Morris v Leaney

Court of Appeal (NSW)|2022-03-18|Before: Payne JA, White JA, Beech-Jones JA

Background

The following is taken from the findings of the primary judge.
In 2012, Mr and Mrs Morris purchased a three-bedroom home in Kings Creek, New South Wales. In November 2014 they engaged Mr Leaney as their architect to design and potentially supervise a substantial renovation of their home. The primary judge found that Mr and Mrs Morris intended to home‑school their children and wished to build a "forever home", that is a home that would accommodate their family's needs for many years to come.
The parties' first formal meeting to discuss the renovation proposal took place on 6 January 2015. During that meeting Mrs Morris told Mr Leaney that she and her husband only wanted to use "healthy and natural materials" on the construction and wanted the project to include "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 Mr Leaney told Mr and Mrs Morris that they could not achieve everything, including a tennis court and a pool, with a budget of $300,000. There was a further meeting on 24 January 2015 when Mrs Morris told Mr Leaney that she and her husband could increase their "budget to $300,000 plus the cost of a tennis court and steam room". Mr Leaney informed them that this further budget was also not possible.

The Pleaded Case

As noted, Mr and Mrs Morris pleaded causes of action under s 18 of the ACL as well as for breach of contract and tort. In relation to the claim under s 18 of the ACL, the statement of claim identified five representations that were said to be false and misleading, three of which related to the cost of the renovations (the "Cost Representations") and two of which concerned the suitability of entering into a cost plus contract with Mr O'Hagan (the "Contract Representations").
It is only necessary to describe two of the pleaded Costs Representations. The first was that, at the meeting on 11 April 2015, Mr Leaney represented to Mr and Mrs Morris that they "could achieve [their] Objectives with the Design for a probable cost of $649,000 inclusive of GST". The second was that, on or about 24 April 2015, Mr Leaney represented that they "could achieve [their] Objectives within the Final Budget [of a maximum $600,000] by making some costs savings to further lower the price and without the need to compromise the Design". The reference to the "Objectives" was to all aspects of the proposed renovations including the swimming pool, tennis court, sauna, landscaping and the driveway. The reference to the "Design" was to the preliminary design agreed upon at the meeting on 11 April 2015. These representations were pleaded to be misleading and deceptive because they "led and deceived" Mr and Mrs Morris to believe that they could achieve the Objectives for the maximum budget of $600,000.00 "when in fact they could not".
The negligence case particularised a large number of breaches of a duty of care said to have been owed by Mr Leaney to Mr and Mrs Morris, many of which were directed to various alleged "failing[s]" in the design and advice about the building contract they entered into. One of the particulars of negligence was similar to the pleaded representations in that it alleged that Mr Leaney breached his duty of care in "[a]dvis[ing] the Plaintiffs that they could achieve the … Objectives … for a probable cost of $600,000 when in fact the probable cost … was $1,243,000.00". There was a similar particular of the breach of alleged contractual duties that it was pleaded that Mr Leaney owed, although it was expressed in more general terms namely that he "failed to ... accurately and adequately advise the Plaintiffs on the likelihood of them achieving the … Objectives with the Final Budget [of $600,000]".
In relation to all three causes of action, Mr and Mrs Morris pleaded that they suffered loss and damage because they entered into the building contract with Mr O'Hagan "in reliance on the advice and Costs Representations" in the belief that they could achieve the objectives for the maximum cost of $600,000 and that "[b]ut for the Defendant's negligence, breach of contract and/or contraventions of the ACL" they would not have done so (ie, a "no transaction case").
Two particular aspects of the case conducted on behalf of Mr and Mrs Morris should be noted. First, each of Mr and Mrs Morris gave the same direct evidence in support of the reliance aspect of their case under s 18 of the ACL as follows: "If Mr Leaney had not told me that the project, including the swimming pool, tennis court, sauna, driveway and landscaping could be completed within our budget of $600,000.00 I would not have proceeded any further with the plan to renovate and extend the property."
That passage, repeated verbatim by both Mr and Mrs Morris, refer to the statements that Mr and Mrs Morris attributed to Mr Leaney during the meeting on 24 April 2015, which the primary judge did not accept were made. Although these statements were directed to the case under s 18 of the ACL, evidence of them was admitted without objection and consequently without limitation. This was so even though in relation to so much of Mr and Mrs Morris' case that involved the claims for breach of contract and negligence this evidence was "inadmissible except to the extent (if any) that [it was] against … [their] interest" which it was not (Civil Liability Act 2002 (NSW), s 5D(3)(b)). Although it is not necessary to decide, the most likely construction of s 5D(3)(b) is that inadmissible means "inadmissible over objection" with the consequence that it was admitted for all purposes (see Hilton v Legal Profession Admission Board [2017] NSWCA 232 at [54] to [56]). I will proceed on the assumption, favourable to Mr and Mrs Morris, that it was so admissible. As explained below, in the absence of some precise specification of what advice should have been given to Mr and Mrs Morris to discharge the relevant duty, its evidential value in relation to their case in contract and tort was limited.
Second, both parties adduced evidence from expert architects concerning whether Mr Leaney acted in accordance with what "peer professionals regard as the standards required for competent professional [architectural] practice". The expert architect retained by Mr and Mrs Morris, Constantine Moschoyiannis, noted that the relevant code of professional practice, required an architect to "advise a client on the likelihood of achieving the clients stated budget and time requirements for the architectural service concerned." By reference to the subsequent increase in the cost of the works including an estimate produced by a quantity surveyor in 2017 that the true construction cost, inclusive of margins and contingencies, was $1,256,391.00, he concluded that Mr Leaney failed to comply with the relevant standard. The expert architect retained on behalf of Mr Leaney, Mr Anthony Kemeny, opined that Mr Leaney generally acted in a manner that was widely accepted in Australia by peer professional opinion as reasonably competent in relation to his opinion of probable building costs. However, Mr Kemeny concluded that he did not act in accordance with that practice "in the subsequent monitoring and updating of the initial opinion of probable costs, that he should have updated [the opinion] as the project increased in scope and was being changed by [Mr and Mrs Morris or] cautioned [them] in writing."
However, neither Mr Moschoyiannis nor Mr Kemeny opined upon what advice an architect acting in accordance with the relevant code of professional practice should have given to Mr and Mrs Morris from any time after April 2015 as to the likelihood of achieving the stated budget, and nor did they opine upon what estimate should have been provided. The content of that advice could not be determined, or at least conclusively determined, with the benefit of hindsight much less by reference to the subsequent assessment of a different professional, namely a quantity surveyor.

