him. If, instead of the September document suiting the present purposes of the defendants, it contained obligations which were onerous to them, it would be a surprising result that they would be bound by it because of the innocence of Ms Harvey on 4 September, even though her husband and the plaintiff intended it to be a sham document only.
Courts have been prepared to attribute the state of mind of one person to another when considering whether particular arrangements are a sham, or in determining the true purpose of an arrangement. See for example Federal Commissioner of Taxation v Bidencope;[45] Federal Commissioner of Taxation v Consolidated Press Holdings;[46] Northumberland Insurance Ltd (in liq) v Alexander.[47] The judgment of Lord Diplock in Snook upon which the defendants rely is not to be understood as an authority to the contrary. In Snook, neither Diplock LJ nor Russell LJ considered the car dealer to have been the agent for relevant purposes of the financier so that the dealer’s knowledge and intentions could be imputed to the financier.
[45] (1978) 140 CLR 533 at 547.
[46] [2001] HCA 32 at [95]; (2001) 207 CLR 235.
[47] (1984) 8 ACLR 882 at 904-5.

For these reasons, I do not consider that Ms Harvey’s lack of awareness on 4 September 2002 that the September document was a sham and that her husband, as her agent, had agreed upon a cost plus arrangement with the plaintiff, makes the Judge’s conclusion concerning the effect of the September document erroneous.
Conclusion Concerning Sham and the Cost Plus Arrangement
For the reasons given above, my opinion is that the defendants have not shown that the Judge’s conclusion that the September document was a sham, at least insofar as it indicated that the parties had a fixed price contract, was wrong. On the contrary, in my opinion, that finding was well justified. The true arrangement between the parties was that the plaintiff was to build the two homes on a cost plus basis, but was to give the defendants credit for the sum of $115,000 to be paid by Mr Price.
It was common ground that the amount to which the plaintiff was entitled on a cost plus basis was $115,265.93, which was also the amount which he was awarded on the basis of a quantum meruit.
The Quantum Meruit Appeal
Given my conclusion concerning the nature of the parties’ contractual relationship, it is not strictly necessary to determine the defendants’ complaints concerning the Judge’s award on a quantum meruit basis. However, in case the matter goes further, I will state my conclusions shortly.
The Contract with Mr Price and the Benefit to the Defendants
The defendants referred to authorities indicating that a quantum meruit is a restitutionary claim to recover a debt owing in circumstances where the law itself imposed or imputed an obligation or promise to make compensation for a benefit accepted.[48] The defendants submitted that the evidence did not disclose the receipt by them of any relevant benefit.
[48] Pavey & Matthews Pty Ltd v Paul (1986) 162 CLR 221 at 255; Angelopoulos v Sabatino (1995) 65 SASR 1 at 7.
The defendants’ submission concerning an absence of benefit was directed to the work on the home of Mr Price as they accepted that they have retained the benefit of that work in the construction of their own home. It was said that as the plaintiff’s work on the Price home had been carried out under the contract between the plaintiff and Mr Price, they did not derive any benefit from that work.
In my opinion, this is an altogether too narrow view of the circumstances. First, as already noted, it was a special condition of the defendants’ contract with Mr Price that they would obtain the construction of a home for the sum of $115,000 for Mr Price. That was to be in the form of a dwelling having a common wall with their own dwelling. Settlement on the defendants’ contract with Mr Price occurred on 14 August 2002. The special condition had not been waived but it is apparent that Mr Price had agreed to an extension of the time within which the defendants were to satisfy the special condition. The defendants’ agreement with the plaintiff was the means by which the defendants did satisfy the special condition. Had the plaintiff not performed the work at the request of the defendants, the defendants would have been in breach of the obligations which they owed to Mr Price. The defendants also acknowledged on appeal that the two homes had to be built at the same time.
It is not to the point that Mr Price had bound himself to pay $115,000. Further, as noted earlier, it is plain that the defendants had agreed to pay the amount by which the cost of construction of Mr Price’s dwelling exceeded $115,000.
Continuation of Work on the House of Mr Price
Next, the defendants submitted that the plaintiff should not be entitled to a quantum meruit in respect of the work which he had performed in construction of Mr Price’s dwelling after he had been told that the defendants would make no further payments to him.
In my opinion, it is not necessary to consider the implications of this submission. On the evidence, the defendants had, in any event, agreed to pay the amount by which the construction of Mr Price’s dwelling exceeded $115,000. The plaintiff was entitled to recover under that agreement in any event.
