Supreme Court New South Wales Medium Neutral Citation: Karl Romandi & Helen de Luis Pty Ltd v Guest [2011] NSWSC 1124 Hearing dates: 29/07/2011 Decision date: 21 September 2011 Jurisdiction: Common Law Before: Fullerton J Decision: 1. The appeal is allowed. 2. The judgment and orders of Grahame LCM of 20 December 2010 are set aside. 3. The proceedings are remitted to the Local Court to be determined according to law. 4. The orders as to costs made on 20 December 2010 are set aside. 5. The defendants are to pay the plaintiff's costs of the appeal. 6. The costs of the Local Court hearing are to be redetermined following further determination of the statement of claim and cross claim on remittal. Catchwords: APPEAL FROM LOCAL COURT - appeal against order dismissing claim for unpaid fees for architectural services - appeal against order upholding (in part) cross claim for the return of monies paid - whether Magistrate erred in law or failed to give reasons or adequate reasons - termination of contract for services - quantum meruit - notice of contention - reasonable market value for work done - restitution - denial of procedural fairness Legislation Cited: Local Court Act 2007 Supreme Court Act 1970 Trade Practices Act 1975 (Cth) Cases Cited: Baltic Shipping Company v Dillon [1993] HCA 4; 176 CLR 344 Peisley v Meddrell Management Pty Limited and Ors [2010] NSWSC 1477 RL & D Investments Pty Ltd v Bisby [2002] NSWSC 1082 Sun v Hatoum [2011] NSWSC 516 Category: Principal judgment Parties: Karl Romandi & Helen de Luis Pty Ltd (Plaintiff) Phillip Guest (1st Defendant) Melissa Guest (2nd Defendant) Representation: DA Moujalli (Plaintiff) MR Tyson (Defendants) McCulloch & Buggy Lawyers (Plaintiff) W Lawyers (Defendants) File Number(s): 2011/12350 Judgment 1HER HONOUR: The plaintiff appeals against an order dismissing its claim for unpaid fees in the amount of $58,567 pursuant to an agreement with the defendants that the principal, Mr Romandi, provide architectural services in respect of the renovation of their home. The claim was prosecuted in the General Division of the Local Court. The plaintiff also appeals against an order upholding (in part) a cross claim by the defendants for the return of monies paid by them under the same agreement. I propose to refer to Mr Romandi, the principal of the plaintiff company, as the plaintiff for the purposes of this judgment. The Magistrate took the same approach. 2Section 39 of Local Court Act 2007 confines the appeal to questions of law. Where a question of mixed fact and law is involved s 40 provides that leave is required. There was no application for a grant of leave. There is no appeal under the Local Court Act on a pure question of fact. Section 75A(5) of the Supreme Court Act 1970 provides that the appeal is by way of a rehearing limited to a consideration of the evidence tendered in the primary proceedings unless special grounds are made out. No application was made to receive further evidence on the appeal. 3In the Local Court the plaintiff claimed an entitlement to unpaid fees calculated in accordance with an express term of the agreement which provided that where the architectural project was abandoned for any reason by either party, fees would be calculated on the basis of work actually done (plus disbursements) up to the date of abandonment and by reference to a fixed scale of charges also incorporated into the agreement. 4In the event that his claim in contract was not made out, the plaintiff claimed fair and reasonable remuneration for the services rendered by him on a quantum meruit basis. The plaintiff's case on the appeal in summary 5The plaintiff submitted that the Magistrate was correct in determining the claim in contract but that she fell into error in construing the agreement by assessing the value of the architectural services provided by the plaintiff according to their reasonable market value and by disallowing the claim for other aspects of the work on the basis that it was "excessive" or "illegitimate". This, it was submitted, was contrary to the express terms of the agreement which provided for payment for work done according to an agreed scale. 6The plaintiff also submitted that the Magistrate failed to identify any cause of action or legal basis supporting the defendants' entitlement to restitution of the amount claimed in the cross claim and that this constituted legal error. It was further submitted that she denied the plaintiff procedural fairness in determining the issues raised by the cross claim otherwise than on the basis of the pleadings. 7In respect of each of the Magistrate's findings said to be demonstrative of legal error, the plaintiff also relied upon what was said to be her failure to give reasons, or any adequate reasons, as constituting a further or additional appellable error. At the hearing of the appeal counsel for the plaintiff acknowledged the difficulty in making out that ground in light of the principled approach to a challenge of that kind in an appeal brought under the Local Court Act (see Sun v Hatoum [2011] NSWSC 516 per Hoeben J at [34]-[42]). He did not, however, formally abandon the ground. 8Finally, the plaintiff contended that the Magistrate's discretion miscarried in ordering that he pay the defendants' costs of the proceedings on the statement of claim in circumstances where he was successful in meeting their principal defence. The defendants' case on the appeal in summary 9The defendants submitted that her Honour's approach to the calculation of unpaid fees under the agreement was not in error as she was entitled to reduce the amount of the claim for work done outside the terms of the agreement or otherwise on a basis that was not justified. They also submitted that the costs order in their favour was entirely appropriate in circumstances where, in upholding the cross claim, the plaintiff was ordered to pay the sum of $6,960 by way of restitution. 