Rockcote Enterprises Pty Ltd v FS Architects Pty Ltd; Carelli v FS Architects Pty Ltd

1. Appeals by both Rockcote and Ms Carelli allowed. 2. Set aside the orders made in the court below against Rockcote and Ms Carelli. 3. In lieu, order that the proceedings be dismissed, insofar as they are brought against Rockcote and Ms Carelli. DECISION: 4. Order the Finns to pay the costs of Rockcote and Ms Carelli of the proceedings in the court below. 5. Order the Finns to pay the costs of Ms Carelli of the appeal, the Finns to have a certificate under the Suitors' Fund Act 1951 if so entitled. 6. Order that Rockcote bear its own costs of the appeal. 7. Direct that Orders 4, 5 and 6 not be entered until 28 days after the date of delivery of these reasons for judgment. 8. Grant liberty to any party to apply within 14 days of the date of delivery of these reasons for judgment to vary Orders 4, 5 and 6 on the basis of any material there might be that was not contained in the appeal books.

CATCHWORDS: CONTRACTS - general contractual principles - whether contractual relations between appellants and respondents - whether collateral contract entered into on appellant's behalf by its agent - whether a party acting as agent of the appellant in a limited sense has authority to enter into contracts on behalf of the respondent - whether contractual warranties made - whether contractual warranties breached - TRADE PRACTICES - whether false, misleading and deceptive representations made by appellant or an agent of the appellant to the respondents - whether respondents discharged onus of proof in respect of inaccuracy of representations - whether proof of damage - s 42, s 44 and s 50 Fair Trading Act 1987 - s 52, s 53 and s 55 Trade Practices Act 1974 (Cth) - EVIDENCE - matters relating to proof - onus of proof - where appellant does not admit to a negative proposition in respondent's pleadings in court below - where appellant has greater means to produce evidence to contradict that negative proposition - whether respondent established sufficient evidence from which negative proposition could be inferred - whether onus shifted to appellant to adduce evidence that tends to show negative proposition incorrect - what is meant by saying onus has shifted to defendant - PROCEDURE - District Court procedure - where appellant filed defence in court below prior to introduction of Uniform Civil Procedure Rules - pleading in District Court then governed by Part 9, Rule 14 District Court Rules - Rule made provision for a denial or non-admission of an allegation in a statement of claim - statement by a defendant that it "does not plead to" an allegation in a Statement of Claim is neither a denial nor an admission - whether statement operated as an admission of that allegation - APPEAL - where trial judge makes no findings in respect of certain matters pleaded - where respondents do not file a Notice of Contention on appeal - consequences on appeal - PROCEDURE - costs - whether any right to nominal damages flowing from a breach of contract would affect order for costs - whether some other legal right would be vindicated by a judgment for nominal damages - PROCEDURE - costs - where appellant succeeds in an appeal on a point taken below and on appeal - appropriate to order respondents to pay costs of the appellant in the court below and on appeal - PROCEDURE - costs - where appellant succeeds in an appeal on a point not taken below - whether entire appellate process necessitated by failure to take point below - whether appropriate to order appellant to pay costs of both parties on appeal - PROCEDURE - costs - where outcome of appeal shows that proceedings at first instance ought to have been dismissed - appropriate to order plaintiffs in court below to pay costs at first instance - WORDS AND PHRASES - "to carry on business"

District Court Rules Fair Trading Act 1987 LEGISLATION CITED: Home Building Act 1989 Suitors' Fund Act 1951 Trade Practices Act 1974 (Cth) Uniform Civil Procedure Rules 2005

Apollo Shower Screens Pty Ltd v Building and Construction Industry Long Service Payments Corporation (1985) 1 NSWLR 561 Baiada v Waste Recycling & Processing Service of NSW [1999] NSWCA 139; (1999) 130 LGERA 52 Conder v Silkbard [1999] NSWCA 459 Conder v Silkbard No 2 [2000] NSWCA 317 Constantine v Davies (1984) ASC 55-312 Hampton Court Ltd v Crooks [1957] HCA 28; (1957) 97 CLR 367 Hampton Court Ltd v Crooks [1957] HCA 28; (1957) 97 CLR 367 CASES CITED: Hope v Bathurst City Council [1980] HCA 16; (1980) 144 CLR 1 Hughes v Clubb (1987) 10 NSWLR 325 Hyde v Sullivan (1956) SR (NSW) 113 International Harvester Co of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Company [1958] HCA 16; (1958) 100 CLR 644 Mid City Skin Cancer and Laser Centre v Zahedi-Anarak [2006] NSWSC 1149 Miller v Miller [1978] HCA 44; (1978) 141 CLR 269 National Australia Bank Ltd v KDS Construction Services Pty Ltd (in liq) [1987] HCA 65; (1987) 163 CLR 668 NRMA Insurance Ltd v B & B Shipping and Marine Co Pty Ltd (1947) 47 SR (NSW) 273 Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691

40847/06 Rockcote Enterprises Pty Ltd - Appellant FS Architects Pty Ltd - First Respondent Gary Finn - Second Respondent Donna Finn - Third Respondent 40015/07 PARTIES: Jill Carelli - Appellant J&J Group of Companies t/as Update Paint, Texture & Roof Restoration - First Respondent Jonel Srbin - Second Respondent FS Architects Pty Ltd - Third Respondent Gary Finn - Fourth Respondent Donna Finn - Fifth Respondent Rockcote Enterprises Pty Ltd - Sixth Respondent

KP Smark SC - (Rockcote Enterprises Pty Ltd) COUNSEL: J Carelli - (in person) EM Olsson SC - (FS Architects Pty Ltd; Finn Parties)

Turnbull Bowles (Rockcote Enterprises Pty Ltd) SOLICITORS: J Carelli - (in person) Watson & Watson - (FS Architects Pty Ltd; Finn Parties) No Appearance - (J&J Group of Companies; Jonel Srbin)

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40847/06 CA 40015/07 DC 1657/04

McCOLL JA CAMPBELL JA HANDLEY AJA

28 MARCH 2008 ROCKCOTE ENTERPRISES PTY LTD v FS ARCHITECTS PTY LTD & ORS JILL CARELLI v FS ARCHITECTS PTY LTD & ORS Judgment 1 McCOLL JA: I agree with Campbell JA. 2 CAMPBELL JA: Proceedings were brought in the District Court of New South Wales by FS Architects Pty Ltd, Gary Finn and Donna Finn (collectively called "the Finns") seeking damages arising from allegedly defective application of architectural coating materials at a building site in Gallipoli Street, Hurstville. The building site was owned by Donna Finn. A house that was being constructed upon it was intended to be the family home of Mrs Finn, her husband Gary Finn, and their family. Mr Finn is an architect, and his company FS Architects Pty Ltd acted as architect for the building project. Both in the court below and on appeal the parties proceeded on the basis that there was no need to distinguish the individual situations of the Finns. 3 The work in question had been performed under the supervision of Mr Jonel Srbin. He was a director of, and shareholder in, J&J Group of Companies Pty Ltd ("J&J"), which traded as Update Paint Texture & Roof Restoration ("Update"). Two contracts to perform the work in question (one contract relating to external work, the other relating to internal work) had been entered between the Finns and Update. 4 The surface coating on the exterior of the building was performed using products manufactured by Rockcote Enterprises Ltd ("Rockcote"). That coating comprised two separate products. The first layer to be applied was a product known as Rockcote Q-Render or, sometimes, Rockcote Quick Render. A technical brochure prepared by Rockcote describes it as "a pre-blended cement render", with advantages that it is "quicker to apply than standard cement render … requires less clean up & greatly reduced curing time before the application of finish coats". The second material to be applied was Rockcote Toscani. The Rockcote technical specification described it as "a ready mixed, pre-coloured acrylic coating ideal for covering and decorating suitably prepared masonry surfaces …". The technical specification says that it is applied to a suitably prepared surface by a roller. 5 The case in the District Court had begun as a claim by J&J and Mr Srbin against the Finns seeking damages and other orders against the Finns relating to part of the contract price that they had not paid, and other work concerning which J&J and Mr Srbin alleged an entitlement to a quantum meruit payment. However, by the time of the trial J&J had been deregistered. Hence the case did not proceed against it. Mr Srbin did not appear at the trial. With the deregistration of J&J and the non-appearance of Mr Srbin, that principal claim was dismissed under Rule 42.21(3) Uniform Civil Procedure Rules 2005. The only claim that proceeded was an Amended Cross-Claim brought by the Finns against Rockcote, Mr Srbin, and Ms Jill Carelli. Judgment was entered against Mr Srbin. 6 The trial judge, her Honour Judge Ashford, found that both Rockcote and Ms Carelli were liable to the Finns and FS Architects for the same amount of damages as Mr Srbin was liable. Each was found liable on the basis of having made misleading and deceptive representations, and having entered into a contract with the Finns. The trial judge also found each of them liable on the basis of a tort of negligent statement, but the claims based on negligent statement had been withdrawn in the course of the hearing, and the Finns do not now seek to support the judgments on that basis. 7 Ms Carelli was a director of J&J until 21 May 2003. Throughout the relevant period the telephone number and facsimile number of Update that appeared on its correspondence was connected to her home. She typed a letter that was written on Update stationery and was sent to the Finns on 20 March 2003. That letter contained a quotation for the exterior work for the Finns' home. The Finns succeeded against Ms Carelli on the basis that the letter made representations that were false, misleading and deceptive, and that she had sufficient involvement in the writing of the letter for the representations to count as ones made by her personally. The Finns alleged that she personally had thereby breached sections 42, 44 and 50 Fair Trading Act 1987. She was also sued on the basis that the representations were made by J&J, that J&J's making of them breached sections 52, 53 and 55 Trade Practices Act 1974 (Cth) and Ms Carelli was liable for them by reason of having aided, abetted, counselled or procured J&J's breach, or induced J&J's breach, or having been directly or indirectly knowingly concerned in, and a party to, J&J's contravention. The precise findings that her Honour made against Ms Carelli will need further consideration later in this judgment. 8 It is from these judgments against them that Rockcote and Ms Carelli each now appeal.