The Primary Judge's Findings

After making findings of primary fact, the primary judge addressed 12 legal and factual issues framed by the parties. The third, fifth, sixth and seventh issues concerned Mr Leaney's conduct in advising about the use of a cost plus building contract and the administration of the contract. The eleventh issue was whether Mr O'Hagan was a concurrent wrongdoer, and the twelfth issue was whether Mr and Mrs Morris materially contributed to their loss by their own negligence. These issues and his Honour's findings concerning them are irrelevant to this appeal.
The first two issues were addressed to Mr and Morris' case under s 18 of the ACL in that they asked whether "(i) the plaintiffs informed the defendant that their maximum budget was $600,000" and "(ii) the defendant represented to the plaintiffs that their objectives could be achieved with a budget of $600,000". In light of his Honour's factual findings, these questions were answered "no".
The fourth issue was whether Mr Leaney "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)". In addressing this issue, his Honour referred to the standard of care expected of an expert architect (see Voli v Inglewood Shire Council (1963) 110 CLR 74; [1963] HCA 15 at [84]) and to the Architect's Code of Professional Conduct which includes a statement that "[a]n 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". His Honour accepted that statement as an expression of the content of the duty owed by Mr Leaney.
His Honour then made the following findings concerning the breach of that duty: "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 and in his email of 1 February 2016. ... 95 ... 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." (emphasis added)
The fifth issue addressed by the primary judge was whether Mr Leaney adequately advised Mr and Mrs Morris in relation to the selection and form of the building contract. The primary judge noted Mr Kemeny's evidence that it was not "competent for an architect to permit their client to enter into a cost plus contract with a builder who had not given a price" and that an architect would be expected to advise a client in writing 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". His Honour found that Mr Leaney's advice "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".
The eighth issue addressed by the primary judge was whether the Costs Representations noted above (at [37]), if made, were misleading or deceptive. His Honour found that each of those representations, although not made, were opinions "actually held by Mr Leaney" on reasonable grounds, although those opinions were "qualified" by two matters. The first was the fact that the opinion on probable cost did not include GST or furnishings. The second was Mr Leaney's explanation that the "figures were industry based and not necessarily reflective of what the plaintiffs' building would cost" which "depended on a number of matters including the level of finishes and [Mr and Mrs Morris'] input into the construction".
The ninth issue addressed by the primary judge was whether Mr and Mrs Morris relied on the Costs Representations. His Honour noted that this issue did not arise as the Costs Representations were not made as alleged and, even if they were, they were not misleading. Nevertheless, his Honour found that if he was wrong on both of those conclusions then "I find that [Mr and Mrs Morris] did rely on the representations". Mr and Mrs Morris seek to rely on this finding in support of their case on appeal which concerns their case for breach of contract and a breach of the duty of care. However, the utility of such a finding is difficult to ascertain in that one cannot rely on a representation that was not made. To ascertain the possible significance of the finding it is necessary to outline some of the primary judge's reasoning on this topic.
In support of this finding, his Honour noted that Mr and Mrs Morris' evidence that after being told they could not get what they wanted for $300,000.00, they "thought they could extend their budget up to $600,000 if they borrowed more money". His Honour then reasoned as follows: "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 …. 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, they would no longer have been relying on the defendant's representations, but on that of the builder." (emphasis added)
These paragraphs highlight the difficulty in seeking to extract support for a case based on a failure to advise from a finding that Mr and Mrs Morris relied on a representation that his Honour found was not made. This extract suggests that, at least by October 2015, Mr and Mrs Morris either did or should have known that the likely cost of their renovation plans "would have well exceeded $600,000 if not $800,000". In cross‑examination, Mrs Morris agreed that she knew that she had received a quote that "excluded significant items, that if they were included would go over significantly [her] projected limit of $600,000". Mrs Morris also agreed that "various components of the project were still much in the air and developing over [calendar year] 2015 after the schedule of conceptual budget" and that "kept evolving during the build".
