This article is from the Australian Property Journal archive
ARCHITECTS and builders should take more care when providing cost estimates because they could be sued for misleading or deceptive conduct under the Trade Practices Act.
Lawyers Blake Dawson partner Joanna Jenkins and Tanya Myint were commenting on the differing outcomes in two Supreme Court decisions.
Different outcomes were reached in Doepel & Associates Architects Pty Ltd v Hodgkinson and Karalis & Another v Archonstruct Pty Ltd & Others. Both cases considered whether architects were liable for misleading or deceptive conduct for allegedly underestimating costs for the construction of residential property.
In the first case, Hodgkinson engaged Doepel & Associates Architects to design a home which Doepel estimated could be built within the range of $390,000 to $400,000. After construction started, Mr Hodgkinson made a number of big changes which significantly increased the cost of building the house. The partially completed house was sold and realised a small profit.
Doepel claimed they had reasonable grounds for making the Doepel Representation but the Court rejected their argument and ruled that a rate for a “medium” standard finish was unreasonably applied when a “high” or “executive” level finish should have been assumed.
The Court also found Doepel’s assumption that Mr Hodgkinson would be entitled to trade discounts was unreasonably factored into the estimate.
Jenkins and Myint said Mr Hodgkinson was successful in establishing that the Doepel were negligent and had engaged in misleading and deceptive conduct.
“He proved that had it not been for the Doepel Representation he would have engaged a project home builder for $500,000. His loss was quantified by calculating the difference between the estimated sale price of the house had it been built by a project builder and the sum of the construction cost of a project home and the total cost of acquiring the land,” they added.
However in another case with a similar claim, the outcome was different where the court found in favour of the architect.
In the second case the Karalis’ consulted an architect Archonstruct about replacing their existing home with an architecturally designed model. The architect advised the house could not be built for less than $750 per sqm and could cost up to $1,000 per sqm depending on a number of factors.
When the construction costs reached $296,044 the Karalis’ stop paying Archonstruct as they had expected to pay only $270,000. The Karalis’ contested their liability to pay Archonstruct on the basis that representations were made that the house could be built for $270,000 was misleading and deceptive.
However the Court found that the architect had not made a conclusive representation about the cost of the house, the Karalises had not specified their budget to him and consequently rejected the Karalis’ claim.
Jenkins and Myint said the costs estimates provided by the architects in the two cases differed significantly.
In Karalis, the estimate was qualified by various factors: the complexity of the construction, the level of detailing required and the quality of the materials and finishes. Further, Archonstruct’s estimate suggested that his clients obtain an independent estimate.
The Court regarded the estimate as a “strong warning” about the possible costs of building and noted that “It is difficult to see how it can be said that Mr Carn (principal of Archonstruct) misrepresented the cost of the building when he had given blunt and strong advice… Mr Carn gave a very general estimate of the rate per square metre and it was expressly related to “a residence of this nature”.
By comparison, the architects’ cost estimate in Doepel contained specific exclusions: pool, landscaping, special equipment and furniture.
“If the Doepel representation had included a recommendation for the Hodgkinsons to obtain an independent estimate and contained general qualifications, the Court may not have regarded the estimate as conclusive,” Jenkins and Myint said.
So the lesson for architects or builders, Blake Dawson partners said is to exercise precautions when providing a cost estimate.
“Refrain from providing unqualified cost estimates for design and/or construction services and specify to the client that the cost estimate does not include variations to the scope of works or variations of a specified nature.
“Use a sufficiently broad estimate range and identify those factors which could have an impact on cost as well as recommend the client obtain an independent cost estimate or verification by another architect and/or builder and ensure the client’s price expectations are clearly addressed and documented from the outset,” they concluded.
Australian Property Journal