Events Leading to the Finns' Contract with Update 9 In early 2001 Mr and Mrs Finn attended a trade exhibition at Darling Harbour. The exhibition related to available building products and building trade services. One display related to Rockcote's render and texture paint systems. The display was manned by Mr Greg Niven. Mr Niven told Mr Finn about some of the benefits of Rockcote products. Mr Finn gave Mr Niven his contact details. 10 Around 23 July 2001 Mr Finn's architectural practice received a letter signed by Mr Niven. It was written on the letterhead of a business called "DCS Coatings", which described itself as "supplier of specialist architectural coatings". The letter also had a prominent Rockcote logo in its top right-hand corner, under which was the statement "distributor for Rockcote Enterprises Pty Ltd". Smaller print at the foot of the page identified DCS as a "Division of Niven Building Services Pty Ltd". The letter gave brief details of the Rockcote range of products, and enclosed a technical specification relating to them, and other more general material. Part of the letter said: "We will be happy to arrange for one of our recommended applicators to provide a quotation for coating of your project." 11 The enclosures were printed material prepared by Rockcote. One of the enclosures gave general information about Rockcote. It said concerning Rockcote: "With offices on the Gold Coast, Brisbane and Sunshine Coast and Agents from the tip of Tassie to far North Queensland … THE GUARANTEE Rockcote guarantees our coatings and coating systems for 10 years when applied in accordance with our technical specifications. Please refer to our Performance Guarantee for further details. …"

No part of the documents that Mr Niven sent stated the terms of that Performance Guarantee. 12 The enclosure continued:

" THE APPLICATORS… Rockcote can supply the name of an approved applicator / s in your area so that you can be assured your project will be completed to the high standard that you & Rockcote insist upon. Rockcote manufacture products of the highest quality but in the hands of an unqualified person can appear substandard. To ensure peace of mind check that the applicator you have chosen is approved, ring the Rockcote Head Office on (07) 5446 7737 or Toll Free 1800 267 737."

The reader could readily ascertain that the head office of Rockcote was in Queensland. 13 The Rockcote product range included many different products, suitable for coating many different types of surface. Products listed as suitable for coating bricks and blocks (the relevant surface to be coated so far as the Finns' house was concerned) included having a first coat of Q-Render, followed by second and third coats of Toscani. The page that gave the available range of alternatives for coating bricks and blocks included the statement: "Guarantee is valid only if product is applied by a Rockcote approved applicator and strictly in accordance with film-build and other specifications." 14 The part of the technical specification document that related to the Q-Render product gave the information I have quoted at para [4] above, and said: "The application of Rockcote Q Render is a specialist procedure & should only be carried out by an approved Rockcote applicator who has been trained in the application of this product. … Indemnity Rockcote Enterprises Pty Ltd will not accept responsibility for any misuse of this product or if not applied by an approved Rockcote applicator and in accordance with our technical specifications." 15 The pages of the technical specifications relating to Toscani included a statement that: "The application of Rockcote Toscani is a specialist procedure & should only be carried out by an approved Rockcote applicator who has been trained in the application of this product."

It also included the same statement headed "Indemnity" that I have quoted concerning Q-Render. 16 Another brochure that spoke in less technical terms about the benefits of Rockcote products included the statement: " Our Guarantee Rockcote guarantees all its coatings and coatings systems when applied in accordance with the relevant technical specifications. This guarantee not only ensures the client's protection but also Rockcote's ongoing commitment to quality." 17 It also stated: "With a full-time Training Officer and programs developed in-house, Rockcote conducts on-site workshops, throughout Australia on a regular basis for plastering applicators …" 18 The brochure had a space headed "Agents Stamp" that would originally have been blank. In the version of the brochure sent to the Finns DCS Coatings had placed its stamp, along with a description of itself as "supplier of Rockcote products" and contact details. 19 The letter was accompanied by a business card of Mr Niven. It identified the enterprise from which he came as "DCS Coatings". The most prominent single item on the business card was the Rockcote logo. It appeared as part of a statement:

" DISTRIBUTOR FOR : [ROCKCOTE LOGO] ROCKCOTE ENTERPRISES PTY LTD" 20 Mr Finn gave evidence that he read these documents, and noted the various matters that I have set out. The trial judge evidently accepted that evidence. 21 The brochures contained an invitation to the reader to find out more by visiting the Rockcote website. Mr Finn accepted that invitation. 22 On the website he found a list of "20 of the most frequently asked Questions about Rockcote". That list included: " Question 4 How do I find an approved Rockcote Applicator? Easy, just ring your nearest Rockcote outlet or Rockcote Head Office on toll free 1800 267 737. … Question 7 Can I apply Rockcote myself? Rockcote recommends that all products are applied by an approved Rockcote applicator. However, there are a number of "do-it-yourself" type products in the Rockcote range. The painted finishes such as Toscani … are relatively easy to apply. A competent handy man could apply our pre-mixed renders like Quick Render … and perhaps a number of the texture type finishes which do not require a high skill level. Before you attempt to apply any of the Rockcote range of products yourself, make sure that you have the appropriate technical specification for the product selected and ensure that any questions you have are answered to your satisfaction by one of the Rockcote staff. Rockcote cannot guarantee products applied by a non-trade qualified person. … Question 15 Can I get a sample of a Rockcote product? Yes, by calling either your nearest Rockcote outlet or our Toll Free Number 1800 267 737 or email your request. Question 16 Do Rockcote products come with a guarantee? All Rockcote products carry a manufacturers product guarantee when applied by an approved applicator and in accordance with the product's technical specification. This guarantee is available in writing and is assurance of a high quality product. … Question 20 Does Rockcote offer Training Courses? With Rockcote's policy of on-going training, we conduct courses for applicators already conversant with our range of products or similar, to inform them of new product releases and updated application techniques, including the Rockcote Plastering Machines. These courses are run according to industry demand." 23 Another page of the website listed the "Rockcote distributors". DCS Coatings was the only distributor listed in the Sydney region. The only other distributors listed in New South Wales were businesses in Ballina and Lismore. 24 By about May 2002 the Finns had decided to use Rockcote products to coat the house they were then constructing. Around May 2002 Mr Finn telephoned Rockcote's 1800 number to obtain the names of "approved applicators" in the Hurstville area. The person who Mr Finn spoke to on that 1800 number told him, "The person who handles your area is Greg Niven. He will provide you with the names of approved applicators."

