Re Gordon M Jenkins & Associates Pty Limited and Christopher Earl Jenkins v Brian James Coleman [1989] FCA 245; 23 FCR 38

Re Gordon M Jenkins & Associates Pty Limited and Christopher Earl Jenkins v Brian James Coleman [1989] FCA 245; 23 FCR 38 - FCA 1989 case summary — Zoe

[17]

His Honour then turned to the evidence of dealings between

the parties which his Honour discussed as follows:

(i) The respondent first discussed with the second

appellant the architectural planning and subsequent

construction of the residence in December 1982 or

January 1983. In late May or early June 1983, the

cost of the project was discussed. According to the

respondent's evidence, he indicated to the second

appellant that he could not afford to spend more than

$80,000 or $85,000; and the second appellant told

him that the work could be done for that amount if

the respondent obtained an "owner/builder's" licence

from the council and the second appellant "oversaw

and supervised" the construction. According to the

second appellant's evidence, he then showed the

respondent a copy of the Royal Australian Institute

of Architects Standard Agreement between client and

architect ("the Agreement") and explained that an

architect's fee was based on a percentage of the cost

of the building as estimated or tendered for; and

that an architect's services consisted of four stages

as follows: (1) "schematic design", i.e., the

"preparation of schematic design, illustrated by

preliminary sketch drawings and/or reports, and

provision of indicative estimates of cost;" (2)

"design development"; i.e., the "preparation of

developed design, including as appropriate developed

sketch drawings, reports, advice on preliminary

designs of engineering and other specialist services

and provision of time program and estimates of cost;"

(3) "contract documentation"; i.e., the "preparation

of documents sufficient for the calling of tenders

including as appropriate provision of information to

consultants and co-ordination and integration of

their work. Revision of estimates of cost;" (4)

"contract administration", i.e., calling and

reporting on tenders; analysis and advice in respect

of tenders received; negotiation, preparation of

documents and arrangements for execution of contract;

administration of the contract and inspection of the

works including supplying information, checking

claims and issuing certificates, negotiating

variations and cost adjustments and dealing with

claims for extensions of time. According to the

second appellant's evidence, he then explained to the

respondent the calculation of his fee and referred to

a cost of $150,000 on which the fee of 10% would be

payable; and the respondent then indicated that he

did not want the fourth stage services carried out,

with the result that the architect's fee was then

calculated at 6.5% of a cost of $150,000, i.e.

$9,750. The respondent denied being given this

information and disputed that he had been shown the

Agreement. He said that the only percentage figure

discussed was 4%, but he could not say on what amount

this was to be calculated.

(ii) According to the evidence of the second appellant, on

about 26 May 1983, he delivered to the respondent a

written confirmation of the estimated cost of

$150,000. This was denied by the respondent.

(iii) The respondent and the second appellant again

discussed the project in late June 1983. According

to the respondent's evidence, the second appellant

then gave an estimate of cost of $90,000 to $100,000.

(iv) Plans and sketch drawings were completed by July or

August 1983. According to the respondent, the second

appellant then confirmed a cost of $80,000. The

second appellant denied any discussion of cost at

that time. He said that in August 1983 he advised the

respondent that the cost would be $125,000, excluding

the cost of decks and garage or a carport; and that,

if these items were included, the project would cost

$150,000. This was denied by the respondent.

(v) According to the respondent, he and the second

appellant went to the local council on 7 October

1983. A building application form was then

completed. It stated the cost of the building at

$120,000, although the plans given to council

included a studio and a garage. The respondent's

evidence was that, whilst the second appellant was

filling out the form, a figure of $120,000 was

mentioned by a council employee and the second

appellant wrote that figure on the form. The second

appellant then explained this figure on the basis

that the council would not believe the cost could be

any lower. The second appellant, however, in his

evidence said that nothing was ever mentioned between

any council employee and either of the respondent or

the second appellant as to the cost of the project on

this occasion. His version was that in October 1983

he alone went to the council to lodge the building

application, having previously filled it out himself

stating an approximate cost of $120,000, and later

gave the respondent a copy.

(vi) On 1 December 1983, the second appellant resigned

from the employment of the first appellant. On that

day the first appellant sent an account to the

respondent for $9,751 for work done on the basis of

6.5% of an estimated cost of $150,000. The

respondent's evidence was that he queried the account

with the second appellant, particularly the sum of

$150,000; he said that he was told that it was a fee

based on the value of the residence upon completion,

that he would be paying a fee based on $80,000, and

that the fee would be payable on completion. The

second appellant's version was quite different. He

said that no figure of $80,000 was discussed but that

he explained the method of calculation of his fee to

the respondent.

