Disposition of Building Cost Representation Claim
277 Having regard to my findings, I am satisfied that Mr Robinson has established that Mr Kenny, and through him ABK, engaged in the Relevant Conduct pleaded in s 29E of the 6FASOC in all material respects. In particular, Mr Kenny's conduct of (1) having sent the draft OFT Contract to Mr Robinson partially filled out with the contract price of $1.35 million (GST inclusive) and then responding in the way that he did in the 1 May 2007 email to the question "[i]s this your work or Alex Simpson's?"; (2) not conveying the Qualification to Mr Robinson in circumstances in which Mr Robinson could reasonably have expected him to do so; and (3) encouraging Mr Robinson to consider and adopt a cost-plus contract without advising him of the Qualification in circumstances where Mr Simpson had not provided a new estimate; singly and cumulatively led Mr Robinson into error.
278 I am satisfied that this conduct, viewed as a whole, had a tendency to lead Mr Robinson into the erroneous view that if Simcorp built the works on a cost-plus basis with a builder's margin in accordance with the Reward Chart, the likely cost of the works within the builder's scope would (without variation) be less than $1.35 million (inclusive of GST) or marginally more than that amount. This is the essence of the "implied representation" pleaded at [29F] of the 6FASOC. The existence of an "implied representation" is an odd pleading, although Mr Kenny took no issue with its form; he simply denied that paragraph and the pleading in [29H] that there was no reasonable basis for it. It is difficult to see why it was necessary to plead an implied representation at all as s 52 of the Trade Practices Act and its analogue turn on the characterisation of "conduct" and not only representations. Since it was the Relevant Conduct which had the capacity to lead Mr Robinson into error and that was the heart of how the pleaded case was run, I accept that the oddity of the pleading should not prevent Mr Robinson succeeding in this claim.
279 I accept that Mr Kenny genuinely believed that the works could be built without variation for a construction cost within the builder's scope of around $1.35 million (GST inclusive): see [215] above. However, there is no evidence that Mr Kenny had a reasonable basis for this view. There is no evidence that Mr Simpson ever said to Mr Kenny words to that effect or suggested to Mr Kenny that he should complete the draft OFT Contract with the contract price of $1.35 million (GST inclusive). Neither Mr Kenny nor Mr Simpson gave that evidence and I do not accept that the 1 May 2007 email fills that evidentiary gap.
280 While there are issues of credibility concerning Mr Simpson's actual belief about the likely construction cost, the evidence Mr Simpson did give does not support Mr Kenny's belief, nor does the assessment of the Experts of the fixed price tender cost in May 2007. The Experts' findings were that a fixed price tender sum in May 2007 would have been $1,826,619 (Mr Davies) or $1,609,669 (Mr Makin) with a mid-point of $1,718,144.
281 Although both Mr Simpson and Mr Kenny gave evidence that they had conversations about contract price, neither gave evidence which was specific about amounts or the time at which the conversations were held, except for the conversation on 19 December 2006. Even if Mr Kenny held that belief because of inferences drawn from conversations with Mr Simpson during the cost reduction exercise in which Mr Simpson participated, I do not consider that Mr Kenny had a reasonable basis for that belief in the absence of a revised estimate from Mr Simpson or a stipulation of the "pricing" to be included in the draft Contracts. All Mr Kenny had on 10 May 2007 was the Simcorp Quote, the unretracted Qualification, the knowledge of a cost reduction exercise which Mr Simpson says did not significantly reduce cost, and the fact that Mr Simpson had said "it's fine" to the Reward Chart.
282 The course of correspondence from February 2007 through to May 2007 would lead the intended reader, Mr Robinson, to believe that Mr Kenny was relying for pricing on Mr Simpson. In saying this, I recognise that the scope of the Building Contract was not settled until 10 May 2007 at the meeting at which it was signed. However, the elements which were settled at the meeting did not change the headline prices on the basis of which Mr Robinson was, to Mr Kenny's knowledge, making assessments as between the Simcorp Quote and the draft Contracts.
283 Mr Kenny's evidence was that "I didn't provide builder's estimates. I'm not a builder. I'm the messenger": T 146.33-34. I accept that this is Mr Kenny's belief, but I do not accept that it is borne out by the evidence. For reasons given in relation to the email of 1 May 2007, I do not accept that Mr Simpson stipulated the "pricing" in the draft Contracts or that Mr Simpson even knew that Mr Kenny had provided the draft OFT Contract to Mr Robinson. Mr Kenny also derogated from the builder's estimate in the Simcorp Quote by failing to convey the Qualification; he asserted his own judgement in the manner in which he conveyed the estimate and quote. Whatever Mr Kenny's belief about the construction price which could be achieved based on the Simcorp Quote and his assessment of the price reduction exercise which had been undertaken, I consider that his response in the 1 May 2007 email to Mr Robinson's question had the capacity to lead Mr Robinson into error as to the provenance of $1.35 million as a fixed price quote and therefore as to its soundness.