Mr Finn was given a Sydney telephone number for Mr Niven. 25 Around May 2002, after Mr Finn had contacted Mr Niven, Mr Niven came to the Gallipoli Avenue site. Mr Finn enquired "who should we get a price from so that we can gain the benefit of the manufacturer's 10 year warranty?". Mr Niven replied, "I will send you the names of some applicators by facsimile". Mr Niven gave Mr Finn a business card, identical to the one that Mr Finn had previously received with the catalogue. 26 Soon after Mr Niven sent Mr Finn a list of names, which did not contain the name of Update. Mr Finn obtained a quotation from one of the companies on the list, but the Finns delayed making a decision about whether to accept that quotation. 27 Towards the end of February 2003, or early March 2003, Mr Finn tried to contact Mr Niven again, but found his telephone number had changed from the one shown on his business card. He telephoned Rockcote on its 1800 number and asked for a new list of approved applicators for Hurstville. The person to whom Mr Finn spoke said: "Where is Hurstville? Sydney? You should contact Greg Niven for Sydney. He will be able to provide you with a list of approved applicators".

He also provided Mr Finn with a contact telephone number for Mr Niven. 28 Mr Finn then contacted Mr Niven. He told him that he wanted to get the job started "now", but that the contractor from whom the quote had been obtained "… cannot do the job for a while so I need the name of another contractor". Mr Niven offered to come to the site. Mr Finn replied that there was no need for that, "just give me the name of an approved applicator". However Mr Niven said he would rather "go to the job so I can remember what it is like and that way I can make sure I give you the right person for the job". 29 Mr Niven came to the site. Mr Finn asked for the name of an "approved applicator" who could undertake Rockcote rendering, and who could start immediately. Mr Niven suggested the contractor from whom Mr Finn had previously obtained a quote, but Mr Finn said that they could not start straight away. Mr Finn asked whether there was any other approved applicator in the area. Mr Finn's evidence was: "Greg Niven then said: I have another. His name is John …. [Greg Niven went to his vehicle and looked at something and then returned]. His name is Jon spelt J.O.N . though I can't remember his business details but I do have his mobile phone number on my phone."

Mr Niven then gave Mr Finn a mobile phone number of Mr Srbin. 30 Mr Srbin came to the site in mid-March 2003 to inspect it, with a view to giving a quote. At the site Mr Srbin told Mr Finn that he had a "big team" and "we can finish all this in one week". 31 On 20 March 2003 Mr Finn received a letter dated 20 March 2003. It was on the letterhead of Update, which identified Update as being "a division of J&J Group of Companies Pty Ltd". The letterhead also stated "License No. 14435C", but said nothing about by whom that license was issued, to whom, or what it related to. The letter gave as Update's postal address a post office box at Castle Hill. It also gave a telephone number and facsimile number, each of which related to a line that was connected to Ms Carelli's home. The letter is apparently signed by, "Jon Project Manager J&J Group of Companies Pty Ltd" 32 The letter included the following statements: "Thank you for choosing Update Paint, Texture & Roof Restoration to submit a quotation for your render & texture . Please find attached the quote you have requested. Your job is very important to us and we guarantee the quality and finish you are looking for. We have done many homes fine homes in the Sydney metropolitan and the Central Coast regions. We have several you can see at www.update.com.au . We also have many customer references for your inspection of our workmanship, professionalism and back-up service. We are proud to be Rockcote approved applicators and will provide you with a written and certified 10 year warranty for your peace of Mind*"

The asterisk referred the reader to a statement on the final line of the letter, "*warranty is only applicable when the full recommended Rockcote system is used." 33 After giving some other detail it concluded by saying, "please do not hesitate to contact me on" a particular mobile telephone number "if you have any questions or to simply discuss your job further". That mobile telephone number was connected to Ms Carelli's mobile phone, though a reader of the letter would not find that out simply by reading the letter. 34 Two different quotes were enclosed. Each was on the letterhead of Update. One of them related to completing the job using a different coating system to the other. One of them - the one that the Finns eventually chose - related to a system of Rockcote Q-Render, followed by two coats of Toscani. 35 Mr Finn gave evidence, again evidently accepted by the trial judge, as follows: "In or around early April 2003, I recall contacting Rockcote's 1800 number to discuss the alternative render applications that were offered by Update. During the conversation I said: "The name of the applicator is Update. It is run by a person by the name of Jonel Srbin and trades under the company name of J&J Group of Companies". The Technical Officer then said: "I have never heard of Update or Jonel Srbin or J&J Group of Companies". I then said: "I got Update's details from Greg Niven". The Technical Officer then said: "Well if Greg says the contractor is okay for the job then he will be okay"." 36 Before accepting the quotation, Mr Finn went to the website that had been referred to in Update's letter of 20 March 2003. He found that the website included, amongst other adulatory statements about Update, " Update will deliver to you a perfect rendered surface ready for the selected decorative coating every time." 37 On 11 April 2003 Mr Finn wrote to Mr Srbin, at Update's Castle Hill post office box, accepting the tender offer relating to Rockcote Q-Render and Toscani finish. 38 A letter to Mr Finn on Update's letterhead, purporting to be signed by Mr Srbin, dated 15 April 2003, set out a "work schedule" that identified in very brief terms the work to be done, a "payment schedule" that set out the amount of the deposit, of two progress payments, and the balance of the price, and a page of printed standard contractual conditions. Mr Finn made some additions (not presently relevant) to the standard conditions. He signed it on behalf of his wife and himself, and returned it on 20 April 2003. The work started soon afterwards.

The Standard of the Work 39 Mr Norman Foster, a senior building inspector at the Office of Fair Trading, inspected the work on 2 September 2003. He identified 19 items which he considered to be defective and the responsibility of Mr Srbin, and 9 items about which the Finns had complained but which Mr Foster did not believe to be Mr Srbin's responsibility. He produced a report of the results of his inspection. It included the following findings: "Rendering and texture coating to exterior has been applied very poorly with little attention to detail and quality. Very poor supervision and attention to detail has been applied to internal painting and setting resulting [in] substandard finishes and workmanship. … Rendering and painting to exterior and the painting and setting to the interior of the property undertaken by J&J Group of Companies is of very poor standard throughout. Extensive works would be required to complete exterior to a satisfactory finish."

The trial judge accepted Mr Foster's opinion. 40 Mr Mark Bullen, an architect, reported individually on defects that the Finns claimed existed in the work. He expressed an opinion, which the trial judge accepted as the basis of her award of damages, concerning the cost of rectification of these works. He summarised his conclusion about the standard of the work as: "JJG failed to exercise the skill of a suitably trained and experienced plasterer and/or applicator in the work it performed applying the Rockcote "Toscani" coating externally at 21 Gallipoli Street, Hurstville. As a result the work suffers from numerous defects that [were] caused by: - poor preparations, including failure to protect adjoining areas, failure to properly 'mask off', failure to punch, fill and stop and failure to adequately clean down; - failure to adopt methods common in the trade, including use of straight edges, guides and metal beads and angles; - lack of care in execution leaving the work incomplete in coverage, poorly 'tooled off' and splattering adjoining elements and surfaces; and - failure to clean up on completion. The work performed to the external walls by JJG indicates that while JJG may have basic rendering skills evidenced by the generally acceptable surface finish to flat work, it did not have the requisite skill and experience in preparation, detailing and finish. Further, JJG failed to exercise the level of skill and care commonly practiced by painters in the work it performed internally resulting in defective and incomplete work and damage." 41 Mr Gregory Beard is a painting expert instructed by Rockcote's solicitors. He concluded: "Testing for Consistency of Texture and Thickness are related to the application of the products. · The thickness varied significantly, which is due to poor and un-workmanlike application of products · The texture also varied significantly, which is due to poor and un-workmanlike application of both render and Rockcote Toscani In my opinion, based on our inspection and above testing, the render and the Rockcote Toscani have exhibited no product failings. They have been poorly applied, and the application does not meet the requirements of the products Technical specifications, AS2311:2000, HB161:2005 or general industry standards. The application was not carried out to the standards required in BCGSP31003 - Certificate 3 in Solid Plastering. It is my opinion that the applicator was not properly skilled in the application of these products." 42 The trial judge did not accept Mr Beard's opinion about the remedial steps that were needed, and the cost of those remedial steps, but accepted that, "[t]here is no dispute that the workmanship in applying the product was not done in accordance with the products technical specifications and there is no dispute that remedial work is required."

