New South Wales District Court CITATION: Swift v Armitage Designer Homes Pty Limited [2008] NSWDC 269 HEARING DATE(S): 24 - 25 November 2008 JUDGMENT DATE: 22 December 2008 JURISDICTION: Civil JUDGMENT OF: Goldring DCJ DECISION: 1. Verdict for the plaintiffs against the first defendant in the sum of $612,094.52 2. Verdict for the plaintiffs against the second defendant in the sum of $83,260.10 CATCHWORDS: BUILDING CONTRACTS - Damages - Trade Practices - misleading and deceptive conduct - Contracts - pre-contractual representation LEGISLATION CITED: Trade Practices Act 1974 (Cth) Home Building Act 1989 Mark Swift (First plaintiff) PARTIES: Carla Swift (Second plaintiff) Armitage Designer Homes Pty Ltd (First defendant) Alan Murphy (Second defendant) FILE NUMBER(S): 5855 of 2007 COUNSEL: D Jay (First and Second plaintiff) In person (First and Second defendant) SOLICITORS: Adams & Partners Lawyers (First and Second plaintiff) JUDGMENT Issues 1 The issue in these proceedings are whether or not the first defendant, Armitage Designer Homes Pty Limited ("Armitage") was in breach of its contract to build a house for Mr and Mrs Swift, and if so, how much the Swifts can recover by way of compensation, and secondly, whether the second defendant, Mr Alan Murphy, engaged in conduct that was misleading or deceptive or likely to mislead or deceive, so that the Swifts suffered a loss. Factual Background 2 Mark and Carla Swift owned a block of land at Riverview in Sydney's northern suburbs. They wished to build a family home on this block. They retained an architect, Robin Edmiston, to design a house. He prepared plans and specifications for a contemporary home of a rather unusual design. They also retained structural and hydraulic engineers to prepare plans and engineering specifications for the house. They lodged a development application with the Lane Cove Council, and ultimately this application was approved on 12 August 2005. The Swifts had a limited budget. They obtained some quotes from builders, including the first defendant, Armitage, but at first all these quotes were too expensive. 3 Mr Alan Murphy was a director of Armitage. He described himself as the "office manager". Mrs Swift's evidence was that Mr Murphy was the person from Armitage with whom she and her husband dealt in the negotiations leading up to the signing of a formal building contract. There was another director of Armitage at the time, Mr Sandro Santi. Mr Murphy's evidence was that Mr Santi worked as the site manager, in charge of day-to-day construction work, and Mrs Swift said that she did have a number of conversations with him on site. 4 Before any quote was submitted by Armitage, Mr Murphy says that he assisted the Swifts in negotiations with the Lane Cove Council and with neighbours. Mrs Swift does not mention this at all in her affidavit. I have some concerns about Mr Murphy's credit, and it is not necessary for me to decide whether or not he was involved in this way. However, the Swifts alleged that Mr Murphy made a number of representations, which were misleading or deceptive, contrary to the Trade Practices Act 1974, s 52, before the contract was concluded formally on 9 May 2006. It says that these representations were misleading or deceptive, contrary to the Trade Practices Act 1974, s 52. They say that some of the misleading or deceptive representations ome of these were made before the contract was concluded formally on 9 May 2006. 5 Armitage first provided a quote to the Swifts in November 2005. Subsequent quotes were provided on 1 March 2006, 10 March 2006, and 9 May 2006. The lowest quotes were those of 10 March and 9 May, at $499, 950, including GST. 6 Although there appear to have been engineering plans provided before that date, James Taylor and Associates issued certified plans on 8 May 2006. However, it is notorious that the Council would not have approved the Development Application without engineering plans. I infer that the plans delivered on 8 May 2006, consistent with the evidence of both Mrs Swift and Mr Murphy, were the result of detailed negotiations between them. It is clear that the Swifts were anxious to bring the project within their budget, and adjustments were made to the plans accordingly. 7 Although Mr Edmiston, whose report was in evidence and was not challenged, prepared the plans, he was not retained as supervising architect. Mr Murphy said this was because he had told Mrs Swift that if Mr Edmiston was retained in that capacity, he would charge. Mrs Swift said that Mr Murphy told her he would not work with a supervising architect. On this point I find that both witnesses were truthful. If there had been a supervising architect, the dispute between the parties may well have been avoided. 