10In addition, the defendants relied upon a notice of contention in which they seek to affirm the Magistrate's decision on the additional ground that it was an oral term of the agreement that the proposed renovation works would be completed within a $1 million budget, a term which was breached when the project grossly exceeded budget. They also contended that the plaintiff's conduct in persuading them to enter into an agreement on the representation that the project could be (or would be) completed within their budget was misleading or deceptive contrary to the Trade Practices Act 1975 (Cth) . These were the alternate bases upon which the claim was defended in the Local Court, but rejected by her Honour. The notice of contention 11Before considering the plaintiff's primary grounds of appeal I propose to deal with the notice of contention since, if I am satisfied that her Honour was in error in resolving the plaintiff's claim for unpaid fees solely by reference to the written agreement, unmodified by what the defendants claim was an oral term concerning the $1 million budget, the plaintiff's claim will need to be revisited in its entirety, particularly given that a quantum meruit claim was pleaded as an alternate basis for relief. 12I am invited to consider the issues raised by the notice of contention by reference to the Magistrate's findings as to what occurred at a meeting between the parties on 30 October 2007. The defendants' counsel urged me to come to a different conclusion to that reached by the Magistrate on the critical question of whether what was said at that meeting regarding a $1 million budget was incorporated as an oral term of the written agreement signed the following day. 13Her Honour expressly found that the discussion concerning the cost of the project that preceded entry into the written agreement, and the manner in which it was raised between the parties at that time, did not crystallise into a contractual term and did not amount to deceptive or misleading conduct entitling the defendants to resist the plaintiff's claim for unpaid fees under the Trade Practices Act . In finding that there were no other terms of the agreement which were breached her Honour moved to resolve the plaintiff's claim by reference to what she described as the remaining issues in dispute, namely whether the plaintiff had properly charged for services between November 2008 and February 2009 after the plaintiff was notified that the project could not proceed because of the defendants' financial circumstances and/or whether in other respects he improperly charged for certain services or failed to make appropriate deductions in accordance with the written agreement. It was in the approach to these issues and her findings of fact that the plaintiff submitted that the Magistrate fell into error. 14The defendants' counsel submitted that contrary to the approach adopted by the Magistrate, the question of contract formation and the identification of contractual terms should be determined by application of an objective test and that I should give no weight at all to the subjective perceptions of the parties as to whether or not the budgetary considerations were understood to be contractual terms. It was submitted that her Honour determined the question of construction by reference to what the parties said they intended as distinct from what their exchange conveyed of their intentions. 15In support of her finding that there was no oral term of the contract concerning a $1 million budget, and that the written proposal comprised the entirety of terms of their agreement, the Magistrate found the following facts established by the evidence: (a) The parties met at the plaintiff's offices on 1 October 2007 after a meeting on site three days earlier. At that meeting Mr Guest (the first defendant) inquired of the plaintiff as to what he thought the total construction cost of a project of the size and nature of that encompassed by the proposed renovations would be. Mr Guest gave evidence that the plaintiff inquired as to what the budget was, to which Mr Guest replied: We are unsure as to what it should cost but we have made inquiries with other architects and Melissa and I have decided that our budget for the project should be $1 million. He said that the plaintiff's response was: Good. As long as it's not $300,000. According to the defendants the plaintiff then said that he was interested in doing the project and would send a proposal for them to consider. (b) The plaintiff gave evidence that the issue of a budget (whether of $1 million or any other sum) was not discussed with the defendants at any time. (c) On the day following the meeting the plaintiff sent a proposal which called for the defendants' signatures authorising him to provide the architectural services in relation to the proposed building works. The agreement identified the services to be provided in four stages with a percentage of the actual commercial construction costs payable at the completion of each of the four stages. The total fee was then calculated referable to 15 per cent of the commercial building cost while the fees for stages 1 and 2 were referable to "probable building cost" and stage 4 to the "final commercial building cost". Importantly, no building or construction cost is nominated in the agreement, no scale or range of probable costs is provided and no budget specified. (d) The defendants signed the agreement dated 1 November 2007. 