The Case Pleaded Against Rockcote 43 There was no dispute that Rockcote was the manufacturer of the Q-Render and Toscani products that were applied to the exterior of the Finns' house. There was no allegation that the products supplied were in any way defective. Rather, it was alleged that Rockcote had made three representations to the Finns, namely that:

1. Update was an approved applicator of the Rockcote Product;

2. The Finns would be able to obtain a 10 year product warranty if they contracted with Update to apply the Rockcote Product; and

3. Update was licensed to undertake the performance of the contract in fact entered on 20 April 2003 between the Finns and Update for the application of a wet render to the Gallipoli Street project. 44 The Finns alleged that each of those representations was made on Rockcote's behalf by its agent Niven Building Services Pty Ltd. The Finns alleged that Niven Building Services Pty Ltd had actual authority on behalf of Rockcote to make those representations - no case of ostensible authority was pleaded, and at the trial it was confirmed that ostensible authority was not relied on. The Finns alleged that the representations were contractual, in the sense that the truth of the representations was warranted. While the pleading was a little less explicit than it might have been, it was treated by all parties as alleging that, in consideration that the Finns enter a contract for the application of the Rockcote products to their home, Rockcote warranted to the Finns that the representations were true. 45 The Finns specifically pleaded that Rockcote breached the warranties in that:

1. Update was not an approved applicator of the Rockcote Produce;

2. The Finns were not able to obtain a 10-year product warranty if they contracted with Update to apply the Rockcote product;

3. Update was not licensed to undertake the particular contract works and services. 46 In the alternative, the Finns pleaded that the representations were made in trade and commerce, were false misleading and deceptive, and thus contravened sections 52, 53 and 55 Trade Practices Act 1974 (Cth).

The Case Pleaded Against Ms Carelli 47 The representations on which Ms Carelli was sued were that:

1. Update was an approved applicator of the Rockcote Product;

3. The Finns would be entitled to a certified 10-year product warranty for the Rockcote Product;

4. Update would provide "a perfect render finish" ; and

5. Update could complete the project in one week from commencement depending on the weather conditions.

All of those representations were alleged to emerge from Update's letter to the Finns dated 20 March 2003, and from conversations with Mr Srbin pre-tender in April 2003. 48 The Finns pleaded that the representations were false, misleading and deceptive, and were made in trade and commerce, and pleaded that thereby the various statutory provisions that I have earlier referred to, were breached.

Inaccuracy of the "Licensed for the Work" Representation? 49 I will use the word "inaccurate" to refer compendiously to a representation being false, misleading, or deceptive. The trial judge did not make any findings about whether the alleged representation that Update was licensed for the type of work the Finns engaged it, nor about whether any such representation was inaccurate. The Finns have not filed a Notice of Contention seeking to uphold the trial judge's decision on the basis that she should have found that the representation was made, and was inaccurate. However, for a reason that will later appear, it is necessary to consider what the trial judge should have concluded, had she examined whether any representation about Update being licensed for the work was inaccurate. 50 Both Update and Mr Srbin held a licence under the Home Building Act 1989 that authorised the holder to do and supervise painting. The number of Update's licence appears on Update's letterhead. A different type of licence, authorising the holder to do and supervise plastering work, is also available, but was not held by Update or Mr Srbin. 51 Both at the trial, and on appeal, the parties chose to decide whether the alleged representation that Update was licensed to do the Finns' work was inaccurate by examining expert evidence and other evidentiary material, rather than by an analysis of the statutory provisions under which the licences in question were issued. While that is an unorthodox way of examining the question, when the parties have chosen to run the case on that basis, I will not engage in my own examination of the statutory provisions. That might possibly mean that this decision is an unsafe guide concerning the true state of the law about the licences that a tradesman is required to hold to do the sort of work that Update did at the Finns' house, but this particular case should be decided within the constraints in which the parties argued it. 52 The evidence admitted at the trial included a "report on trade licensing" by Mr Mark Bullen, architect. Unusually, he had been asked to give an opinion "on whether a Painting Contractor licence or a Plaster Licence (or other) is the necessary licence in New South Wales to contract to perform the work required of JJG" by the Finns. That is a mixed question of fact and law, albeit one that Mr Bullen has had occasion to consider in the course of his previous experience. He noted that the availability of tradespersons holding dual licences in plastering and painting would be very limited, and that to insist on such dual licensing would be impractical. He concluded: "Either a painting or plaster licence and Rockcote's approval of the applicator of Rockcote's Toscani render/texture finish is the essential criteria for the employment of a tradesperson for this work. It is required to obtain the manufacturer's warranty and it is verification that the tradesperson has the requisite skills". 53 In coming to this conclusion he relied in part on a letter that the Assistant Manager, Builder Licensing of the Office of Fair Trading wrote to Update on 5 May 2004. That letter arose from a submission that Mr Srbin had made in February 2004, to the effect that the current painting licence did not adequately address the skills required for the application of external architectural coatings, that the application of pre-bagged render as a base for an architectural coating is a separate and distinct trade from that of wet plastering, and that a new licence category was needed which could cover the application of both the architectural coating and the base. The Assistant Manager's letter said: "The Home Building Act, 1989 does not provide for the licensing of 'products'. As such it is considered that the trades 'Plastering' and or 'Painter/Decorator', upon completion of any specific 'product application - skills training' may apply the Render/Texture described in your submission to the Office of Fair Trading. You are advised that this matter was submitted to the Construction industry Training Advisory Board (CITAB) for consideration. CITAB concede [scil. consider] that the current licence categories are adequate and creation of a new 'category' specifically for Render/Texture application is unnecessary." 54 Another relevant matter is that Mr Foster, of the Office of Fair Trading, produced a report following his inspection of the building work. In that report he mentioned not only the defects, but also the fact that Update did not have any home owner's warranty insurance. However no mention was made of Update lacking any licence that was necessary to do the work. If Update indeed lacked any necessary licence, this omission from Mr Foster's report would be surprising. 55 That was the only evidence on the question of whether Mr Srbin and Update held the necessary licence to perform the work that had been quoted for by the quote sent under cover of Update's letter of 20 March 2003. 56 Mr Bullen expressed an opinion that Update did not have the licence required to carry out some of the variations that the Finns later ordered, but no allegation was made that either Rockcote or Ms Carelli had made any representations relating to those variations. 57 On the basis of that evidence, the proper conclusion is that the Finns had not proved that Update was not licensed to undertake performance of the contract entered on 20 April 2003.

Inaccuracy of the "Approved Applicator" Representation? 58 I shall assume without at this stage deciding that both Rockcote and Ms Carelli made a representation to the Finns that Update was an approved applicator, and consider immediately what has been demonstrated concerning the accuracy or inaccuracy of that representation.