8 Mrs Swift says that Mr Murphy promised her that the building works would take no longer than 32 weeks and that the Swifts would be able to occupy the house by Christmas 2006. If he did so, I find it was in the context of the standard quote form used by Armitage, which stated that their estimate was that a standard house would take 36 weeks to complete. The period of 32 weeks was stated in the contract as the contract period, but in the circumstances I do not find that this period was a pre-contract representation that was misleading or deceptive on the part of either Armitage or Mr Murphy. The statement that the Swifts would be in occupation by Christmas was made before Christmas 2005, and referred to Christmas 2006, and certainly was not intended to be acted upon. The contract negotiations and variations that were necessary in order to meet the Swifts' budget and other problems meant that no contract was signed until May 2006. Any representations made before the contract was entered into as to time merged into the contract. 9 After September 2006 progress claims were made and paid, as provided by the contract. Mr Murphy said that some of the payments were late, but were made. It is agreed that the Swifts paid more than $450 000 to Armitage. 10 Apparently the work proceeded to the Swifts' satisfaction until February 2007. Mrs Swift then sent an e-mail to Armitage detailing a number of concerns, especially about the electrical work. She indicated that the Swifts were seeking legal advice. It was clear that, at this stage, she wanted Armitage to cease work and to employ another builder. Further faxes and e-mails were to the same effect. 11 Early in February 2007 the Swifts met Mr Murphy and Mr Santi to discuss electrical work. According to Mr Murphy this had been the subject of negotiation before the contract was entered into. There may have been a failure of communication on this issue, but in any event the Swifts refused to pay the amount for which Armitage had asked. Mr Murphy then said that Armitage would stop work. 12 On 21 February, Armitage issued a variation. This showed a credit to the Swifts, but this credit was not paid. On the same day, the Swifts instructed Mr Matley, an independent builder whose later reports are in evidence, to report on the work and to identify any deficiencies. 13 At about this time the Swifts had contact with the Lane Cove Council. This was primarily about the roof structure, for which the Council required engineers' drawings. Mrs Swift discovered that the Council had not previously made inspections, and also that Armitage had commissioned its own engineer to prepare some drawings. The Swifts objected to this, as they had paid a considerable sum of money to their own engineers. Mr Murphy's note to them is that their engineers' work was defective, as were the architect's specifications, because of the load-bearing capacity of the walls. 14 On 2 March Armitage purported to terminate the contract for non-payment. In fact the contract period had not elapsed, and the purported termination at that stage was premature. Payment was made within the period stipulated by the contract. 15 On 3 March Mrs Swift said she delivered a letter to Alan Murphy on the site. This letter is in evidence (at p 181). While it expressed general satisfaction with the progress of the work, it specified in detail a number of outstanding items, with their respective costs. 16 By e-mail the same date, Mr Murphy replied to this letter, saying there were some "discrepancies", and he and Sandro Santi would need to resolve them. Until that was done, no further work could proceed. 17 At that stage the relationship between the parties had obviously developed to a stage where there was considerable acrimony. The Swifts applied to the Department of Fair Trading for dispute resolution, but this was unsuccessful. An application was lodged in the Consumer Claims and Tenancy Tribunal by the Swifts on 29 March. If the contract was not properly terminated at that stage, the application by the Swifts amounted to a repudiation, which Armitage accepted, so that the contract, so far as it required building work, was at an end. Ultimately that claim was transferred to this Court when it became clear that, because of the amount involved, the Tribunal lacked jurisdiction to entertain the Swifts' claim. 18 When the matter was first listed in this Court, Armitage was legally represented. Directions were given as to preparation and service of a Notice of Grounds of Defence and expert evidence. No defence was ever filed. No expert ervidence was ever filed for either defendant. The solicitor on the record filed a notice of ceasing to act. In July Mr Murphy advised the Swifts' solicitor that Armitage was no longer operating. He said also that Armitage would not oppose the claim. A freezing order was made in respect of certain assets transferred by both Armitage and Murphy to another company of which Armitage was shareholder and director. I continued that order until the date of judgment. 19 Mr Murphy appeared on his own behalf and as a director of Armitage. He gave evidence, and did cross-examine Mrs Swift, to an extent. He also addressed the Court. He did not adduce any admissible evidence, nor did he challenge any of the evidence adduced by the plaintiffs. I must therefore accept the plaintiffs' unchallenged evidence, although I have some concerns about parts of it. 20 Mr Santi was not called. Mr Murphy said that the two had fallen out, and that he had moved "up the coast". Because he was not called, I infer that any evidence he might have given would not have assisted the defendants. 