The reference to "it" in the last sentence of [128] of the above extract appears to be a reference to both of the pleaded Costs Representations noted in [37]. The most sensible way to interpret his Honour's findings on reliance is that his Honour accepted that each of Mr and Mrs Morris possessed the state of mind implicit in the Costs Representations at the time they were allegedly made (ie, April 2015) and that understanding about the cost of the preliminary design in the form it was in as at April 2015 was still operative on their decision to undertake the renovations, even though the design had developed and increased in cost since that time. This means that, as at April 2015, they believed that they "could achieve [their] Objectives with the [preferred design] for a probable cost of $649,000 inclusive of GST" and as at April 2015 they believed they "could achieve [their] Objectives within the Final Budget [of a maximum $600,000] by making some costs savings to further lower the price and without the need to compromise the [preferred design]". Their decision to undertake the renovations was partly informed by their knowledge that in April 2015 they had that understanding. If his Honour's findings are understood in that way then they can accommodate the undisputed evidence that by October 2015 the proposal to achieve those "Objectives" had evolved, and the cost of achieving them "would have well exceeded $600,000, if not $800,000".
While these parts of the primary judgment accept that the state of mind as at April 2015 implicit in those representations was operative on Mr and Mrs Morris' decision to enter into the building contract, there was no finding that the figure of $600,000.00 was their absolute maximum they were prepared to spend or that they could definitely achieve their objectives for $600,000.00. The first Costs Representation is referable to a cost of $649,000.00 and the second only contemplates that they "could" achieve their objectives within a final budget of $600,000.00 contingent on them making savings. There was no finding that such savings were attempted, much less made.
The eleventh issue addressed by the primary judge concerned the assessment of damages for breach of contract and the duty of care identified above. His Honour noted the way in which Mr and Mrs Morris put the "no transaction" case. His Honour reviewed various authorities concerning the assessment of damages and cited Walmsley, Abadee, Zipser and Sirtes, Professional Liability in Australia (3rd ed, 2016, Law Book Company) at [6.1950] for the proposition, that "[w]here 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". Applying this principle, the primary judge concluded that Mr and Mrs Morris had not suffered any loss because "they got exactly what they paid for" and "they have not established that they are any worse off than they would have been had [Mr Leaney] not breached his obligations under the retainer". His Honour concluded that the cause of action in negligence failed as damage is an element of that cause of action. As noted, His Honour awarded nominal damages for breach of contract.

The Appeal

There are two grounds of appeal: 1 Having correctly found that the respondent breached the contract and negligently failed to advise the appellants about the likely costs of the building and in relation to the selection of an appropriate building contract by permitting the appellants to enter into a costs-plus contract with a builder who had not given a price, the primary judge erred: a. in finding that the appellants did not suffer any loss; and in b. failing to assess the appellants' damages on the basis of a "no transaction" case. 2 The primary judge erred in failing to find that the appellants suffered a loss of $451,000 in circumstances where: a. had the respondent not breach[ed] his duties, the appellants would have known that they could not achieve their stated objectives with a budget of $600,000, and they would not have entered into the building contract; b. the appellants had a home worth $555,000 before they entered into the building contract; c. the appellants spent $781,000 under the building contract and as a result of that work had a home worth $885,000.
Mr and Mrs Morris' submissions accepted that there was a difficulty with the approach of the primary judge in that they accept that his Honour did not make any express finding that, had Mr Leaney not breached his contractual duty or his duty of care, they would not have commenced the renovations (and then entered into the building contract). Their submissions sought to reduce these grounds of appeal to two issues, which I understood were meant to reflect each ground of appeal. The first issue was that, assuming they would not have proceeded with the renovations had Mr Leaney advised them "that they could not achieve their objectives for their budget of $600,000" (the "counterfactual"), did his Honour err in finding that they did not suffer any loss? The second issue they identified was whether the primary judge was satisfied of the counterfactual and, if not, whether this Court should make such a finding to that effect (Supreme Court Act 1970 (NSW), s 75A(5)). In relation to the second issue, it was submitted that the primary judge implicitly accepted their "no transaction" case by the findings made in relation to the tenth issue described above. In the alternative, it was submitted that this Court should infer the counterfactual from his Honour's findings on that issue and the chronology of events.
The respondent's submissions disputed each step in Mr and Mrs Morris' submissions. The submissions also identified a further finding that was not made by the primary judge, namely that, in relation to the finding of a breach a contractual and tortious duty to adequately advise Mr and Mrs Morris of the likely cost of building, no finding was made as to what advice ought to have been given and when. The submissions noted that, amongst other matters, Mr and Mrs Morris did not adduce evidence as to the range of the advice that Mr Leaney should have been given to discharge his contractual and tortious duty and did not "adduce clear evidence as to the timing of increases in scope and alterations [to the design], being made by them" from time to time.