284 Mr Robinson would, on Mr Kenny's evidence, be entitled to believe that Mr Kenny adopted the "pricing". Mr Kenny accepted in cross-examination that he intended to convey the impression to Mr Robinson that he believed that the works could be constructed for a price of around $1.35 million (GST inclusive) and that he knew Mr Robinson would rely on that belief. Even if a "mere conduit" argument were otherwise open to Mr Kenny, Mr Kenny did not take any action to disclaim reliance by Mr Robinson on Mr Kenny's adoption of this "pricing".
285 The only estimate provided by Mr Simpson was the Simcorp Quote. Mr Kenny did not convey the Qualification to Mr Robinson. Consequently, it is not open to him to make the argument that he was a "mere conduit" in relation to that information: a conduit must be faithful in transmitting the message. The fact that Mr Kenny took the Qualification "with a grain of salt" does not matter: the essence of the characterisation of a conduit is that the conduit does not edit the message on the basis of independent assessment as to its validity and without telling the person to whom the message is conveyed that this is what they have done.
286 I accept Mr Robinson's evidence that if Mr Simpson (or anyone else) had informed him that the works could not be built for a fixed price of $1.35 million "or marginally more" he would have abandoned the plan to build the house. I accept that this was for reasons of absolute cost and concerns Mr Robinson had about overcapitalisation in the Tweed Heads area. Mr Robinson gave somewhat flippant evidence in cross-examination that by "or marginally more" he meant 10 cents or so. I take him to mean around $1.4 million as that was his "walk away" price, and he referred in evidence to the $50,000 difference between the fixed price Simcorp Quote and the $1.35 million contract price in the draft OFT Contract as a marginal difference.
287 Having regard to the Relevant Conduct as found, my view is not altered by the fact that Mr Robinson knew, before he signed the Building Contract, that Mr Simpson had not provided a formal re-estimate from the fixed quote of $1.4 million in the Simcorp Quote and that Mr Simpson would not agree in May 2007 to a fixed price contract for $1.35 million (GST inclusive). It is the weight of the Relevant Conduct which makes out the implied representation pleaded; it is immaterial whether the figures in the Contracts are characterised as estimates or not. Nor does the fact that I have accepted that Mr Robinson may have been told on 10 May 2007 that there was a need for specification change (that is, concerning the materials to be selected) to meet a budget of $1.2 million to $1.3 million; that is not a "variation". Without knowledge of the Qualification, Mr Robinson was not in a position to assess his risk about the extent of the need for design change or re-specification.
288 Further, in his July 2011 affidavit Mr Robinson deposed that had Mr Kenny not given him the advice he did in his emails (in particular, his emails dated 27 April, 30 April and 7 May 2007), Mr Robinson would not have entered a cost-plus contract for the project, not even one which incorporated the Reward Chart. Mr Robinson said that he was influenced by the advice that a cost-plus contract incorporating a reward chart "would be effective in keeping costs down" as well as the factors referred to at [191] and [199]. While this overstates Mr Kenny's advice in the 27 April 2007 5.31 pm email, in his 24 April-30 April 2007 emails Mr Kenny states a preference for a fixed price contract while drawing to Mr Robinson's attention the possible benefits of a cost-plus contract structured around an incentive regime.
289 Mr Kenny pleaded at [30] of his Defence that the Robinsons "advised" Mr Kenny "that they required a contract for works on a cost plus basis" on a range of bases, most of which were not seriously prosecuted in the conduct of the case. I accept that Mr Robinson did propose the Reward Chart when he saw the $1.35 million contract price in a fixed price contract and that he wished to retain the "risk" amount built into a fixed price. However, I do not accept that the cost-plus contract was Mr Robinson's initiative based on a desire for flexibility, including the flexibility as to the time at which he started or stopped construction.
290 Against the background of Mr Kenny's encouragement to consider a cost-plus contract in his 27-30 April 2007 emails, Mr Robinson's original request for a fixed price contract, Mr Robinson's question about whose work the draft OFT Contract was and (most importantly) Mr Robinson's specific request for advice from Mr Kenny about the appropriate choice of contract from the owner's perspective, Mr Kenny's advice in his 7 May 2007 email was: "I think that a well managed cost plus type contract with an architect who has a good rapore [sic] with the builder can be the best for the owner as long as there is a transparent costing system and a true incentive scheme in place. I am just about to build a house & I am going to go cost plus."