21 Because Mr Murphy's evidence largely avoided the issues in this case, I do not have to make many findings about his credit. The claim 22 It is not disputed that the contract, including the express terms and conditions, was as pleaded in the Statement of Claim. Neither is it disputed that the Home Building Act 1989, s 18B, applied. 23 Paragraph 31 of the Statement of Claim sets out the alleged breaches of the agreement and the statutory implied terms upon which the Swifts rely. Only one of these was challenged by Mr Murphy. This was (n), namely that Armitage failed to engage Styrocon to supply and fit the Styrocon panels to the work. 24 Styrocon is a proprietary building product designed for use in walls. Mr Edmiston specified that many walls of the house be constructed of double Styrocon panels. The Swifts (and their building expert, Mr Matley) were not satisfied with the finish of the walls, and apparently, as installed by Armitage, they required rendering before becoming waterproof and capable of being painted. Mr Murphy indicated that he did use subcontractors as recommended by the suppliers of Styrocon to install them, but this was not disclosed until the second day of the hearing. In any event, the expert evidence satisfies me that whoever installed the panels, they were not installed according to the architect's specifications, or properly. 25 The materials annexed to Mrs Swift's affidavit include the architect's and engineers' drawings, but not the specifications. I assume there were specifications, but neither party adduced them in evidence. It is clear from the number and extent of negotiations before the final quote was accepted and the contract formalised, that there were extensive discussions between the Swifts and Mr Murphy, aimed, I infer, primarily at reducing the cost of the work. Mr Murphy's evidence was that a number of items specified in the architect's and engineers' drawings and specifications were amended by agreement between him and the Swifts before the contract was finalized. On the balance of probabilities, I find that the handwriting on the relevant drawings indicates that what was agreed in the contract, in respect at least of the windows and electrical work was significantly different from what was originally specified by the architect and engineers. I also find that the drawings sent to Mr Matley were originals or copies of the originals, and did not reflect the agreed amendments. This finding has consequences for the Scott Schedule that is in evidence, and which was otherwise unchallenged. 26 I am also prepared to accept Mr Murphy's evidence that the architect's and engineers' drawings and specifications in respect of the roof were modified by consent before the final contract, but I am unable to make any finding about the nature and extent of these changes. It is clear from Mr Murphy's evidence and from documents adduced by the Swifts, that his view was always that the architect and engineers had made some significant errors of judgment in respect of the roof and roof support, at least. It is not clear how or to what extent Mr Murphy's views were reflected, if at all, in the final contract. The Scott Schedule 27 Mr Matley prepared a Scott Schedule which was tendered by the Swifts, based on his own observations and the reports of Mr Edmiston and Mr Wray, which are in evidence. To the extent that this schedule was based on correct factual assumptions and correct information, it was not challenged, and must be accepted. I shall indicate the respects in which I find it was based on incorrect information or assumptions. 28 I propose to allow the plaintiffs to recover the cost of remedial work as listed in the Scott Schedule, with the following exceptions. 29 I have already indicated that I could not be satisfied on the balance of probabilities that the contract required work on the windows (two items in the Scott Schedule) or electrical work as specified by the architect and engineers. On the balance of probabilities I find that those matters were mutually agreed between the Swifts and Mr Murphy before or the contract was formalised. There is therefore no evidence that this work was not done in accordance with the contract. 30 The Scott Schedule also allows an amount for builder's profit. I am not prepared to allow this item in the absence of evidence as to what contractual arrangements were made for any remedial work that was done. I am satisfied that remedial work was done and that the Swifts are now occupying the premises, but they were not able to do so for a period of at least 12 months after the expiry of the contract period. On that basis I am allowing an amount of $300 per week rent, as specified in Mrs Swift's affidavit, for a period of 12 months. 