The Pleadings 59 Para 12 of the Amended Cross-Claim alleged that J&J "carried on the business of a painter and Rockcote product (wet plaster and paint) applicator." 60 In response to that allegation Rockcote denied that J&J "… carried on the business of a "Rockcote Product" (wet plaster and paint) applicator, and otherwise does not plead to this paragraph." 61 Rockcote's defence was filed on 20 July 2005. At that time pleading in the District Court continued to be governed by the District Court Rules. Those rules made no provision for a defendant "not pleading" to an allegation in a Statement of Claim. Rather, Part 9 Rule 14 stated; "(1) Subject to [a provision not presently relevant], an allegation of fact made by a party in his pleading shall stand admitted by any opposite party required to plead to that pleading unless it is traversed by that opposite party in his pleading or an implied joinder of issue under rule 15 operates as a denial of it. (2) A traverse may be made either by a denial or by a statement of non-admission, and either expressly or by necessary implication, and either generally or as to any particular allegation." 62 A statement by a defendant that it "does not plead to" a particular allegation in a Statement of Claim is neither a denial, nor a non-admission. Thus, for the purpose of defining issues by pleadings, a statement that a defendant "does not plead to" a particular allegation counts as an admission of that allegation. When the rule talks about "any opposite party required to plead to that pleading" it is talking about a party who is required to plead to that pleading as a whole, not a party who is required to plead to any particular part of the pleading. 63 No doubt the reason why the pleader of a defence sometimes chooses to say that the defendant "does not plead to" some particular allegation is because the pleader perceives that that allegation is not part of the case that is made against that particular defendant. If the pleader is right in his or her perception, no harm will come to his or her client from the deemed admission that arises from saying that the defendant "does not plead to" the particular allegation. However, if the pleader is wrong in his or her assessment of what count as the elements of the case made against his or her client, the fact admitted by being "not pleaded to" has the same status as any other admission on the pleadings. 64 Applying that principle in the present case, Rockcote has admitted that J&J carried on the business of a painter, but denied that J&J carried on the business of a Rockcote Product (wet plaster and paint) applicator. 65 The denial that J&J carried on the business of a Rockcote Product (wet plaster and paint) applicator is not inconsistent with J&J being an approved applicator of the Rockcote Product. In Hyde v Sullivan (1956) SR (NSW) 113 at 119 Street CJ, Roper CJ in Eq and Herron J said: "Speaking generally, the phrase "to carry on business" means to conduct some form of commercial enterprise, systematically and regularly, with a view to profit, and implicit in this idea are the features of continuity and system." 66 Similarly in Constantine v Davies (1984) ASC ¶55-312 Moffit P (with whom Hutley and Glass JJA agreed) approved the statement that Lusher J had made in the court below, that: "There is a vast difference between a person who on spasmodic or isolated occasions may do dressmaking at her home such as has been described here and sometimes for reward and the carrying on of a dressmaking business within the meaning aforesaid." 67 Similarly, in Hope v Bathurst City Council [1980] HCA 16; (1980) 144 CLR 1 at [14], 8-9 Mason J (with whom Gibbs and Stephen JJ agreed) said that "carrying on the business of grazing" within the particular statute then being construed "… denotes grazing activities undertaken as a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purpose of profit on a continuous and repetitive basis."