Ground 2: The Counterfactual

It is appropriate to address the second issue identified by Mr and Mrs Morris first. In oral submissions, Senior Counsel for the appellants, Mr Sullivan QC, accepted that to succeed on the appeal his clients had to succeed on both issues.
There were two concurrent contractual and tortious obligations identified by the primary judge that were breached by Mr Leaney. The first was his duty to advise Mr and Mrs Morris of the likelihood of achieving their objectives having regard to their budget. The second was his duty to properly advise about the appropriateness of the building contract that Mr and Mr Morris entered into with Mr O'Hagan. This second breach need not be considered further as there was no attempt by Mr and Mrs Morris to contend that, had that duty been discharged, then they would not have undertaken the renovations (and then entered into the building contract with Mr O'Hagan).
In relation to the first breach, the primary judge made a number of particular findings concerning how Mr Leaney failed to discharge that duty. His Honour accepted that the opinion on probable cost that Mr Leaney provided to Mr and Mrs Morris on or about 11 April 2015 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, his Honour also found that "... once the schematic concept was decided upon by [Mr and Mrs Morris] and the sketches became more detailed plans, [Mr Leaney] ought to have kept [them] updated on the impact of changes and design choices on the probable cost of the building". His Honour did not specify what the content of that advice should have been, nor did his Honour identify what the "sketches" and "updated plans" were. As noted by Mr Leaney, Mr and Mrs Morris did not adduce evidence on those topics either. The only other finding made by his Honour concerning the discharge of that duty was to note that if Mr Leaney "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".
Damages for breach of contract are awarded with the object of placing the plaintiff in the position in which he would have been had the contract been performed. Damages in tort are awarded with the object of placing the injured party in the position they would have been had the tort not been committed (Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 11-12 per Mason, Wilson and Dawson JJ; "Gates"). With contract, the innocent party, in this case Mr and Mrs Morris, is to be placed in the position as though they had received the benefit of their contract with the party in breach, namely Mr Leaney, ie, as though they had received advice in conformity with the duty to advise as formulated by the primary judge. In tort Mr and Mrs Morris are to be placed in the position they would have been in but for the failure of Mr Leaney to provide that advice. Thus, as this case involves a breach of both a contractual and tortious duty to proffer advice, then, at this point of the analysis, there is no relevant difference between the approaches in contract and tort. However, as noted, his Honour did not make any express finding as to what was necessary to fulfill that obligation.
The counterfactual posed by Mr and Mrs Morris has two aspects. The first is a premise that the proper discharge of Mr Leaney's contractual or tortious duty required the provision of advice some time after April 2015 and before either the commencement of the renovations (or the entry into the building contract) to the effect that they "could not" achieve their Objectives for their budget of $600,000. To similar effect, in oral argument on the appeal, Mr Sullivan SC contended that Mr Leaney should have said to them words to the effect that "you should know or you should be aware that it's highly unlikely that you are going to be able to achieve your stated objective of building a home of the type that I have designed within your budget of $600,000". The second aspect concerns reliance in that, from that premise, Mr and Mrs Morris contend that either the primary judge found, or this Court should find, that had advice been given, they would not have undertaken the renovations.
I do not accept that either premise concerning the content of the advice that should have been given or the reliance aspect of this argument is made out. So far as the content of the advice is concerned, his Honour found that the opinion on probable cost provided in April 2015, which nominated a figure of $649,000 inclusive of GST, exclusive of furnishings, represented Mr Leaney's genuine opinion concerning the cost of the proposal as it stood as of April 2015 and was at least in a qualified sense based on reasonable grounds. As noted, that opinion concerned what his Honour described as a "preliminary design". From that time, the proposal developed over the course of the year so much so that by around October 2015, BDM provided the BDM Quote. Mrs Morris accepted that, if the quote had included all of her and her husband's objectives, the cost would have "significantly exceeded [their] projected limit of $600,000". There is nothing in his Honour's findings or the evidence to suggest that there was any scaling back of their renovation proposals from that time until the time the renovations commenced (or that they entered into the building contract).
At one level, the BDM Quote and the revisions to the renovation proposal from April 2015 serve to demonstrate that, at least from October 2015, it was very unlikely, bordering on the impossible, for Mr and Mrs Morris to achieve their Objectives for under $600,000, and thus Mr Leaney should have expressly told them that. However, if that path of reasoning is adopted, it also means that they were aware of that by then without requiring advice from Mr Leaney but continued with the proposal. This path of reasoning also suggests that their budget of $600,000 was not some final limit, which in turn casts doubt on whether any advice that Mr Leaney had to provide was required to be tailored to that figure as suggested on appeal. Further, this path of reasoning also destroys the reliance aspect of the counterfactual.
In any event, the only specific means of discharging the relevant duty that was identified by the primary judge was that, in the event that Mr Leaney "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." If this was sufficient to discharge the duty of care in negligence and it was not demonstrated that, if it had been adopted, loss would have been occasioned then "factual causation" was not established (Civil Liability Act 2002 (NSW), s 5D(1)(a); Varipatis v Almario [2013] NSWCA 76 at [98] and [106] per Meagher JA with whom Ward JA agreed).