(vii) On 27 February 1984, the "owner/builder" permit was

granted to the respondent. Subsequently, the

respondent and second appellant went together to

suppliers of building materials and household goods

and obtained quotations for the roofing, plumbing and

prime cost items.

(viii) The respondent paid the first appellant $3,000 for

its services under cover of a letter dated 16 April

1984 indicating that a further remittance would be

forwarded as soon as possible.

(ix) On 22 August 1984, a meeting took place between the

respondent and the second appellant. According to

the second appellant's evidence, only the quotations

obtained were discussed. But the respondent's

evidence was that a total cost of approximately

$80,000 was mentioned; there was also reference to

the fee payable to the second appellant and to an

engineer.

(x) The house was not completed and the property, which

was mortgaged, was subsequently sold by the

mortgagee.

[19]

(i) The contract between the respondent and the first

appellant

His Honour, preferring the respondent's version,

found that the second appellant told the respondent

"at some early stage that the house could and would

be built, under his supervision, for $80,000 or

thereabouts."

His Honour added:

"The evidence established that on or around 26 May

1983 the (respondent) had entered an agreement

with the first (appellant) pursuant to which the

first (appellant) would provide designs and plans

of the (respondent's) residence which involved the

first three stages of the Agreement...

Thereupon the first (appellant), through the

second (appellant) contracted to do the following:

(a) prepare plans for the project;

(b) provide an estimate of the cost of the

project which had to accommodate the

(respondent's) budget (the estimate

eventually provided and accepted was

$80,000);

(c) prepare all documents sufficient to permit

the letting of contracts including providing

information to engineering and other

consultants or contractors, and the

co-ordination and integration of building

works on the design;

(d) advise the (respondent) regarding tenders

received and administer and supervise the

building work.

In return the (respondent) undertook to pay the

first (appellant's) fees and paid them in part.

In view of my later findings, there is no need for

me to determine what the agreed fees were. The

contract seems to have been terminated by

agreement at or about the time the second

(appellant) left the employ of the first

(appellant)."

(ii) The contract between the respondent and the second

appellant

The judge found that after the second appellant left

the employ of the first appellant in December 1983,

he entered into an agreement with the respondent in

April 1984 whereby he agreed to assume responsibility

for the earlier contract with the first appellant,

provide the respondent with appropriate advice from

time to time, and supervise the work; that he was

paid $3,000; and that by November 1984 the second

appellant had abandoned the work; the respondent

then accepted the termination of the Agreement.

(iii) The claims made against the first appellant

The respondent's case was that the appellants were

qualified architects and were therefore competent to

give advice as to costs; the appellants professed to

have skill and expertise in regard to the letting and

supervision of building contracts; the appellants

knew that the respondent had accepted their advice as

to the cost of $80,000 on the basis that the

respondent became an "owner/builder" and retained the

first appellant to supervise and administer contract

works and construction; and that the second

appellant knew the respondent was acting on that

advice in embarking on the project.

(iv) The claims against the second appellant

It was said that the second appellant aided and

abetted the first appellant in its alleged

contraventions of the Trade Practices Act and was

knowingly concerned in the contravention; and that

the second appellant gave negligent advice.

(v) Discussion of the principles

The judge referred to the authorities in the areas of

(i) negligent misstatement and (ii) the duty owed by

an architect. His Honour said:

"There is no doubt that when an architect gives an

estimate, it must not only be an honest and

carefully considered estimate but it must also be

given after due consideration of the facts

involved in the particular case."

(vi) Reference to the "Practice Notes"

The judge then said:

"The Royal Australian Institute of Architects

apparently prepares what are called 'Practice

Notes' to be used by architects as general

guidelines in the course of their work, even

though there is no rule binding on architects that

they must be observed. In particular, parts of

Practice Note 3 provide a general guide on the

question of estimates:

2. The Architect's responsibility in the matter

of estimates must be clearly understood by

all concerned with the direction of a job.

When a budget limit is stated by a client,

the architect is obliged to design within

this limit. If the lowest tender is

seriously in excess of the budget, and for

this reason the project is abandoned, it is

likely that the architect will be unable to

recover fees. Even if this does not happen,

the architect may be involved in

considerable expense in amending documents

to meet the budget limitation.

3.(a) The RAIA Conditions of Engagement provide as

part of the architect's basic service the

provision of estimates of cost at schematic

design stage, design development stage and

contract document stage.