16The Magistrate regarded the plaintiff's evidence that a budget was never discussed as highly implausible. She thought it equally as implausible that the defendants would engage an architect for a major renovation to their home without mention of a cost parameter. She considered that the defendants' shock when they were informed twelve months later that the probable cost of the project was $2.2 million also rendered their account of the conversation with the plaintiff concerning the $1 million budget more likely. That being the case, she was satisfied the plaintiff must have been aware that the defendants were hoping to renovate their home for a total cost of around $1 million. However, she regarded it as weighing against a $1 million budget being incorporated as a contractual term that upon learning of the cost blowout the defendants did not immediately complain that the agreement had been breached, but in correspondence with the plaintiff simply described the cost as "above our original expectation" or "higher than we expected". 17In the result, the Magistrate was not satisfied that the discussion concerning a budget for the project, in the terms attested to by the defendants, supported a finding that the parties intended that it become a term of the contract that the budget for the project was fixed at $1 million, or that there was an agreement to contract on those terms. She accepted that $1 million was a figure that the defendants "had in mind" in their discussions with the plaintiff preliminary to signing the written agreement and, from the plaintiff's perspective, that he regarded $1 million as a "project target" at a time when the parameters of the project were quite fluid. She was not satisfied that the figure of $1 million was the subject of agreement between them as the budget for the project (and by which the plaintiff would be contractually bound), or that the plaintiff represented that the project would be completed within a $1 million budget such as to ground an action under the Trade Practices Act. 18I am unable to discern any error in her Honour's approach to construing the agreement or identifying its terms, or her findings. She was invited by the defendants to find that the discussion with the plaintiff to which they each deposed was eloquent of their intentions to contract on terms extraneous to the written agreement. She was not persuaded that the evidence established that fact. I am invited to come to a different conclusion. I am not persuaded that a different conclusion is open. Accordingly, the notice of contention is dismissed. The plaintiff's primary grounds of appeal 19In order to consider whether her Honour was in error in her approach to the calculation of what the plaintiff was owed as unpaid fees under the agreement, and whether there is error in her approach to deciding the issues raised by the cross claim, it will be necessary to set out what occurred between 6 November 2008, when the defendants were informed of the probable construction costs, and the defendants' letter of 16 February 2009 in which they notified the plaintiff that the project was to be abandoned. 20However, before doing so I note that in the course of argument on the appeal it became clear that on the assumption that the Magistrate was obliged to assess the claim strictly in accordance with the terms of the agreement (that is, by reference to work actually done and disbursements actually made and not by reference to any concept of the reasonableness of the fees charged for those services or whether there was excessive or illegitimate charging), there are only three aspects of her Honour's calculations that are not in strict conformity with the plaintiff's invoice: work done between 29 November 2007 and February 2008 involving a "measured study" referred to in paragraph 50(b) of the reasons for decision; work done between 29 August and 29 September 2008 involving a "sketch design" referred to in paragraph 50(g) and work done between 17 November 2008 and 3 February 2009 involving the provision of "final services - medications, shadow diagram, heritage report etc". 21I also note that the first invoice the plaintiff forwarded to the defendants was for $45,562.75. This was supplemented shortly thereafter by an additional invoice for $13,004.75. The second invoice does not appear to have been the subject of any separate consideration by the Magistrate. Nothing would appear to turn upon this for present purposes. Suffice it to note that after deducting $54,285 paid by the defendants as an advance payment in November 2008 from the invoice total of $102,047 for actual work done, the total of the two invoices comprised the plaintiff's claim for $58,567 and upon which he sued. The effect of her Honour disallowing part of the claim reduced the total amount owed to the plaintiff to $49,525. After the Magistrate accepted that the defendants were entitled to be reimbursed for the advance payment in November 2008 as they contended in their cross claim, she ordered the plaintiff to pay the defendants the differential of $9,042. 22Having resolved in the plaintiff's favour to calculate the amount owing under the agreement on the basis that the project had been abandoned (thereby entitling the plaintiff to charge for actual work done plus disbursements up to the time of abandonment by reference to an agreed scale of fees and charges) the plaintiff submitted that the Magistrate erroneously imported into that calculation the reasonable market value of some of the work; the reasonable value to the defendants of other aspects of the work, and wrongly assessed further aspects of the claim as excessive or illegitimate. 23References to market value and the value of the services to the defendants sourced from the expert evidence tendered by the defendants in support of their claim for restitution under the cross claim and to meet the plaintiff's quantum meruit claim in the event that his claim under contract was defeated. On the appeal the plaintiff submitted that her Honour was in error in referring to the expert evidence for the purpose of assessing the plaintiff's claim pursuant to the agreement. The plaintiff submitted that because the contract made no provision for assessing the amount of unpaid fees upon abandonment by reference to what was "reasonable", "excessive" or "legitimate", and that the Magistrate gave no reasons for departing from the agreed contractual method of calculation otherwise than by reference to the expert opinion of what was reasonable, she was in error in discounting the claim on each of these bases, and the amount claimed by the plaintiff should be redetermined by me and the final orders adjusted accordingly. 