An analogous principle is applicable in assessing damages for breach of contract, namely that where the party in breach could have performed the contract in one of several ways, "damages are assessed assuming performance in the way least onerous to the defendant", although "this mode of assessment will not be employed where the least onerous method of performance is in fact highly unlikely to have been selected by the defendant" (Martinez as trustee for Martinez HWL Practice Trust as representative of the partners trading as HWL Ebsworth Lawyers v Griffiths as trustee for the Griffiths HWL Practice Trust [2019] NSWCA 310 at [31] citing J D Heydon, Heydon on Contract (2019, Lawbook Co) at [26.200]). Although this principle is usually applied where the express terms of the contract confers on the party in breach alternative methods of performance or termination (see Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54 at 93; "Amann Aviation"; TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 at 154 and 156; "Hayden"), I can see no reason in principle where it would not apply to a circumstance where a professional adviser could discharge their duty to advise by either proffering advice or disclaiming their ability to do so and advising the client to obtain advice elsewhere.
On this approach, damages would fall to be assessed on the basis of what would have resulted had Mr Leaney warned Mr and Mrs Morris that he "felt himself unable or unqualified to give an accurate estimate of costs" and instead "warned of that in writing" and advised them "to obtain an estimate from a properly qualified professional." If that advice had been proffered then the evidence would not permit a conclusion favourable to Mr and Mrs Morris that they would have sought that advice. To the contrary, to the extent that any conclusion could have been drawn, it is that Mr and Mrs Morris would not have sought the advice because they were determined to start building work quickly. The primary judge accepted Mr O'Hagan's evidence that Mr and Mrs Morris "were in such a hurry to get started… they weren't prepared to wait for … a full quote". Moreover, even if they had sought advice, there is no evidence as to what the outcome of any such inquiry would have been beyond them learning what they already knew from the BDM Quote.
The contractual principle endorsed in Martinez was qualified by the requirement that it not be "highly unlikely" that the party in breach would have discharged their contractual duty in the least onerous way. The cases that have discussed the principle have referred to the necessity to look beyond the bare existence of the relevant means of performance or discharge and consider the likelihood of its exercise (see Amann supra; and Hayden supra). This inquiry is somewhat artificial in that it takes place in a context where, self-evidently, the party in breach either did not or will not be able to adopt that means of performance or termination because of their own prior acts in breach (id). Even so, in this case, the evidence indicates that the means of discharging Mr Leaney's duty as identified by the primary judge was his preferred method, even if he did not meet the relevant standard. By October 2015, Mr Leaney had procured a quote from a builder, BDM, who was presumably in a far superior position to him to estimate the likely costs. In February 2016, when he was asked about the provision of an estimate to the bank, he referred Mr and Mrs Morris to the BDM Quote. In June 2016, when Mr and Mrs Morris complained that the costs of the project had increased, Mr Leaney advised them "I never provide any clients with a building estimate … that's what builders do".
Given that evidence I am not satisfied that it was either "highly unlikely" or even unlikely that, from any time in the latter part of 2015 until the time of the entry into the building contract with Mr O'Hagan in early 2016, Mr Leaney would have discharged the duty he owed to Mr and Mrs Morris as found by the primary judge by warning them in writing that he felt "unable" to give an accurate estimate of costs and that they should "obtain an estimate from a properly qualified professional".
Further, even assuming that sometime after April 2015, and before the entry into the of the building contract with Mr O'Hagan, Mr Leaney was obliged to tell Mr and Mrs Morris that they could not achieve their Objectives for their budget of $600,000.00, I am not satisfied that the proper inference is that they would have not undertaken the renovations. I have explained the limited use that can be made of the primary judge's reliance findings in relation to the unsuccessful representations case. Mr and Mrs Morris commenced renovations and entered into the building contract with Mr O'Hagan even though the opinion on probable cost referable to a preliminary design exceeded $600,000.00. Thereafter, the preliminary design was developed, and in October 2015, they received the BDM Quote which meant that once the excluded items were included, the cost was "significantly" higher than $600,000. Given those matters, any advice to Mr and Mrs Morris that they could not achieve their Objectives for $600,000 (or it was highly unlikely that they could do so) would not have necessarily led to the proposal being abandoned but instead would have only invited further discussion about what could have been achieved and for what price. A counterfactual inquiry of that kind cannot be taken further in the absence of evidence about the range of estimates that Mr Leaney should have given Mr and Mrs Morris.
This again highlights the limits on using the primary judge's acceptance of Mr and Mrs Morris' evidence of reliance referable to the Costs Representations to support the reliance aspect of the counterfactual. It is one thing for a home owner to say that they would not have pursued a proposal to renovate had they not received a positive assurance in April 2015 from their architect that a preliminary design for renovation "could be completed within our budget of $600,000.00". It is another thing to say that had the home owner been advised later that it was very unlikely that a more developed proposal could be completed within that budget then they would have abandoned a proposal to renovate their home. Instead, the most likely response would have been "how much more will it cost?" This throws up the lacuna in Mr and Mrs Morris' case as there is no finding or evidence capable of demonstrating what answer the reasonably competent architect should have given to that question beyond that suggested by the BDM Quote, which Mrs Morris accepted suggested it was "significantly" more.
I would dismiss ground 2 of the appeal.