See also Hughes v Clubb (1987) 10 NSWLR 325. 68 If a person carries out a particular type of activities on repeated occasions and with a view to profit, such that the overall course of carrying on those activities can be described as carrying on a business, then even the first of the activities of that type can be part of the carrying on of that business. However if (as the evidence in the present case seems to suggest) J&J and Mr Srbin had applied Rockcote product to a building only once before embarking on the Finns' house, and carried out no contract for the application of Rockcote products after the contract relating to the Finns' house, performance of the two contracts to apply Rockcote products may well not count as J&J carrying on a business of applying Rockcote product. Furthermore, it could be the case that J&J did not carry on the business of an applicator of Rockcote products even if J&J was an approved applicator of the Rockcote product. For these reasons, I do not regard Rockcote's pleading to para 12 as involving a denial that J&J was an approved applicator. 69 Ms Carelli's defence did not plead to the allegation in para 12. Thus, she is taken to have admitted it. 70 Para 52 of the pleading against Rockcote specifically alleged a representation by Rockcote, through the agency of the Niven company, that J&J was an approved applicator. To that, Rockcote denied the Niven company's agency, and did not admit the representation was made. 71 In para 58 the Finns allege that Rockcote "breached the contractual warranties in para 52 above in that …" J&J was "not an approved applicator of the Rockcote Product". Para 58 took that form because the Finns alleged that the representations alleged in para 52 were also contractual warranties. 72 The response of Rockcote's pleading to para 58 was a simple denial. In the context of its defence, that denial is equivocal. One basis upon which Rockcote could deny it had breached the warranties was because (as Rockcote had already specifically alleged) the warranties had not been made on its behalf, because Mr Niven was not acting as its agent. Another basis on which the breach of the warranties might have been denied was that J&J was an approved applicator. The pleading simply did not make clear whether the latter was Rockcote's contention. 73 So far as the representation case against Rockcote was concerned, the pleading alleged that Rockcote's "representations in paragraph 52 above were false, misleading and deceptive". Rockcote denied that allegation. Again, it was not made clear whether the denial was on the basis that Mr Niven was not its agent, or on the basis that J&J was an approved applicator, or both. 74 The representation case pleaded against Ms Carelli and J&J alleged that each of them represented that J&J was an approved applicator of the Rockcote product. Ms Carelli's defence denied that allegation. As well, she specifically pleaded that she did not make any of the representations pleaded against her. 75 The pleading against J&J and Ms Carelli went on to allege that the representation was false, misleading and deceptive, without any intermediate step of an allegation of by virtue of what facts it was said to be false, misleading and deceptive. Ms Carelli denied that the representation was false, misleading and deceptive. 76 In that state of the pleadings, there was no admission by either Rockcote or Ms Carelli that J&J was not an approved applicator. Thus, the Finns bore the onus of establishing that J&J was not an approved applicator. 77 The trial judge stated on several occasions in her judgment that either Mr Srbin, or Update, was not an approved applicator (paras 43, 59, 61, and 67). She referred (at [47]) to some of the evidence relating to whether Mr Srbin or Update was an approved applicator, and concluded, "[t]hat evidence does not substantiate any claim that Update was an approved applicator". Putting it that way wrongly reverses the onus of proof. Other statements by the trial judge that "there was no clear evidence that Srbin had undertaken any specific course of training with Rockcote …" (at [56]) and "there was no evidence that Srbin had undertaken the necessary training with Rockcote…" (at [59]) are also consistent with the trial judge having incorrectly reversed the onus of proof. The question she should have been asking is whether the evidence established that J&J was not an approved applicator. 78 If a plaintiff has the onus of proving a negative proposition, the fact that the defendant has greater means to produce evidence which contradicts that negative proposition, does not mean that the plaintiff ceases to have the onus of proof of that negative proposition. However, once the plaintiff establishes sufficient evidence from which, if that evidence is accepted, the negative proposition may be inferred, an evidential onus shifts to the defendant to adduce evidence that tends to show that the negative proposition is incorrect. If a defendant adduces such evidence, the plaintiff must then, as part of its overall burden of proof, deal with that evidence either by submission or argument. See generally Apollo Shower Screens Pty Ltd v Building and Construction Industry Long Service Payments Corporation (1985) 1 NSWLR 561; Hampton Court Ltd v Crooks [1957] HCA 28; (1957) 97 CLR 367 at [1]-[2], 371-2; Baiada v Waste Recycling & Processing Service of NSW [1999] NSWCA 139; (1999) 130 LGERA 52 at [55], 64-65. As Hunt J put it in Apollo at 565: "… provided that the plaintiffs have established sufficient evidence from which the negative proposition may be inferred, the defendant carries what has been called an evidential burden to advance in evidence any particular matters with which (if relevant) the plaintiffs would have to deal in the discharge of their overall burden of proof …. [T]he plaintiffs' burden of proof of the negative proposition for which they contend is not as difficult in this case as it might otherwise have been because of the defendant's greater means to produce evidence which contradicts that proposition." 79 In the present case, there is really no doubt that Rockcote had greater means than the Finns of proving whether or not J&J or Mr Srbin was an approved applicator. Ms Carelli gave evidence that at the time of the trial she did not have access to any documents of Mr Srbin or Update. The trial judge did not say explicitly whether or not she accepted this evidence of Ms Carelli, but in some significant other respects the trial judge did not accept Ms Carelli's evidence. It would therefore not be safe for this Court to proceed on the basis that Ms Carelli did not have greater means than the Finns of showing whether or not Update or Mr Srbin was an approved applicator. 80 On the appeal Ms Olsson SC, counsel for the Finns, pointed to evidence from which she submitted the Court could and should infer that neither Mr Srbin nor Update was an approved applicator. First was the deplorable standard of the work. In particular, the opinion of Mr Bullen (para [40] above) was to the effect that not only had the necessary skills not been exercised, but as well Update "did not have the requisite skill and experience …". (emphasis added) The correct inference to draw, she submits, is that it is unlikely that a workman who was so bad had been approved. 81 I would not be prepared to draw that inference. The evidence does not establish whether the status of "approved applicator" is one that Rockcote itself bestowed, or whether Rockcote left it to its distributors to decide who was fit to be an "approved applicator". 82 There was no evidence about what the criteria were for being an "approved applicator", beyond the hint in the technical specifications that it might involve training in application of particular individual Rockcote products (paras [14] and [15] above), and the hint in the brochure that it might have something to do with on-site workshops that Rockcote conducted (para [17] above) - though that statement in the brochure might mean that the on-site workshops were conducted for people who were already approved applicators. Those hints are not enough to enable one to conclude that either training in some particular product, or attendance at on-site workshops, was a prerequisite for being an approved Rockcote applicator. 83 In my view, the poor standard of the work might be explained by Update and Mr Srbin not being approved applicators, or might be explained by them being approved applicators but Rockcote's (or Mr Niven's) process for conferring that approval having been inadequate. I see no basis for preferring one of these alternatives over the other. 84 Ms Olsson SC submitted that if the evidence adduced by a plaintiff was such that one inference that was open was that the negative proposition of which the plaintiff bore the onus of proving is correct, but another inference is equally open that did not involve the truth of the proposition, the evidential onus still shifted to the defendant. Put in the concrete terms of this case, she submitted that if the poor standard of the workmanship, and other matters to which she pointed in the evidence, might be explained by Update not being an approved applicator, or might equally be explained by Update being an approved applicator who ought never have been approved by Rockcote, that is sufficient to shift the evidential onus. I do not accept that proposition. Before an evidential onus shifts from a plaintiff, the plaintiff must have adduced enough evidence for the court to infer, if the evidence that the plaintiff adduced was accepted by the court and was the only evidence on that topic in the case, that the proposition concerning which the plaintiff had the onus of proof was more likely than not true. In that situation, one says that an onus of adducing evidence shifts to the defendant because the defendant is then in a situation in which, if the defendant does not adduce evidence concerning that proposition, the plaintiff might succeed in establishing that proposition. Counsel for a defendant has to decide whether to adduce evidence on a topic at a time in the course of the trial when counsel necessarily cannot be absolutely sure of two matters that are of critical importance to whether the onus of adducing evidence has actually shifted - will the judge accept the plaintiff's evidence on the topic, and if so will the judge regard that evidence, if no other evidence is adduced, as enough to make it more likely that the plaintiff's contention concerning that topic is correct. The type of "onus" that the defendant is then under is one of practical necessity - either adduce evidence, or risk losing on that issue. But before a defendant is in that situation, the evidence that the plaintiff has put forward on the topic must be such that, if accepted and the only evidence on the topic, it would justify the court in deciding it is more likely than not that the proposition for which the plaintiff bears the onus of proof is true. If the evidence that a plaintiff adduces is equally consistent with that proposition being true, or that proposition not being true, so that the plaintiff would fail to discharge its onus of proof if that were the only evidence on the topic, the defendant does not come under the sort of practical compulsion that I have been describing. 85 Ms Olsson also submitted that the preferable view of the evidence was that Update did not have the licence that was necessary to carry out the work at the Finns' house, and that the lack of licence made it more likely than not that Update was not an approved applicator. In my view that submission fails, because its premise is not made out - the better view of the evidence is not that Update lacked the necessary licence. 86 Ms Olsson also relied upon the fact that Update had asserted to the Finns that the work was completed, and demanded final payment, when the work was manifestly defective. I do not see that fact as making more likely that Update was not an approved applicator. While it might be explained by Update's skill and knowledge being so poor that it did not realise how bad the job it had done was, it might equally be explained by Mr Srbin trying to receive whatever money he could. 87 Ms Olsson also relied upon the fact that Update did not hand over a Rockcote performance guarantee at the time it said the work was complete. Even if it had been within Mr Srbin's own power to hand over a Rockcote guarantee (itself not necessarily the most likely situation) I see nothing unusual in his not doing so until he had been paid for the work. 88 There was some evidence consistent with Update being an approved applicator, albeit one who had done the work incompetently on this particular occasion. In my view, Rockcote had authorised Mr Niven to communicate, to potential customers who wanted the information, the names of approved applicators - that emerges not only from the conversations that Mr Finn had with the telephone operators at the Rockcote head office, but also by the answer it gave to question 4 on the "most frequently asked questions" list on its website, which identified "your nearest Rockcote outlet" as one of the ways to find an approved Rockcote applicator. That Mr Niven, when specifically asked for an approved applicator, gave Mr Srbin's name is some evidence, though slight, that he was approved. 89 There was evidence from Ms Carelli that in or around March or April 2003 she attended Mr Niven's factory, where Mr Niven "gave some training to Jonel and his boys". Ms Carelli also gave evidence that Mr Niven: "… got a few painters together and organised for them to pay for an advertisement in a magazine known as 'Your Sydney Home' in May 2003. I recall that this was the second time this advertisement had been placed in this magazine. I am also aware that Greg Niven sent an invoice to Jonel to pay for part of the cost of the advertisement." 90 The advertisement was for Rockcote products, and included a prominent statement "for more info or a no obligation free quote by an approved applicator contact: Render Texture Paint Supplies" and gave a telephone number. Ms Carelli annexed the tax invoice from DCS Coatings to Update, charging for "Your Sydney Home advertisement - May issue". 91 It is not clear whether or not the trial judge accepted Ms Carelli's evidence about her factory visit and the advertisement - the judge said concerning it "that evidence does not substantiate any claim that Update was an approved applicator" (at [47]). As well, if the judge accepted the evidence, it is somewhat unsatisfactory as proof that Update was an approved applicator. This is because it does not make clear whether the training of which it speaks occurred before or after 20 March 2003, the critical date for the representations alleged against Ms Carelli. When it is not clear that the trial judge has accepted the evidence, I shall adopt the basis most favourable to the Finns, and leave that evidence out of any consideration of whether, overall, Update was an approved applicator. 92 Another matter relevant to whether or not Update was an approved applicator was that, after the Finns had become dissatisfied with the work, Mr Niven attended on 9 August 2003 to inspect it, and said, "the job is a complete mess. I am furious. I want his licence cancelled." Mr Niven did not, however, say anything about Update or Mr Srbin not being approved applicators. Little weight can be placed on that, however, when Mr Niven did not give evidence, and there must be room for doubt about whether, even if it were true that Update and Mr Srbin were not approved applicators, Mr Niven would have volunteered that information when he had been responsible for them coming to the job in the first place. 93 The most significant evidence on the topic, not mentioned by the trial judge, is that on 8 March 2003 Rockcote issued a performance guarantee relating to work done on a residence in Bowen Street, Seven Hills. It gave a guarantee for 10 years, relating to a coating system consisting of: "Rockcote Quick Render - pumped 2 coats Rockcote Armour." 94 The "applicator" named in the performance guarantee relating to the Bowen Street property was "Update Paint & Texture Finishes". The trading name of J&J was "Update Paint Texture & Roof Restoration". However, the proper inference is that both names refer to J&J. 95 In my view, the matters to which Ms Olsson referred are insufficient to enable an inference to be drawn that it is more likely than not that Update and Mr Srbin were not approved applicators. Nothing in the other evidence relevant to this topic enables that inference to be drawn either. In my view, the Finns failed to establish that Update and Mr Srbin were not approved applicators of the Rockcote product.