31 The result is that the damages for breach of contract amount to a total of $542,267.75. To this must be added 10 per cent GST, making in all $596,494.52. The amount allowed for rent is $15,600. Therefore the total of the verdict for the plaintiffs against Armitage is $612,094.52. Misleading or deceptive conduct - pre-contractual ? 32 The Swifts allege that Mr Murphy, on behalf of Armitage, engaged in conduct which contravened the Trade Practices Act, s 52, both before and after the finalisation of the contract. They allege also that he should be personally liable, because of his knowledge of or involvement in the contraventions by Armitage. 33 The pre-contract representations alleged to have been misleading or deceptive were: (a) the first defendant did not have the capacity to complete the work, being the work the subject of the agreement subsequently entered by the plaintiffs and the first defendant on 9 May 2006 within 32 weeks of its commencement; (b) the first defendant did not have the capacity to, nor did it intend to, complete the works, being the work the subject of the agreement subsequently entered by the plaintiffs and the first defendant on 9 May 2006 for a fixed price of $499,950; and (c) the first defendant did not have the technical capabilities to complete the works within 32 weeks from commencement and for the sum of $499,950. 34 I am not satisfied, on the balance of probabilities, that Mr Murphy made any such representations, or that if he did, they were misleading or deceptive. At the relevant time Armitage was a licensed builder, and in fact did work for the Swifts which, even in March 2006, Mrs Swift was able to say was substantially satisfactory. 35 One of the main concerns was the delay in completion of the work. I have already indicated that if this representation was made, a point which I would not be prepared to find as a contravention of s 52, it was subsumed into the express provisions of the contract. There is no evidence to support the assertion or inference that, at the time the representation was made, Mr Murphy or anyone else associated with Armitage knew that the work could not be completed within the time. Misleading or deceptive conduct - post-contractual ? 36 As indicated, I was not satisfied on the balancies of probabilities that any conduct in which Mr Murphy engaged before the contract was formalised was misleading, deceptive, or likely to mislead or deceive anyone. I have formed a different view about some of his conduct after the contract was executed. This relates to the construction of the Styrocon walls. The architect had specified that some external walls would be constructed of double Styrocon panels. In the event, the external walls constructed by Armitage were single Styrocon panels, which in the opinion of Mr Matley, Mr Edmiston and Mr Wray, were unsuitable and the installation unworkmanlike. I have no doubt that Armitage, as the holder of the builder's licence, could reasonably be expected to be familiar with most building materials, even unconventional items. It was not until a complaint was made about the Styrocon panels that Armitage, or anyone on its behalf, engaged in any conduct that could be regarded as misleading, deceptive, or likely to mislead or deceive. However, it was clear that the sub-contractors engaged to install the Styrocon panels had left the site. This was the subject of a conversation between Mrs Swift and Mr Santi. At that stage Armitage undertook to complete the Styrocon panels, representing thereby that it had the expertise to do the work in a proper and workmanlike way. It was clear both from the terms of the contract and the conduct of Mr Murphy subsequently that this representation had no factual basis. It is also clear that the Styrocon panels installed by Armitage were unsightly, in that the joints were not flush and that there were gaps at the edges which rendered them liable to water penetration. At Mr Murphy's recommendation, the Styrocon walls were rendered with cement at extra cost. This was unworkmanlike and unsatisfactory and amounted to a breach of the contract. The requirement that the panels be rendered amounted to conduct which was misleading or deceptive or likely to mislead or deceive. 37 Although Mr Santi had the initial discussions with Mrs Swift on the subject after the contractors had left the site, it was Mr Murphy who continued to act on behalf of of Armitage in respect of these matters and he clearly had actual knowledge both of the nature of the representations, and the lack of factual basis for them. I therefore find that Mr Murphy had actual knowledge of the misleading or deceptive conduct and that that conduct and its consequences are attributable to him personally, as well as to the company. 38 The damages recoverable pursuant to the Trade Practices Act 1974, s 82, is equal to the cost of restoring the walls where Styrocon panels were specified. This cost is specified in the Scott Schedule at $75,691. To this must be added 10 per cent GST, making $83,260.10. The verdict against Mr Murphy is for this amount. 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