A recent decision of the NSW Court of Appeal illustrates that even if a plaintiff proves professional negligence, the next hurdle is proving causation.
In Morris v Leaney  NSWCA 95, the Court found that the architect had breached his duty of care to the plaintiffs, however, the claim was not successful because the plaintiffs failed to establish causation – that is, that the architect’s breach of duty caused the particular loss or damage complained of.
Mr and Mrs Morris retained Mr Leaney, an architect, to design home renovations. Mr and Mrs Morris’ objectives were an extension to their house as well as a pool, tennis court, and sauna. They indicated that their initial budget was $300,000.00. Mr Leaney advised that they could not achieve what they wanted within that budget.
In April 2015, Mr Leaney provided Mr and Mrs Morris with an “opinion on probable costs” for a preliminary design that estimated the cost of renovations as $590,000.00 excluding GST and other items. Mr and Mrs Morris subsequently revised their budget to $600,000.00.
In October 2015, a builder provided a quote for the renovations of between $550,000.00 and $600,000.00 excluding the pool, sauna, tennis court, a driveway, and other works.
In December 2015, Mr and Mrs Morris retained another builder on a costs plus basis.
In June 2016, the builder advised Mr and Mrs Morris that the costs of achieving their objectives would exceed $1,000,000.00.
The renovations ultimately cost Mr and Mrs Morris $780,000.00, but only increased the value of their home by $330,000.00.
District Court Proceedings
Mr and Mrs Morris sued the architect, Mr Leaney, for a breach of section 18 of the Australian Consumer Law alleging, that in April 2015, he expressly represented that they could achieve their renovation objectives for $600,000.00. Mr and Mrs Morris also sued Mr Leaney in contract and tort alleging he had breached his duties to advise them about the likelihood of achieving the renovations within their budget.
In the District Court, there were a number of factual disputes about the meetings between Mr and Mrs Morris, and Mr Leaney. The primary judge resolved the dispute by accepting the architect’s evidence. His Honour did not accept Mrs Morris’ evidence that $600,000.00 was a maximum and final budget, or the only basis on which they would have proceeded with the renovations. The judge therefore rejected that Mr Leaney had made any representation in breach of section 18 of the Australian Consumer Law.
However, in relation to negligence, the primary judge found that Mr Leaney breached his duty in failing to advise Mr and Mrs Morris about the likelihood of achieving the stated budget and time requirements. The primary judge did not specify what advice should have been given or make a finding about whether Mr and Mrs Morris would not have pursued the renovations had the duty been complied with. Mr and Mrs Morris’ evidence about what they would have done if adequately advised was inadmissible pursuant to section 5D of the Civil Liability Act.
The primary judge found that at least by October 2015, Mr and Mrs Morris either did or should have known that the likely cost of their renovation plans would have well exceeded $600,000.00 if not $800,000.00. Not withstanding the breach of duty, the primary judge determined that Mr and Mrs Morris did not suffer any loss because they got exactly what they paid for and had not established that they are any worse off than they would have been had the architect not breached his obligations under the retainer. Mr and Mrs Morris only received nominal damages for breach of contract.
Mr and Mrs Morris appealed to the Court of Appeal.
On appeal, the Court considered the counterfactual, that is, what Mr and Mrs Morris would have done if the architect had properly advised them about the likelihood of achieving their objectives having regard to their budget, and the appropriateness of the building contract that Mr and Mrs Morris entered into with the builder on a costs plus basis.
The Court of Appeal referred to the quotes from the builder to determine that from at least October 2015, it was bordering on the impossible for Mr and Mrs Morris to achieve their objectives for under $600,000.00 and they could not establish any reliance upon the failure to advise them by the architect. The Court noted they were aware that the budget would exceed $600,000.00 but continued with the project.
The Court of Appeal determined that factual causation would not be established as the only specific means of discharging the duty by the architect was to warn Mr and Mrs Morris in writing to obtain an estimate from a properly qualified professional. If that advice had been proffered, then the evidence, the Court of Appeal found, would not permit a conclusion favourable to Mr and Mrs Morris that they would have sought that advice. On the contrary, Mr and Mrs Morris would not have sought the advice because they were determined to start the building work quickly and even if they had sought advice, there is no evidence as to what the outcome of any such enquiry would have been beyond them learning what they already knew from the builder’s quote. The appeal was therefore dismissed on that ground.
The plaintiffs ran a no transaction case, that is, they alleged they would not have proceeded with the renovations had they received correct advice from their architect. In examining the issue of causation, the Court of Appeal considered evidence about what the plaintiffs would have done absent the negligence, that is, what the correct counterfactual hypothesis was. This analysis showed that the negligence had made no difference to the plaintiffs’ loss. The Court determined that the plaintiffs would have proceeded with the renovations even if they were advised differently.
This decision reaffirms the importance of assessing cases not simply on whether negligence has occurred but whether there is a causal connection between the negligence and the loss.
Kristy Nunn is a director of the Dispute Resolution & Litigation Group at Mullane & Lindsay. Mullane & Lindsay have extensive experience in professional negligence claims.
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