Ground 1: Approach to the "No Transaction" Case

As noted, the first issue that Mr and Mrs Morris sought to raise on the appeal was, assuming that they would not have proceeded with the renovations had Mr Leaney advised them "that they could not achieve their objectives for their budget of $600,000", did his Honour err in finding that they did not suffer any loss?
The approach to be adopted to a "no transaction" claim for damages in the circumstances assumed by this ground of appeal was succinctly stated by Martin CJ in Doepel & Associates Architects Pty Ltd v Hodgkinson [2008] WASCA 262 at [45] (with whom Le Miere J agreed): "Turning then to the legal issue raised in relation to the damages awarded, the appellant relies upon a number of decisions which deal specifically with the damages to be awarded by reason of the negligent estimate of construction costs. 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 …..) This is not a special rule applicable to the negligent assessment of construction costs, but the application of general principle."
The "general principle" to which Martin CJ was referring is that stated in Gates set out above. There are two relevant circumstances posited by this approach. The first circumstance is where the owner "receives full value for the construction work undertaken", being an accretion in the value of the property. In such a case there is no loss "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". As will be explained there was evidence to that effect in Doepel. However, in this case, given the agreed facts, this was not a case in which Mr and Mrs Morris received full value of the construction work because the accretion in value of Mr and Mrs Morris home was less than the construction cost.
The second circumstance is where a "party relies on such a representation and proceeds to undertake construction" and "market value following construction is less than the cost of construction (added to the land acquisition cost)". This is applicable to Mr and Mrs Morris if one accepts the assumption upon which this ground of appeal relies, ie, the counterfactual. According to the agreed facts, following the completion of work by Mr O'Hagan, the market value of Mr and Mrs Morris' home ($885,000) was less than the sum of the cost of construction ($781,059.23) and the equivalent in this case to a "land acquisition cost", being the current market value absent the renovations ($555,000). The difference of $451,059.23 was the amount claimed by Mr and Mrs Morris. That approach accords with principle in that it compares the financial position that Mr and Mrs Morris found themselves having undertaken the renovations with the financial position they would have been in but for Mr Leaney's breaches of duty (on the hypothesis that the latter caused them to undertake the renovation).
McClure P dissented in Doepel but, without deciding, her Honour described the relevant approach in the first circumstances noted above in terms that are not relevantly different from those stated by Martin CJ namely (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 costs 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."
This statement has no application to this case because, based on the agreed facts, Mr and Mrs Morris did not receive a building to the value of their construction costs.
As noted, Doepel was an instance of the first circumstance identified by Martin CJ in the above passage. In Doepel, an architect provided a misleading and deceptive estimate of the cost of the construction of a residential house. The house increased in value and, when it was sold, yielded a profit (at [50] and [63]). However, it was found that, but for the misleading estimate, the owner would have engaged another builder to construct a cheaper home (at [43]). The loss awarded was the difference between the larger profit that would have been realised on the sale of the cheaper home and the smaller profit that was in fact realised on the sale of the home that was constructed (at [49] to [50]). Martin CJ found that approach "accord[ed] entirely with conventional principle" (at [51]).
In Doepel, both Martin CJ and McClure P distinguished the result of another Western Australian case, namely McBratney v Boston [1994] ATPR 41-355, in which an architect was also found to have provided a false and misleading estimate of the cost of constructing a home, and the owner entered into the building contract in reliance on the estimate provided. However, there was valuation evidence that the home that was constructed was worth more than the amount expended and there was no evidence that the owner would have entered into a different contract that would have yielded a better financial outcome (at 11 per Wallwork and Owen JJ; see Doepel at [46] per Martin CJ and [127] per McClure P).
In this case, the primary judge posed the question whether Mr and Mrs Morris "were worse off because of the conduct" of Mr Leaney. His Honour rejected the contention that Mr and Mrs Morris suffered loss because 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" (at [149]). With respect, however, in so reasoning, his Honour ignored Mr and Mrs Morris' "no transaction" case and the agreed facts. If it were the case that, but for Mr Leaney's breaches, Mr and Mrs Morris would not have undertaken the renovations then they were certainly "worse" off as a result of his conduct and they suffered a "financial disadvantage". This is so because they spent $781,059.23 on their home to only derive an increase in its value of $330,000.00.