291 Accepting that Mr Kenny believed what he said, he would only be right if all went well. The response is inadequate against the factors I have listed. Even though Mr Kenny had previously expressed a first preference for a fixed price contract, his advice in support of a fixed price contract was tepid at best. Mr Kenny's statement that he intended to use a cost-plus contract himself has the character of advocacy for that option rather than the provision of disinterested advice. Mr Kenny was an advocate for a cost-plus contract, most probably because Mr Simpson was not willing to contemplate a cap on Mr Robinson's responsibility for cost-blow out, whether as a fixed price contract or as a cap on a cost-plus option.
292 Mr Kenny's advocacy for a cost-plus contract with an incentive scheme and the lack of warning of possible adverse consequences in Mr Kenny's advice in the 7 May 2007 email plainly has the capacity to lead Mr Robinson into error having regard to the fact that Mr Robinson did not know of the Qualification. It is a circumstance in which Mr Robinson had a reasonable expectation that Mr Kenny would have told him of the Qualification and given him balanced advice concerning his choice between contract options.
293 It is not an answer to Mr Robinson's pleaded case that the Simcorp Quote or the figures in the Contracts are merely estimates. The $1.35 million figure in the draft OFT Contract was presented to Mr Robinson by Mr Kenny as a fixed price option; it was not presented as an estimate, albeit that it was part of a pre-contractual negotiation. I am not satisfied that Mr Kenny had a basis for suggesting that amount because of firm advice from Mr Simpson that he would or might be willing to enter into a fixed price contract at that price. Mr Kenny was aware that Mr Robinson was relying on the "contract price" in the draft OFT Contract in constructing the Reward Chart. Mr Kenny knew that Mr Robinson was relying on him for his view about price, and this became more important when Mr Simpson refused to enter into a fixed price contract. Mr Kenny encouraged Mr Robinson to choose a cost-plus contract without a cap with only the Reward Chart as a strategy to incentivise the builder to minimise cost. There is no evidence that Mr Kenny ever advised Mr Robinson that there was or might be a material risk to the achievement of a price of $1.35 million (GST inclusive) or less.
294 It is not an answer that Mr Robinson knows the difference between cost-plus and fixed price contracts. He did not have the same quality of information as Mr Kenny and he would reasonably have expected Mr Kenny not to remain silent about the Qualification and any other relevant factors in responding to Mr Robinson's request for Mr Kenny's advice about contract options from the owner's viewpoint.
295 Mr Robinson thought that the high point of the cost reduction exercise was the $1.4 million fixed price quote in the Simcorp Quote. While Mr Kenny also believed that, he knew that the builder had said that that price could not be achieved without specification and design change. Without being informed of the Qualification, no matter how diligent or careful Mr Robinson was in applying his knowledge and experience to the known information when he was assessing the risk he was undertaking, Mr Robinson was put at heightened risk of error, such as his belief that $1.35 million was a "robust upper figure". He also could not adequately evaluate the degree of difficulty when advised by Mr Simpson on 10 May 2007 that specification changes would be required to meet a target price of $1.2-$1.3 million.
296 It is also not the case, as submitted by Mr Kenny, that the causal link between the Simcorp Quote and the decision to enter into the Building Contract was broken by the specification and design changes undertaken between December 2006 and April 2007 so that the Qualification ceased to be relevant. Mr Robinson was, in fact, making decisions by reference to the Simcorp Quote to the knowledge of Mr Kenny. For the reasons at [194]-[197] above, the estimate and quote in the Simcorp Quote were a relevant comparison to the "pricing" in the draft Contracts and Mr Simpson did not consider that the re-design and re-specification process resulted in significant reduction in the contract price. Mr Simpson's view is supported by the findings of estimated construction costs by the Experts: see [13] above which expresses the midpoint of those findings.
297 For similar reasons to those expressed at [236], I do not consider that Mr Kenny's remark that the Reward Chart is "well done and reasonable" in the 7 May 2007 email or his "[t]hat's fine, that can go in the contract" at the 10 May 2007 meeting do anything more than endorse the Reward Chart as a scheme designed to incentivise the builder to keep costs low in a context where Mr Robinson has indicated that he understands that there will be no cap on the draft HIA Contract. I do not accept that the range in the Reward Chart devised by Mr Robinson operated as a representation that the range would not be exceeded.
298 The Relevant Conduct and the implied Building Cost Representation constitute misleading or deceptive conduct or conduct which is likely to mislead or deceive Mr Robinson within s 52 of the Trade Practices Act and s 42 of the Fair Trading Act.