24I am satisfied the Magistrate was in error as contended for by the plaintiff and identified in paragraph 50(b) of her reasons (because the value of the work was neutralised or reduced by the plaintiff denying the defendants a soft copy of the plans) and that the reduction of 50 per cent of that component of the invoice should be reinstated. Subject to the plaintiff persuading me that she was also in error in allowing $75 per hour for the work done by the plaintiff's assistant, Ms Harrison, as distinct from what the plaintiff contended was her hourly rate of $100 provided for in the agreement (as comprehended by the second ground of appeal), readjusting that component of the claim is relatively straightforward. 25I am also satisfied that the Magistrate was in error in discounting the work comprehended by the plaintiff's invoice for the preparation of the sketch design in paragraph 50(g) of her reasons for decision, based on her finding that the number of hours claimed by the plaintiff in respect of that category of work was unreasonable or excessive (again by reference to the expert evidence). Recalculating that claim is not so straightforward since it is not clear to me how her Honour arrived at her assessment, or what component of the invoiced services she discounted. 26In paragraph 50(g) of her reasons for decision her Honour also discounted the invoice for all work done after 17 November 2008 on the undifferentiated basis that the fees charged in that period were either "excessive" or "not legitimate". Leaving the question of excessive charging to one side, her Honour appears to have reasoned to the conclusion that fees were not legitimately charged after 17 November because on or by that date the agreement was " under review" (the agreement expressly provided that the agreement was subject to review in November 2008), and because the plaintiff had no clear instructions to undertake any further work after the defendants were notified that the probable building cost of the project would exceed $2.2 million. 27In order for this finding of fact to be susceptible to challenge on the appeal, the plaintiff must demonstrate either that there was no evidence to support it or, alternatively, that the evidence was overwhelmingly to contrary effect. It is not enough that the finding was unreasonable or that the evidence was insufficient to support it, still less that another construction of the evidence was open, or even equally open. 28In RL & D Investments Pty Ltd v Bisby [2002] NSWSC 1082 Kirby J at [13] after referring to the collected authorities on what constitutes an error of law identified a number of broad propositions: ... First, there is no error of law in simply making a wrong finding of fact ... unless there is no evidence to support that finding. Secondly, it does not amount to an error of law if the finding of fact, or the inference (or the refusal to make a finding of fact or draw an inference) is perverse, in the sense that it is contrary to the overwhelming weight of evidence ... Thirdly, it is not an error of law even if the reasoning process by which the Court reaches its conclusion of fact is demonstrably unsound or illogical ... Fourthly, there is limited exception ... in relation to decisions of fact in the context of a statutory description. In such a case there may be an error of law if the decision on the facts is one which could not be reasonably entertained, or supported, if the tribunal had properly understood the true construction of the relevant enactment ... 29The plaintiff's counsel directed me to the evidence which he submitted compelled the conclusion that despite the project being ultimately costed at $2.2 million in November 2008, the defendants expressly or impliedly instructed the plaintiff to continue to work on the project, and that it was not until February 2009 that he was notified that they were abandoning the project. Viewed in this way, the plaintiff submitted that her Honour's finding that he worked without instructions, or contrary to the defendants' express instructions, is wholly contradicted by the evidence and unsupportable, thereby amounting to an error of law. 30It is necessary that the evidence I was taken to on the appeal is set out in detail. 31At a meeting with the plaintiff on 6 November 2008 the defendants were provided with a written costing of the project entitled "Preliminary Opinion of Probable Building Costs" where the project was costed at $2,273,455. 32At 2.16pm that day the defendants sent an email to the plaintiff in the following terms: Thank you for your time this morning. We are happy with the updated plans and will review them again tonight together with the cost guide. As you probably guessed from our reaction, the whole project cost has come in well above our original expectations and accordingly we now have some tough decisions to make. We have a number of options available to us but need time and some further information from you to carefully consider each. We are committed to completing the project with you and are very happy with progress to date . If convenient, we will call you tomorrow at 1pm to discuss our options. Please confirm if this time suits. Thanks again and kind regards Phillip and Melissa (emphasis added) 33At 3.31pm the plaintiff responded confirming that 1pm was a suitable time to speak and inquired whether he should proceed with lodging the documents with the Development Control Unit as they needed to be delivered to the Hunters Hill Council the following day before noon. 34At 4.15pm the plaintiff received a telephone call from Mrs Guest which was noted in his diary in the following terms: Melissa Guest rang - Caution - wants out - I think lodge docs with DCU however still on tomorrow - slow down the project. 