The primary judge addressed the decisions in Doepel and McBratney in detail. His Honour rejected a submission made on behalf of Mr and Mrs Morris that their case was governed by Doepel as follows (at [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."
With respect, this misstates the effect of Doepel and McBratney. Whether or not the owners in Doepel and McBratney had sold the property upon which they constructed a house was not what distinguished the two cases. Instead, the distinguishing feature between the facts of Doepel and McBratney was that in Doepel, the aggrieved party was able to point to an alternative transaction that, but for the defendant's breach, they would have undertaken and which would have resulted in their being in a superior financial position, whereas in McBratney, the aggrieved party could not. Otherwise, in both Doepel and McBratney the construction work resulted in an increased value of the property that exceed the construction cost. By contrast, in this case, the renovations that were undertaken may have resulted in an increased value of Mr and Mrs Morris' property but that increase was significantly less than the construction cost. Given the assumption upon which this ground of appeal depends this meant that Mr and Mrs Morris suffered loss as a result of undertaking the renovations.
The primary judge also addressed the judgment of Farrell J in Robinson v Kenny [2014] FCA 988 which was another example of an architect being found to have misled their client about the cost of work. Her Honour found that, but for the misleading conduct, the applicant would have abandoned the planned work and continued to lease out the premises (at [300]). Her Honour awarded compensation calculated by adding the cost of the works, interest on that amount and the amount of foregone rent and deducting from the total a sum equal to the improved value of the property due to the construction of the works (at [301]). The primary judge in this case was critical of the paucity of Farrell J's reasoning on this issue. However, little elucidation was required. Robinson simply involved the application of orthodox principle.
The primary judge also addressed Wyzenbeek v Australian Marine Imports Pty Ltd (in liq) (2019) 272 FCR 373; [2019] FCAFC 167 ("Wyzenbeek") which was a "no transaction" case involving a misrepresentation that induced the appellant to purchase a yacht. Rares, Burley and Anastossiou JJ held that the appropriate measure of damages for a "no transaction" case, involving a non income‑producing ship, was the purchase price and the amounts the subject of a consequential or additional loss claim, less the current value (at [120]) with no deduction for the personal benefit enjoyed from using the yacht (at [111]). The primary judge sought to distinguish Wyzenbeek on the basis that Mr and Mrs Morris received the benefit of a better home with additional bedrooms, larger kitchen, and space for home‑schooling. While Wyzenbeek was of little relevance to this case, that is not a point of distinction between Wyzenbeek and this case and certainly does not detract from the above statement from Doepel. Prima facie, the value of those items was reflected in the increase in the value of their home which was brought to account in Mr and Mrs Morris' calculations based on their "no transaction" case.
Finally, I note that Mr Leaney's submissions cited Cappello v Hammond & Simonds NSW Pty Ltd [2021] NSWCA 57 ("Cappello") and Leeda Projects Pty Ltd v Zeng (2020) 61 VR 384; [2020] VSCA 192 ("Leeda") for the proposition that the multiple purposes for which residential property may be owned make it hard to calculate loss by reference to methods of quantification of loss that may be applicable to chattels and that damages assessment in every case will depends on the facts of that case. In Cappello, one head of damage, claimed by a homeowner who sued a builder for delay in completion, was for the difference in value of the home at the time of delivery compared to the value of the home had the building contract been performed as promised. Leeming JA, with whom Macfarlan and McCallum JJA agreed, rejected that claim observing that, unlike fungibles, such as shares for which there is a ready market enabling easy conversion of the property to money, homes are unique and can only be sold with a deal of effort and transaction cost (at [84]) with the consequence that the claim was "entirely notional unless there was, at the very least, a real intention to effect a sale" (at [84).
Unlike this case, Capello (and Leeda) was a case of loss of use of real property from delay in the performance of building work. As formulated, this was a "no transaction" case resulting from a failure to advise about the proper cost of renovations. Generally, the approach stated in Doepel does not involve the realisation of notional losses and is not otherwise inconsistent with Cappello and Leeda. Nevertheless, in such cases the observations of Leeming JA about the difference between fungibles and real property may be of significance to quantification and it can be expected that in many cases there will be the added complexities that will result from the assessments of value in falling and rising real estate markets. In this case, the parties put aside these difficulties by agreeing facts. Had the counterfactual posed by Mr and Mrs Morris been made out then those facts would have enabled the primary judge to award damages in the amount claimed.
Accordingly, I would uphold ground 1. However, as I would reject ground 2, I consider that the appeal must be dismissed.

