Schrader v David Broach trading as David Broach Building Services [2023] NSWDC 97 

Andrew Hales  |  Mark Glynn  |  Tom Lawler

Key takeout

Clear provisions in a cost plus contract, to the effect that the estimated cost of works was of no contractual significance and the actual amount of the contract was not known at the date of contract, meant that any representations made by the builder to the owners prior to the owners’ receipt of the contract were not misleading or deceptive.

Facts

In December 2019, Jacqueline and Matthew Schrader (owners) entered into a cost plus building contract with David Broach (builder) for renovations and additions to their home. 

The first page of the contract stated ‘WARNING … the amount to be paid by the owner is not known as at the date of the contract’.  The ‘estimated cost of works and fees’ was stated to be $300,000 subject to the terms of clause 30′.  That clause included a statement that the estimate was not of any contractual significance and was not a representation as to the amount or approximate amount that would become payable by the owner. 

In January 2020, building work commenced.  In August 2020, the builder provided a revised estimate that an additional $352,000 was required to complete the works.  At this time, the owners had failed to pay a number of invoices.  The builder issued the owners a notice suspending the works pursuant to the contract.

In May 2021, the owners commenced proceedings in the District Court claiming the builder had engaged in misleading and deceptive conduct, unconscionable conduct, and breached its implied duty to act in good faith.

Decision

The court dismissed the owners’ claims which largely relied on their affidavit evidence as to what was said in conversations several years prior.  The court found this reliance raised difficulties because human memory is unreliable, diminishes with time and is susceptible to bias.

Misleading and deceptive conduct

The clear warnings in the contract changed the entire character of anything said about price up to the point at which the document was presented to the owners. This meant that any prior representations regarding price were not misleading or deceptive or likely to mislead or deceive. 

The court was not satisfied that given that the owners had read the contract containing the warnings, signed it and did not exercise their right to rescind the contract in the cooling off period, even if the representations were made, the owners had not relied on them.

Unconscionable conduct

In response to the unconscionable conduct claim, the court found that the case against the builder did not rise to a level that warranted condemnation of the builder as having acted in a manner offensive to conscience.  He may have been negligent or sloppy, but he was not deliberate or dishonest in his dealings with the owners.

Although the builder:

• breached the contract by failing to provide a budget report in accordance with the contract; and
• issued invoices in accordance with a pre-agreed payment schedule that met the owners’ financier’s requirements,

this did not imply the contract was for a fixed cost nor prevent the owners from querying costs at an earlier date, as submitted by the owners in support of their unconscionability claim.

This was because:

• the owners were on-site daily and could have raised an issue or query at any point; and
• the invoices were accompanied by spreadsheets which, though they did not comply with the contractual requirements for budget reports, did show the owners were being charged in accordance with a cost plus contract and were being charged in accordance with the contract for work carried out.

In addition, though the builder knew the estimate would likely be exceeded, it was not established that the builder knew the estimate would be exceeded or even ought to have known it would be exceeded.

Duty of care and implied duty of good faith

The owners claimed that the contract implied a duty of care owed by the builder to them in respect of the cost of the work. The court held that the extension of the implied duty of care term of the contract to the creation of an obligation to maintain an objectively ascertainable level of costs of the work, went well beyond the scope of previously decided cases. The courts have previously held that the usual content on an implied duty of care is an obligation to act honestly and fairly and not to undermine the substance of the contractual bargain.

The court also rejected the owners’ submission that the builder failed to act in good faith (for example, by not charging reasonable amounts for work performed).  The court found the costs charged by the builder were in accordance with the contract and the owners did not challenge the accuracy and validity of the costs incurred by the builder.