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LawNote
Liability for overshooting the budget
1.
In brief
A recurring problem for architects and their
clients is that sometimes the tender for a
building or its actual construction cost
exceeds the client's budget. It does not
necessarily indicate that the architect has
breached the conditions of engagement.
There may have been an external factor, such
as inflation in the cost of building, to a degree
that could not reasonably be predicted, or the
discovery of a latent condition on site. More
commonly, the ultimate construction cost
exceeds the budget when the client asks for
additional features in a design which is
already near the budget limit. However, there
are occasions when the architect is found to
be at fault. The five cases discussed in this
note are examples of the problems that can
befall architects and their clients when the
budget is substantially exceeded by the actual
cost.
1982 and 1983 produced three cases which
examined the architect's duty regarding the
cost of building the project. Balnaves v
McLeay1 deals with a client/architect
agreement, the terms of which were left
mainly to implication. The client had a budget
limit, but the magistrate found that this limit
was not part of the architects instructions.
The case grapples with the duty of the
architect, in the absence of express terms and
an express budget limit, to keep the client
informed of likely cost.
Implications
3.
In detail
The much appealed Balnaves v McLeay
matter went first to the Local Court of
Adelaide, from there to a single judge of the
Supreme Court of South Australia, White J
and then to the Full Court of the Supreme
Court. In his judgment, White J referred to the
client as the 'former friend of the architect'; in
itself a cautionary tale.
Nemer v Whitford
This South Australian case was decided by a
single judge of the Supreme Court. In this
matter the architect was sued by his client.
The client sought an order that the original
client/architect agreement should be set
aside, for return of money paid to the architect
by the client and for damages, costs and
other relief. The main issue was whether the
architectural services rendered were within or
outside the terms of the client/architect
agreement.
Sangster J stated the legal position thus:
6
7
Page 14 of transcript.
Emphasis added.
Emphasis added.
[1982] 31 SASR 475, 477.
[1982] 31 SASR 475, 479.
13
Comment
It was found that the architect's negligence
had led his clients into debt. They would not
have continued with the project had they been
given accurate information about its cost, so
by providing inaccurate information the
architect caused his clients to make the wrong
decisions and was thus the true author of their
loss. The measure of their loss was the
difference between the amount outlaid and
the amount recovered, given that the clients
were forced to sell their house. However, at
one point in the judgment his Honour
introduced another element. He said:
Quantification of damages
His Honour accepted evidence that the
architect became aware, possibly as early as
July 1976, that labour and materials excluding
a heater would cost approximately $81,000;
hence the total cost with the heater and the
builder's 10% margin would be not far short of
$100,000. This information was not passed
on to the clients. Rather, the architect assured
them that the house could be completed for
$70,000 in October 1976. This was the first
time the architect had mentioned any figure in
excess of $58,300 (that is $53,000 plus 10%)
and the architect urged the clients to proceed.
This circumstance is relevant in considering
the reasonableness of their decision to
complete the house.
His Honour did not allow interest on a
solicitor's mortgage of some $6,390 as they
would not have been in a position to pay out
from the sale of their first house had the
architect's estimate of $58,300 been accurate.
The architect's budget was never intended to
cover the cost of furnishings and fittings,
driveway, garden improvements and the
architect's fee.
The bank charges, however, were
recoverable. It was the architect's breach
14
Page 15 of transcript.
Page 18 of transcript.
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He concluded:
Comment
The Full Court was willing to draw an
inference that the Practice Notes said that an
estimate which was inaccurate by more than
10% was prima facie negligent. While this
inference is open to challenge, it is
noteworthy that the Full Court was unwilling to
rely on this inference from the Practice Notes
without further evidence.
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8.
23
Page 41 of transcript.