Conclusion

I propose the following orders: (1) Appeal dismissed. (2) The Appellants pay the Respondent's costs of the Appeal.

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Australian Consumer Law Civil Liability Act 2002(NSW)

(Civil Liability Act 2002(NSW)

(Supreme Court Act 1970(NSW)

Solicitors: Gilberts Legal (Appellants) Holman Webb Lawyers (Respondent) File Number(s): 2021/195267 Decision under appeal Court or tribunal: District Court Jurisdiction: Civil Citation: [2021] NSWDC 224 Date of Decision: 10 June 2021 Before: Smith SC, DCJ File Number(s): 2018/187937

HEADNOTE [This headnote is not to be read as part of the judgment] The respondent was engaged as architect to design the appellant's home renovations. The appellants objectives for the renovations included an extension of their house as well as a pool, tennis court and sauna. They indicated that their initial budget of $300,000. The Respondent advised them that they could not achieve what they wanted within that budget. In April 2015 the Respondent provided the appellants with "opinion on probable cost" for a preliminary design that estimated the cost of the renovations as $590,000 excluding GST and other items. Later that month the appellants revised their budget to $600,000 although the primary judge rejected the appellants' evidence that they specified that figure as their maximum budget. The appellants and the respondent then refined their design and they sought quotes from a builder. In October 2015 a builder provided a quote for the renovations of between $550,000 and $600,000 excluding pool, sauna, tennis court, a driveway, and other works. Work commenced on the renovations with another builder on a cost-plus basis from December 2015. In February 2016 the parties had a falling out and the appellants continued with the builder. In June 2016 the builder advised that the cost of achieving their objectives would exceed $1,000,000. The appellants did not pursue all their objectives with the renovations. It was agreed that the renovations ultimately cost $780,000 but only increased the value of the house by $330,000. The appellants sued the respondent for a breach of s18 of the Australian Consumer Law alleging, inter alia, that in April 2015 he expressly represented that they could achieve their renovation objectives for $600,000 by making some costs saving. The trial judge rejected their evidence and dismissed that claim. However, the trial judge found that, if the representation had been made, then the appellants relied on it. The appellants also sued the respondent in contract and tort alleging, inter alia, that he breached a concurrent contractual and tortious duty to advise them about the "likelihood of achieving the clients stated budget and time requirements for the architectural service concerned". The primary judge found that the respondent breached that duty but did not specify what advice should have been given or make a finding about whether the appellants would have not pursued the renovations had the duty been complied with. However, the primary judge found that "if the [respondent] 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". The appellants framed their claim for damages on a "no transaction" basis that is, had the alleged representation not been made or the relevant duty been discharged, then they would not have pursued the renovations. The primary judge found that they did not suffer any loss and only awarded the appellants nominal damages for breach of contract. The issues on the appeal were: (i) Whether the primary judge found, or this Court should find, that the respondent was obliged to advise the appellants they "that they could not achieve their objectives for their budget of $600,000" and if he had whether they would not have undertaken the renovations? (ii) If issue (i) was resolved in favour of the appellants, did the primary judge err in concluding that they did not suffer any loss? The Court held, dismissing the appeal: As to issue (i) per Beech-Jones JA (Payne JA and White JA agreeing):

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