The degree of accuracy required, and

therefore the type of estimate (i.e. square

or cubic basis, approximate quantities,

etc.) should be decided in accordance with

the circumstances of the case and the nature

of the project and agreed with the client.

It also provides a 10% margin for estimates as

reasonable. Furthermore the Agreement provides

under the heading 'Architect's Responsibility and

Authority':

B1.01 The architect shall perform the services

referred to in this agreement. In the

performance of those services the architect

shall exercise reasonable skill and care in

conformity with the normal standards of the

practice of the architecture.

It thus seems clear that an architect is under a

duty to take reasonable care to ensure that any

estimate of the cost of a building being designed

is reasonably accurate. The architect is also

bound to take into account any increases in costs

which the time taken in the construction might

involve. The evidence in this case establishes

for me that the estimate of $80,000 was wildly

inaccurate and that the house at no stage had a

chance of being constructed to any reasonable

state of occupation for any price even close to

$80,000."

The appellants submit, for reasons to be given later,

that it was not open to his Honour to have regard to

the "Practice Notes".

(vii) Conclusions on liability

The judge said:

"I find that the completed project on the plans

prepared was said by the first (appellant),

through the second (appellant), to cost of the

order of $80,000, excluding architects' and

engineer's fees, and prime cost, furniture or

furnishing items, on the basis that the

(respondent) was licensed as an owner/builder and

the second (appellant) supervised the

construction. This was misleading and deceptive

conduct and a false representation within the

meaning of sections 52 and 53 of the Act. I find

that the (respondent) was induced by the first

(appellant), through the second (appellant), to

proceed with the plans because the (appellants)

said the construction would cost $80,000. The

advice that it could and would be built for that

price was negligent. The failure to design the

house to that cost was a breach of contract. The

second (appellant) aided and abetted the first

(appellant) and was knowingly concerned in its

breaches of the Act. He was in breach of his

contract to continue with and supervise the

construction of a house which would cost $80,000

and negligently advised the (respondent) that it

could and would be constructed for that price.

Both (appellants) are liable to pay damages to the

(respondent)."

(viii) Damages

After returning to the authorities, his Honour

concluded that the measure of damages for negligent

misstatement is the same as under s.82(1) of the

Trade Practices Act, "i.e. the court is to put the

person injured in the same position as would have

existed if the person had not sustained the wrong for

which compensation is now being awarded."

(vii) Quantum of damages

The judge said:

"In a case marked by much vagueness, inconsistency

and generality across the spectrum of issues, the

quantification of damages wins the first prize.

As I see it, the (respondent's) claim for damages

can essentially be divided into two main

categories:

1. Construction costs - occasioned by additional

construction costs in excess of the original

estimate of $80,000

2. Additional financing costs - occasioned by the

additional loans incurred by the (respondent)

to fund the project

....

The (respondent) submitted a schedule of damages

but did not identify the evidence said to support

the assertions contained in it...The matters

requiring attention include:

1. Completion costs - alleged to be of the order

of $50,000

2. Interest on borrowed funds to date - alleged

to be of the order of $50,000 (but which seem

to me to be closer to $40,000)

3. Future interest - estimated to be $24,000 (but

which I do not understand)

4. The exclusion of architect's fees - said to

have been paid in the sum of $6,000 (which

seems to be factually correct, but which I

have found not to be comprised within the

$80,000 estimated cost)

5. The exclusion of engineer's fees (as far as I

can see there has been no evidence or estimate

provided but I have likewise found these to

have been excluded from the $80,000 cost)

6. The quantum and relevance to damages of any

overcapitalisation of the site

7. The interrelationship between the $80,000

estimated cost and the debt to State Bank -

i.e. how much of the debt was brought about by

the (appellants') conduct?

8. The costs of the borrowings from the Bank

relevant to this matter

9. The quantum if any of inflation on the costs

of completion

10. The claim for interest on any award of damages

11. Any question concerning apportionment between

the (appellants).

Except for item 11 (and possibly 7) of this list,

it seems to me that these are all very much

matters for calculation of what flows from the

finding that the (appellants) are liable to pay

damages to the (respondent)."

The judge then directed, in accordance with O.38 r.

1, that the amount which the appellant should be

ordered to pay be ascertained by a Registrar.

At a glance

Court

Decision date

Before

Source

Judgment (56 paragraphs)

Re Gordon M Jenkins & Associates Pty Limited and Christopher Earl Jenkins v Brian James Coleman [1989] FCA 245; 23 FCR 38 (7 July 1989)

Parties

Legislation Cited (4)

Cases Cited (7)