35At 10.31pm the defendant sent a further email in the following terms: Further to our conversation today, we have revisited the plans, cost estimate and the contract. We are very happy with the plans and would like to proceed as we believe it is a worthwhile investment in the property . However, we are concerned with how to fund the project given the current cost estimate, as it is higher than we expected. Without making extensive changes to the current plan, your latest suggestion for the timber rear etc is something that we would seriously consider to reduce cost. We believe the best option is to get the project through Stage 1 and obtain the council approval for the development as you've suggested. We understand that this should give us at least 6 months to address the best way for us to fund the future stages given the changed market conditions . Before pressing on through this stage we would like a better understanding of the costs associated with completing it . The contract states that Stage 1 includes amongst other items, a Statement of Environmental Effects, Heritage Report and submission of the development application. For this stage your fee is 5% of the commercial construction cost. What is the commercial construction cost in the original cost estimate and what would it be if we used the $2,000 rate? What other costs, that are not included in the 5%, do we also need to factor in to complete Stage 1? The contract states engineers fees, BASIX fees etc. Can you estimate these for us? We have an estimate from Annie Walkes of $3,800 to $4,800 for the landscape plan. Also if we were to proceed with the $2,000 rate, will this impact on the DCU? To help us to address the best way to fund the future stages, once council approval has been given how long do we have to proceed to the next stage? Are you able to provide some further detail of how long the approval remains valid and whether there are options to extend this is required? I will give you a quick call in the morning to discuss. Regards Phillip & Melissa (emphasis added) 36The following day (7 November 2008) the plaintiff noted a telephone conversation with Mr Guest in his diary in the following terms: Phillip Guest rang - discussed matters further - OK to lodge then to complete Stage 1 (need to know break up of extra fees - to [consider?]) Will prepare spreadsheet for DCU Meeting (emphasis added) 37On 11 November 2008 the defendants paid the plaintiff's fees of $54,285 calculated according to the agreement. 38On 25 November 2008 the plaintiff sent a letter to the defendants in the following terms: Dear Melissa and Phillip, Delayed Commencement Your recent question regarding how long a development consent remains active is set by Hunter Hill Council standard consent conditions as: "The works set forth in the plans and specification and approved under this consent, once commenced, shall be completed within two (2) years from the date of commencement". While I have successfully challenged HHC on this matter with some building works to our own office building I have cause to be unsure due to conflicting data. ... Accordingly, to muddy the waters, I enclose for your information and understanding a copy of the transcript from a L & E Court hearing which involved and incurred a loss for HH Council. I suggest the consultant town planner chosen to prepare the supporting Statement of Environmental Effects for your development application can provide the answer. Yours faithfully, Karl Romandi 39On 26 November 2008 the plaintiff advised the defendants by email that he had met with the Council Heritage Advisor that day and had a further meeting with the Conservation Advisory Panel to ensure that all heritage matters had Council's support. He also advised that he met with a Council officer on site on 14 November to assess the possible effect of excavations on the surrounding trees. He attached a detailed report of that meeting. He advised that Council required an arborist to be retained and that this would need to be discussed. He attached notes of the meeting with Council identifying the need for care in addressing the building of an underground garage. He concluded by saying as follows: Meanwhile consultants need to be commissioned to progress the works for DA submission and we should best meet to discuss this procedure. 40On 3 December 2008 the plaintiff noted in his diary a telephone conversation with Mrs Guest in the following terms: Mel Guest Rang. Discussed matters and progress - to meet before CAP meeting. 41On 10 December 2008 Mr Guest addressed the Conservation Advisory Panel as did the plaintiff on his own behalf. 42On 16 December 2008 the plaintiff noted an 8.30am meeting in his office with the defendants. (The evidence does not establish whether this was to reschedule a meeting or whether a meeting occurred on that date.) 43On 20 January 2009 the plaintiff forwarded a letter to the defendants attaching a copy of the Conservation Advisory Panel meeting report and the Panel's favourable resolution. He went on to say: To enable us to press on with the DA documents we need to discuss the engagement of the following consultants: Structural engineer (concrete, steel, structural timbers, underpinning ? etc) Arborist (for the remaining trees) Landscape design Town planner (to prepare the statement of environment effects) Hydraulic engineer (sewer diversion etc.) BASIX energy assessment/compliance Further, consideration is now required for the desired appliances, fittings and fixtures in the kitchen, laundry, bathrooms and shower rooms. Please call to arrange a meeting at your convenience. Yours faithfully, Karl Romandi 44On 16 February 2009 the defendants forwarded a letter of in the following terms: Dear Karl 1 Hunter Street, Woolwich I refer to the proposed development of our home at 1 Hunter Street, Woolwich. Unfortunately, it is