The "Entitled to 10 Year Product Warranty" Representation 96 The Rockcote product information made clear that the 10-year guarantee that was offered was in the terms of a particular Performance Guarantee. The Finns did not seek to prove the terms of that Performance Guarantee in their case in chief. Rockcote tendered a document, on its face apparently issued by Rockcote, and entitled "performance guarantee" that had issued on 8 March 2003 relating to the residence at Bowen Street, Seven Hills to which Update had applied a Rockcote coating system. The terms of that guarantee were: "Rockcote Enterprises Pty Ltd guarantee that the materials described hereon will not, during normal use as defined in the Guarantor's Specifications, breakdown for the Guarantee Period. Should such breakdown occur within the Guarantee Period, the Guarantor will repair the affected area free of charge. The characteristic properties of lime wash type products eg fading and changes in surface texture may be expected and the Guarantee Period will vary with these products. It should also be noted that Rockcote cannot guarantee against colour variations when materials have not been ordered in full job lots. This guarantee does not cover any breakdown that should occur due to neglect, maltreatment, the effects of hydrostatic pressure, structural faults or faulty or incorrect application." 97 There was no suggestion on the evidence that Rockcote had, at the relevant time, a Performance Guarantee in any different terms to these. 98 The defects in the coating system on the Finns' house were not ones arising from the breakdown of materials. They were apparent as soon as Update claimed to have finished the work, and the root cause of each of the defects was faulty or incorrect application. The trial judge accepted that the work was not done in accordance with the product's technical specifications. Thus, even if the Finns had the Rockcote Performance Guarantee in relation to the work done on their house, it would not have covered the particular damage that arises from Update's performance of the work. Thus, their failure to have that Performance Guarantee has not caused them the loss that they have proved they suffered in consequence of the defective work. 99 Proof of loss that is consequential upon a breach of sections 42, 44 or 50 Fair Trading Act is essential before a plaintiff has a cause of action for damages in connection with a breach of any of those sections. Likewise, proof of loss consequential upon a breach of sections 52, 53 or 55 Trade Practices Act is essential before a plaintiff has a cause of action for damages arising from a breach of those sections. Thus, even if Ms Carelli and Rockcote had represented that the Finns would have a 10-year warranty, the Finns would have no cause of action for damages under the Fair Trading Act or Trade Practices Act arising from the failure to provide that warranty. 100 If there had been a collateral contract by Rockcote, one term of which was that the Finns would have a performance guarantee, they would not have proved any loss in consequence of that breach, but would be entitled to nominal damages. Entitlement to nominal damages for breach of contract is of no practical importance, because, at least in the present case, it would not affect the order for costs. I venture to repeat the remarks I made in Mid-City Skin Cancer and Laser Centre v Zahedi-Anarak [2006] NSWSC 1149 at [47]-[52]: "… Strictly, when there is an action for breach of contract, and the plaintiff establishes breach, but cannot prove any substantial loss, the plaintiff is entitled to a verdict for nominal damages. … [A] question remains of whether proof of an entitlement to nominal damages affects the cost orders which should be made. Since the Judicature Act in England, the award of costs has been discretionary: Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at 85-86 per Gaudron and Gummow JJ. A significant factor taken into account in exercise of that discretion is who is the successful party. In an action for breach of contract, if a plaintiff establishes liability, and obtains an order for payment of nominal damages, that plaintiff is usually not to be regarded as the successful party in the action: Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873 at 874; Alltrans Express Ltd v CVA Holdings Ltd [1984] 1 WLR 394; Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at [98] per McHugh J; Ng v Chong [2005] NSWSC 385. Stephenson LJ in Alltrans Express Ltd v CVA Holdings Ltd [1984] 1 WLR 394 at 401 explains that costs should be awarded against a plaintiff who has obtained an order for nominal damages because the award of nominal damages: "… was not the event at which the plaintiffs were aiming. They were aiming at £ 82,500, and the mere fact that they ultimately got something - token or nominal damages - does not enable me to regard them as remaining successful plaintiffs." As Spender, Nicholson and Finn JJ said in Nexus Minerals NL v Brutus Constructions Pty Ltd & Kozyrski (Full Federal Court, 10 September 1997, unreported) at 12: "An award of nominal damages ought not today be regarded as a "peg on which to hang costs": cf Beaumont v Greathead (1846) 2 CB 494 at 499; see McGregor on Damages , para 404-para405, Sweet & Maxwell, London, (1988, 15th Ed); see also Burrows, Remedies for Tort and Breach of Contract , 269-270, Butterworths, London (2nd ed 1994)." As with all questions of costs, the ultimate decision must be made by reference to the facts of the individual case. One circumstance that Hamilton J in Ng v Chong [2005] NSWSC 385 at [8] regarded as possibly justifying an award of costs in favour of someone who recovered nominal damages was when " some other right is vindicated by the judgment, eg, the establishment of a legal right irrespective of whether any substantial remedy is obtained." However no such question arises in the present case. Even though the plaintiff would, strictly, have been entitled to an award of nominal damages against both Dr Zahedi and the Kernot Company, for the purpose of exercising any costs discretion it is to be regarded as having failed against each of those defendants." 101 Likewise in the present case, Ms Olsson does not submit that the present case is one where, apart from any right to nominal damages, some other right would be vindicated by a judgment for nominal damages. 102 Even so, whether there has been a bare breach of contract will affect the order that should have been made in the court below, and hence I turn to consider whether there has been any such breach of contract.

Breach of Contract by Ms Carelli? 103 The trial judge said (at [68]) that she was "… satisfied that Srbin and Carelli were negligent in their representations made in the course of trade and commerce and with the intention of inducing people to enter into contracts with Update and as a result the Finns have suffered loss and damage. Such representations were promissory binding statements which were wrong and misleading." 104 Insofar as this involved a finding of negligence, it was, as I have earlier said, one concerning a contention that had been abandoned by the end of the case. Insofar as it related to a finding that Ms Carelli had made any binding promise by any representation, it had never been pleaded that any contractual relationship existed between Ms Carelli and the Finns. The opening by counsel for the Finns in the court below did not allege that Ms Carelli was party to any contract with the Finns. However, the closing submissions of counsel for the Finns at the trial included a submission that the representations were made "with the intention of inducing people to enter into contracts with Update. They were promissory, binding statements …". 105 Without examining the course of the proceedings below any further, I shall assume, without deciding, that through the way the trial was conducted it became an issue whether Ms Carelli had entered into any contractual relations with the Finns. Any such contract must arise from the Finns' acceptance on 20 April 2003 of the quotation enclosed in the letter of 20 March 2003. 106 The terms of any contract are those that a reasonable bystander would conclude were intended by the parties to the contract, when the bystander took into account the communications from which the contract was alleged to arise, and the background information shared by the parties to the alleged contract. The terms of a contract include identification of its parties. 107 In my view, there is nothing in Update's letter of 20 March 2003, or in Update's letter dated 15 April 2003, or in the Finns' acceptance of the quotation, from which a reasonable bystander could conclude that Ms Carelli was a party to any contract with the Finns. Her name appears nowhere in those communications. She did not purport to sign any of the documents from which the contract is alleged to arise. 108 On Mr Finn's evidence, the first time he met or knew of Ms Carelli was when she came with Mr Srbin to the property on around 18 April 2003. On that occasion, Mr Finn says that she was introduced as "my partner Jill" and that she took some photographs of the house. 109 Mrs Finn's evidence was that on or about 19 April 2003 she first met Mr Srbin and Ms Carelli, that on that occasion Ms Carelli introduced herself and said she was the partner of Mr Srbin and said "the render that Update is going to do is going to be absolutely fantastic and the house is going to look great". Mrs Finn also gave evidence that Ms Carelli took photographs of the house on that day. 110 The trial judge apparently accepted Mrs Finn's evidence about what happened on that occasion, and said nothing about Mr Finn's evidence. However, if the evidence of both of them were accepted about what transpired on that visit, it does not provide any context from which, when added to the written communications, one can conclude that Ms Carelli was a party to any contract with the Finns. There is no other relevant context. It is not submitted that in writing the letter of 20 March 2003 Ms Carelli was Update's undisclosed principal. If the trial judge's acceptance of the submission the representations in question "were promissory binding statements" was intended to convey that there was a contractual relationship between Ms Carelli and the Finns, that conclusion would be mistaken.