In that circumstance, the plaintiff was entitled to complete the building of Mr Price’s dwelling, to which he was bound by his contract with Mr Price, and to recover from the defendants the amount by which the costs involved exceeded $115,000.
Quantum Meruit Not Pleaded
The defendants pointed to the fact that the plaintiff had not pleaded, in the alternative, an entitlement to an award on the basis of quantum meruit. The plaintiff did not amend his pleadings even after the possibility of an award on a quantum meruit basis was raised by the Judge. The defendants submitted that the absence of the pleading precluded the Judge making an award on the basis of a quantum meruit.
In my opinion, there is no merit in this submission.
The defendants were well aware that the Judge contemplated making an award on a quantum meruit basis. On 9 October 2007 the Judge provided to the parties a copy of his reasons in draft. Those reasons included a finding that the plaintiff was entitled to recover an amount from the defendants on a quantum meruit basis. The Judge published his draft reasons in order to give the parties an opportunity to make submissions regarding the quantum meruit. He heard submissions from the plaintiff’s counsel on 11 October 2007 concerning the quantum meruit. Counsel for the defendants submitted that the District Court did not have jurisdiction to make an award on a quantum meruit basis. Counsel relied, it seems, on the fact that the plaintiff had not pleaded a claim for a quantum meruit.
The Judge called the matter on again on 14 December 2007 and again invited submissions from counsel for the defendants on the question of a quantum meruit. He told counsel that he was prepared to consider any application to have the witnesses recalled for further cross-examination if that was necessary, and would give the defendants the chance themselves to call further witnesses. The defendants did not take up either invitation.
The purposes of pleadings are well-known.[49] Those purposes include meeting the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her. The rule that in general relief is confined to that available on the pleadings is a rule designed to achieve procedural fairness. If procedural fairness is achieved by other means, it is open to a court to grant relief on a basis which has not been pleaded.
[49] H Stanke & Sons Pty Ltd v O’Meara [2007] SASC 246 at [75]-[76]; (2007) 98 SASR 450 at 465-6.
That is what occurred in the present case. The Judge gave the defendants clear notice of the course of action which he proposed and gave them the opportunity to adduce further evidence and to make further submissions concerning that course of action. It was a deliberate choice by the defendants not to take up the invitations which the Judge offered.
Conclusion on Quantum Meruit Submissions
If, contrary to my opinion, the plaintiff had not made a binding oral cost plus agreement with the defendants, the Judge was correct in making an award on the basis of a quantum meruit. The plaintiff’s criticisms of the Judge’s findings and of his reasons in that respect fail.
The Costs of the Reports of Mr Williams
After the Judge had delivered judgment on the plaintiff’s claim, he heard submissions from the parties concerning the costs issues. Over the objection of the defendants, he ordered that the plaintiff recover the reasonable costs which he incurred in obtaining eight reports from an expert, Mr Williams.
The defendants submitted that the Judge had been in error in doing so. In part, it was submitted that the reports from Mr Williams were irrelevant to the claim for a quantum meruit. For the reasons given above, this ground of complaint falls away.
The defendants submitted in the alternative that the multiple number of reports from Mr Williams were necessary because of mistakes made by Mr Williams in his early reports which had to be corrected in later reports. It was submitted that it was unfair that the defendants should have to pay the cost of Mr Williams correcting his own mistakes.
The cost discretion exercise by the Judge was a wide discretion. It was exercised by the Judge after he had delivered his judgment, and in the light of all the facts and circumstances in the litigation known to him. It is difficult for this Court to put itself in the position of the Judge at the time of exercising the cost discretion. In particular, it is difficult for this Court to assess the extent to which the earlier work of Mr Williams was unnecessary or inappropriate because of mistakes made by him. In those circumstances, this Court should be slow to interfere with the Judge’s exercise of discretion as to costs which, as I say, is a wide discretion.[50] In any event, it is has not been shown that the Judge overlooked relevant matters, or had regard to irrelevant matters, or misapprehended the relevant principles or that in some other way, the exercise of the costs discretion miscarried.
[50] Vestris v Cashman (1999) 72 SASR 449 at 459, 467.
Insofar as the defendants wish to contend that the amounts paid by the plaintiff to Mr Williams were not reasonably incurred, that is a matter which can, as the plaintiff acknowledged, be raised on the costs adjudication.
Conclusion
While I would uphold the Judge’s decision on grounds which are different from those relied upon by the Judge, his judgment ought not to be disturbed. The appeal should be dismissed.
KOURAKIS J I agree that the appeal should be dismissed for the reasons given by White J.