with regret that I now confirm that due to unforeseen circumstances we are unable to continue the project. As you would well appreciate this decision has been extremely difficult to make, but regrettably, we have been left with no other option. In accordance with your proposal letter dated 1 November, in circumstances where the project is abandoned your "fees will be based on the actual work done". Accordingly, would you please forward to us a schedule detailing the actual work done to date plus any disbursements made on our behalf, so that reconciliation can be completed. We are extremely disappointed to have to make this decision at this time, and thank you for your contribution to date. Yours sincerely Phillip & Melissa Guest (emphasis added) 45Later that evening the following email was sent: Dear Karl When you called today it was a bit difficult for me to talk freely, so I thought I should drop you a quick email confirming our discussion. It is unfortunate that we have had to make this decision to stop the project but we had no other option, I am sure you will appreciate that it has not been easy for us. As discussed there were a number of factors that we have had to consider when making the decision including the changed market conditions as a result of the global economic crisis and the estimate of building cost being well in excess of our budget. Both of these factors were discussed with you previously. In accordance with our discussion and our letter of today, please prepare a reconciliation of your fees and forward these to me as soon as possible, at either this email address or our home address. I note also that we still have not received the final A1 plans from the last Conservation Advisory Panel meeting, despite you advising me that you would provide these for our review and comment over the Christmas break. Given our decision to stop the project these will no longer be required. We thank you again for the work you have done and hope that should our circumstances change in the future, we may be able to consider recommencing the project. Kind regards, Phillip Guest 46On 25 February 2009 the plaintiff responded in the following terms: Dear Melissa and Phillip, Your email and hand delivered letter of February 16 was received with surprise and disappointment. Circumstances precipitating your decision to abandon the project at this advanced stage are understandingly (sic) regrettable however we find it hard to contain our frustration. This is because the whole team here has been tirelessly working with great expectations of a worthwhile result that would have been a beautiful and interesting home for you and your family and a jewel in the built fabric of Hunters Hill. Indeed the positive responses from you and Council's advisory panel had been so promising that a good outcome was expected. Nevertheless we confirm your decision to abandon the project as requested and as required by our contract our reconciled account and tax invoice is enclosed. Furthermore please be advised that we understand that you have all the latest drawings. The documents presented to CAP were exactly the same as those submitted shortly before the DCU. Council's heritage advisor referred these same plans across for review. However late changes to the vehicle entry were submitted as a variation at the CAP meeting on the night and you may well not have the latest on this. You will recall however that this variation to the vehicle entry was well received by CAP and subsequent site inspections by Council confirmed this. A copy of the amended plan is available on request. Yours faithfully, Karl Romandi 47It does not appear that this chain of correspondence was the subject of any testing in cross-examination of the defendants or that the more general question as to whether the defendants had withdrawn instructions in November 2008 was averted to in their affidavit evidence. This may explain why the evidence to which I have referred was not the subject of comment or analysis by the Magistrate. 48In dealing with the issue of the plaintiff's claim for fees after November 2008 her Honour said as follows: [45] Unfortunately the Guests did not become aware of the costs blow-out until November 2008. They quickly made it clear that they needed more information before they could proceed. There is a notation in Mr Romandi's diary on November 6 2008 (p154 Romandi exhibit) that suggests he understands the gravity of the situation. Mrs Guest "wants out" and the project will slow down. However work continued over the Christmas period and did not stop until February 2009. It is difficult to understand why such significant costs are incurred when the Guests had clearly requested further information. [46] The fee agreement stated that the contract was to be reviewed in November 2008. In my view the Guests clearly expressed a wish for no further work until they had more information. The plaintiff says the review term should be given little weight. They say it was a kind of option that was never exercised. There seems to me little support for this submission. 49When read in its entirety I regard the correspondence extracted above as compelling the conclusion that the defendants actively participated with the plaintiff in progressing the project after November 2008, and that work was done with their knowledge and approval after that date, and that it was only in February 2009 that they abandoned the project having apparently determined that they could not afford to realise the scale of their home renovation for financial reasons. While it was open to her Honour to give emphasis to the defendants' request for information (see [35] above) it would appear to me that they were provided with information of various kinds after that date including bearing upon financial matters related to the project. Similarly, while Mrs Guest conveyed her wish to withdraw from the project in her telephone call on the afternoon of 6 November 2008, this was countermanded and, in the plainest terms, in the email sent and signed by both her and her husband later that evening. Her Honour's failure to refer to this email and the correspondence that flowed thereafter has resulted in a serious misstatement of the evidence such as to constitute an error of law. In the result, I am persuaded that she was in error in discounting the plaintiff's claim for services rendered after 17 November 2008. 