Contractual Relations Between Rockcote and the Finns? 111 The collateral contract that the trial judge has found appears to be one where the Finns provided consideration to Rockcote by purchasing Rockcote products. She found specifically that "[t]here was purchase of the product by the Finns" (at [55]). In fact, there was no evidence that the Finns ever purchased any Rockcote products. It was Update that obtained the Rockcote products, and applied them to the Finns' house. However, it seems to me that a fair reading of the judge's reason would be that the finding that there was "purchase of the product by the Finns" was intended to refer to their entering a contract pursuant to which Rockcote product came to be applied to their house. 112 The case pleaded against Rockcote was a collateral contract entered into on Rockcote's behalf by its agent, Niven Building Services Pty Ltd. 113 Care is needed in identifying in precisely which respects Niven Building Services Pty Ltd was the agent of Rockcote. One respect is that its trading name appeared under the heading "Agents Stamp" on one of the brochures that the Finns received. It is common enough in business to say that A is B's agent if A is an authorised vendor of B's goods, even though in selling those goods A is acting on his own behalf: International Harvester Co of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Company [1958] HCA 16; (1958) 100 CLR 644 at [12]-[13], 652-3. The Niven company was Rockcote's agent in that sense, but being an agent in that sense does not involve the agent in having any authority to enter a contract on behalf of Rockcote. 114 I have already held that the Niven company was the agent of Rockcote in another sense, namely that it was authorised to communicate, to any potential purchaser who enquired, the names of authorised applicators. However, being an agent in that sense does not involve the Niven company in having any authority to enter contracts on behalf of Rockcote. The situation is like that commonly arising concerning real estate agents, who have authority from the intending vendors to pass on information about the property that is offered for sale, such that the vendors can be liable if that information involves a misrepresentation, but where the real estate agent does not have authority to enter a contract for sale on behalf of the vendor. 115 As well, by putting its brochures into Mr Niven's hands Rockcote impliedly authorised him to distribute them to potential purchasers, and in that way to pass on to those potential purchasers, on Rockcote's behalf, any representations that the brochures might make. Being an agent of Rockcote in that sense does not involve the Niven company having authority to enter a contract on behalf of Rockcote. 116 Even though the Niven company was Rockcote's agent in each of the three senses I have identified, there was no evidence that it was Rockcote's agent in the sense that it had power on Rockcote's behalf to enter a contract. The finding that Rockcote was in contractual relations with the Finns was mistaken.

Other Representations Alleged Against Ms Carelli 117 The Finns allege that Ms Carelli had made, or been involved in the making by Update, of two representations different in substance to those alleged against Rockcote. They were the representation that Update "would provide a perfect render finish", and the representation concerning completing the project in one week. The trial judge made no findings concerning those representations - the places where the judge mentions those representations (paras 61 and 63 of her judgment) involve the recording of submissions, not the making of findings. There is no Notice of Contention relating to the findings that the Finns submit should have been made concerning those representations. Thus, the allegation that those representations were made will not affect the outcome of this appeal. 118 It follows that, in my view, the appeals by both Rockcote and Ms Carelli should be upheld, the orders made below against Rockcote and Ms Carelli should be set aside, and the proceedings should be dismissed against those parties.

Costs 119 At the hearing of the appeal counsel were unsure whether there might be any matter, not contained in the appeal books, that might be relevant to the costs order that this Court should make relating to both costs below, and costs of the appeal. All parties agreed to a procedure whereby the Court would make a costs order on the assumption that there is no matter not contained in the appeal books that is relevant to costs, but direct that the order concerning costs that the Court pronounces not be entered for 28 days after delivery of reasons for judgment, reserving liberty to any party to apply within that time for a different costs order on the basis of any material that is not contained in the appeal books. I shall consider the question of costs on that basis. 120 At the hearing below, Ms Carelli took the point that the representations she was alleged to have made were not false. However, Rockcote made no submission one way or the other about the falsity of the representations alleged against it, including the representation that Update was an approved applicator. On the appeal it was only in the course of the hearing, and in response to the development of the argument, that counsel for Rockcote applied for, and was granted, leave to amend Rockcote's Notice of Appeal by adding grounds relating to the absence of evidence of the falsity of the representations. As Ms Carelli was already taking that point in the appeal it was understandable that counsel for the Finns did not oppose leave to add those grounds being granted. 121 When Ms Carelli has been taking, below and on appeal, the points on which she has ultimately succeeded, she should have an order for costs in both the court below and of the appeal. 122 When Rockcote did not take a point that was essential for its success until the day of the hearing of the appeal, it is in a different situation. 123 It is common, when a party succeeds in an appeal on a point not taken below, for that party to receive no costs of the appeal, whether that party succeeded in the court below on a point that the appellate court does not accept (NRMA Insurance Ltd v B & B Shipping and Marine Co Pty Ltd (1947) 47 SR (NSW) 273 at 282) or failed in the court below (Conder v Silkbard [1999] NSWCA 459 at [37]). Indeed, if the circumstances are such that the entire appeal process has been necessitated by the failure of an appellant to take a point in the court below, it can sometimes be appropriate for the appellant to pay the costs of both parties of the appeal notwithstanding that the appellant has succeeded in the appeal (Hampton Court Ltd v Crooks [1957] HCA 28; (1957) 97 CLR 367 at [14], 378 concerning the costs in the Full Court), particularly when that point is not taken until at or very shortly before the hearing of the appeal (Miller v Miller [1978] HCA 44; (1978) 141 CLR 269 at [15], 276-277). 124 I do not think it can properly be said that the entire appellate process of Rockcote has been necessitated by its failure to take the point that there was no proof of breach of the representations in the court below. That is because, even though Rockcote was not taking that point in the court below, Ms Carelli took it, but the trial judge did not accept it. In my view the appropriate order is for Rockcote to bear its own costs of the appeal. 125 In Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691 an application had been made, by notice of motion, to set aside a consent judgment. In substance, the basis of the application was that the judgment had been obtained by fraud. The trial judge rejected the application, including on the basis that there was no evidence capable of establishing that a particular representation of fact had been made. The appellate court held that the trial judge had been wrong to reject the motion on that basis, but also held that the entire process, of using a notice of motion as the procedure for seeking to set aside a judgment for fraud was fundamentally mistaken (a separate action with pleadings was required), and that part of the reason why the appellant had failed in the court below was because he had been unable to assist the trial judge by providing relevant references to authority. Further, the correct order was for the notice of motion to be dismissed, but without prejudice to the right of the appellant to institute fresh proceedings seeking to set aside the judgment - in other words, the appellant still did not obtain the orders he was seeking in the court below, but for reasons of technicality. However, the point that separate proceedings were needed was not one that the respondent had taken in the court below. In those circumstances, the Court (at 702) held that no order should be made as to the costs of the proceedings at first instance. 126 The present case has no complications analogous to those. The more usual situation is that if the outcome of an appeal shows that the proceedings at first instance ought to have been dismissed, the plaintiff in the court below will be ordered to pay the costs at first instance: Conder v Silkbard No 2 [2000] NSWCA 317; National Australia Bank Ltd v KDS Construction Services Pty Ltd (in liq) [1987] HCA 65; (1987) 163 CLR 668. In my view, that is the order that should be made in the present case concerning Rockcote's costs at first instance.

Appeals by both Rockcote and Ms Carelli allowed.

Set aside the orders made in the court below against Rockcote and Ms Carelli.

In lieu, order that the proceedings be dismissed, insofar as they are brought against Rockcote and Ms Carelli.

Order the Finns to pay the costs of Rockcote and Ms Carelli of the proceedings in the court below.

Order the Finns to pay the costs of Ms Carelli of the appeal, the Finns to have a certificate under the Suitors' Fund Act 1951 if so entitled.

Order that Rockcote bear its own costs of the appeal.

Direct that Orders 4, 5 and 6 not be entered until 28 days after the date of delivery of these reasons for judgment.

Grant liberty to any party to apply within 14 days of the date of delivery of these reasons for judgment to vary Orders 4, 5 and 6 on the basis of any material there might be that was not contained in the appeal books. 128 HANDLEY AJA: I agree with Campbell JA. **********

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