50In further support of the first ground of appeal the plaintiff also submitted that the Magistrate was in error in disallowing, or failing to allow, for the plaintiff's claim for disbursements in the amount of $2,346 as per the first invoice. Since her Honour made no reference to the claim for disbursements (or it would seem made any allowance for it), it is not clear whether it was accounted for or overlooked. I am of the view that full allowance should have been made for disbursements. The subsidiary grounds of appeal Was Ms Harrison a CAD operator? 51On the appeal the plaintiff submitted that he was entitled to recover unpaid fees by reference to the scale of fees which formed part of the written agreement, such that the employee occupying or holding the position of CAD operator (Ms Harrison) was properly charged out at an hourly rate of $100 and that her Honour was in error in allowing only $75 per hour for the work she did. It was accepted for the purposes of the appeal that a CAD operator manipulates a software program that enables two-dimensional line drawings to be reproduced in a three-dimensional digital image. This is a skilled operation that was employed in preparing and modifying the plans in Stages 1 and 2 of the four staged process specified in the agreement and, as the evidence would strongly suggest, a task performed by Ms Harrison. Her name attaches to the plans tendered in evidence. 52It was not in dispute that Ms Harrison was a skilled CAD operator and that she was a graduate in architecture (although not at the relevant time qualified to work as an architect). It was also not in dispute that she assisted the plaintiff on the project in a variety of ways and for significant periods of time. According to the plaintiff's invoice she worked on the project 84 per cent of the total time charged for calculated on an hourly basis. The question for the Magistrate was whether the plaintiff was entitled to charge the defendants for Ms Harrison's work at $100 per hour, irrespective of whether she was employing the particular skills of a CAD operator or attending to other work on the project, for example attending site meetings, preparing and assembling photographs, delivering plans and meeting with Council, and whether in that case she was should have been charged out on the agreed rate of $75 which is assigned to an "architectural assistant" under the agreement. 53The Magistrate allowed a rate of $75 per hour for all work done by Ms Harrison on the project. This was consistent with her finding that Ms Harrison was described by the plaintiff as his assistant and because she regarded the evidence as insufficient to permit of a finding as to when, or if, Ms Harrison worked as a CAD operator on the project. 54Although, as I have noted, there is evidence that Ms Harrison was involved in production of the plans by being nominated as the CAD operator on the plans themselves, her Honour's findings are not susceptible to challenge as amounting to an error of law simply because there was some evidence that she was a CAD operator or that I might regard this evidence of weight. Her Honour went on to observe that Ms Harrison did not give evidence and there was no evidence from the plaintiff as to her qualifications. 55The agreement expressly provided for a CAD operator to be charged at an hourly rate between $75 and $100 an hour "depending on salary". Although the dispute before the Magistrate was whether the evidence supported the conclusion that Ms Harrison was a CAD operator at all such as to justify her being charged out at $100 an hour, on the appeal the plaintiff's counsel submitted that in construing the agreement, the real question was whether her salary justified Ms Harrison being charged out at the upper limit of the range provided for in the agreement. 56The difficulty that the plaintiff faces on the appeal (as he would have done were the matter agitated before the Magistrate which it appears not to have been) is that there is simply no evidence of Ms Harrison's salary. The plaintiff's counsel submitted that had it been raised with the plaintiff in cross-examination it could have been remedied. While that may be true, the plaintiff had the burden of proving that the work actually done by Ms Harrison was referable to the scale fixed in the agreement and, it would seem, he did not give or call evidence bearing on that issue. The fact that the defendants' counsel put a question in cross-examination that appeared to assume the correctness of her rate being $100 per hour does not overcome the deficiencies in the way the plaintiff proved his case. 57I am not persuaded that her Honour's findings of fact on this issue, based as they are on her assessment of the evidence, are susceptible to challenge on the appeal as amounting to errors of law. The highest the plaintiff's counsel put it in oral submissions was that the inference her Honour drew from the evidence to ground her conclusion that Ms Harrison was not a CAD operator (or to satisfy her that the plaintiff had failed to prove that she was) was unreasonable. This is an insufficient basis to amount to an error of law for the purpose of a statutory appeal. Accordingly, I am not satisfied that her Honour was in error in discounting the amount claimed by the plaintiff referable to the hours worked by Ms Harrison. Did the Magistrate err in determining the issues raised by the cross claim? 58The defendants sought various forms of relief in the cross clai m: (a) The return of monies paid to the plaintiff on the contract being abandoned and on the basis of a total failure of consideration since the project works were not completed and the architectural services provided by the plaintiff were of no value or benefit; (b) Damages for breach of the term of the agreement that the project would be completed within a $1 million budget and that the plaintiff's fees for services would be charged relative to that amount and; (c) Damages for misleading or deceptive conduct under the Trade Practices Act . 59When her Honour came to consider the cross claim she had resolved (b) and (c) above adverse to the defendants as cross claimants having effectively failed to find their defence to the statement of claim made out on the evidence. Although the plaintiff agreed in his defence to the cross claim that the contract was abandoned in February 2009, he disputed the balance of the matters alleged in (a) above. That is, he put in issue whether there was a total failure of consideration. 60Her Honour did not give any consideration to the legal basis for the claim for relief in (a) above save for stating in her reasons that the cross claim seeks the return of the full amount paid to the plaintiff (namely the $56,485 paid in November 2008) and after taking into account what she determined as the proper amount due to the plaintiff (namely the $49,525 according to her calculations) he was ordered "to make restitution" in the amount of $6,960. 61The plaintiff submitted that her Honour's approach to the claim for restitution was contrary to law. It was also submitted that this error was compounded by her Honour's failure to provide any reason at all for finding the defendants were entitled to restitution in the full amount claimed and because she apparently determined the defendants' claim otherwise than on the basis of the pleadings thereby denying the plaintiff procedural fairness. 62The legal bases for recovery of money paid pursuant to a contract were recently considered by Johnson J in Peisley v Meddrell Management Pty Limited and Ors [2010] NSWSC 1477. At [57]-[59] his Honour recognised frustration, mistake or termination for fundamental breach as three doctrines of common law which use a total failure of consideration as the basis for the recovery of money paid pursuant to a contract that has been discharged. His Honour also emphasised the importance of determining whether the failure of consideration is "total" since recovery will usually be precluded where the defendant has received part of the agreed return (see Baltic Shipping Company v Dillon [1993] HCA 4 ; 176 CLR 344 and his Honour's discussion of the principle at [61] and the importance of determining whether the failure of consideration occurred when the obligations under contract are no longer enforceable at [59]-[61]). 63In this case what the defendants claim as grounding their entitlement to recovery of monies paid to the plaintiff in November 2008 is that the contract was abandoned in February 2009. On any view of what the concept of abandonment entails in the context of the agreement, no question of relief arises as a result of the doctrines of mistake or frustration. The question is whether her Honour was intending to grant relief on the basis that the plaintiff's services had been terminated. 64While for the purposes of the cross claim abandonment of the contract (the agreed position according to the pleadings) might be equated with termination of a contract for services as a matter of law, her Honour was obliged to consider each element or circumstance which created the obligation to repay the monies sought by the cross claim and, if so, in what amount, and to give adequate reasons for so finding. 65Given my finding that the fees were paid by the defendants in November 2008 on their understanding at that time that the project would be completed and that they participated in the project after that date, it is necessary to revisit the question whether the evidence permits a finding that there was a total failure of consideration (or a total failure of the agreed return). The correspondence extracted at [46] above certainly raises the issue as to whether plans, drawings or copies of the same were provided or made available to the defendants. It may well be that other evidence informs the question whether the failure of consideration (or return) contended for by the defendants was total. Certainly it was not a matter that attracted any finding by her Honour. Given that the claim for restitutionary relief is grounded in the assertion that there was a total failure of consideration, and that this is put in issue by the plaintiff's defence to the cross claim, he was entitled to have that issue determined and her Honour was in error in failing to do so. 66Since I am satisfied that error has been established in the way her Honour dealt with the cross claim and where proper consideration of that question has the potential to impact upon the final orders to be made in the proceedings generally (as does an appropriate recalculation of the plaintiff's unpaid fees given that the first ground of appeal is made out, albeit in part), I am of the view that the Magistrate's decision in its entirety ought be set aside and the matter remitted to the Local Court to be determined according to law and in accordance with this judgment. 67Accordingly, I make the following orders: 1. The appeal is allowed. 2. The judgment and orders of Grahame LCM of 20 December 2010 are set aside. 3. The proceedings are remitted to the Local Court to be determined according to law. 4. The orders as to costs made on 20 December 2010 are set aside. 5. The defendants are to pay the plaintiff's costs of the appeal. 6. The costs of the Local Court hearing are to be redetermined following further determination of the statement of claim and cross claim on remittal. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 October 2011