The real deal – successful appeal on misleading & deceptive conduct claim regarding alternative cladding solution

29 March 2023

The NSW Court of Appeal allowed an appeal against a decision dismissing a claim against a building company in relation to an alternative cladding solution and for defective work.

In issue

  • Whether representations made by the Respondents regarding the cladding material to be used under the contract for the supply and installation of a prefabricated house were misleading and deceptive.
  • Whether the appellants suffered loss or damage as a result of agreeing to a contractual variation in reliance on cladding representations.
  • Whether the appellants entered into the contract in their personal capacity or as trustees of their superannuation fund.

The background

The appellants, Floyd and Derek Larsen (the Larsens), are the trustees of the Larsen Superannuation Fund (the Fund). The Fund is the owner of a property in Glen Alice, NSW. In 2018, the Larsens entered into a contract with the first respondent, Tastec Pty Ltd (Tastec), for the supply and assembly of a pre-fabricated house on the Glen Alice property and the second respondent, Stephen Sainsbury, a registered architect and director of Tastec (Respondents).

The contract initially contemplated that the roof and walls of the house would be clad in a product called 'Maxline 340'. However, because of issues with the availability and feasibility of the Maxline 340 product, the parties executed a variation to the contract. By that variation, the parties agreed to change to a different cladding system using a product the Respondents referred to as 'Extraline 294'. However, it was common knowledge that the cladding manufacturer did not manufacture a product called 'Extraline 294'. Rather, the respondent used another product (which had previously been shown to and rejected by the Larsens) and customised it, by affixing a t-strip to the centre of each panel with an industrial adhesive in an upside-down position, so as to create the appearance required by the Larsens. Of particular significance, is the fact that the Larsens queried whether the panel was the same as that which they had seen before and rejected.

Subsequently, and in their capacity as trustees of the Fund, the Larsens brought proceedings in the District Court of NSW alleging a breach of contract and that both Respondents made misleading or deceptive representations about cladding material which caused the defective roof and wall cladding to be used, in contravention of ss18 and 29 of the Competition and Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law. They also alleged that the first respondent’s supply and assembly of the house was defective as to the roof and wall components, and in relation to windows and doors.

The decision at trial

The trial judge dismissed the Larsens’ claims. Her Honour made positive credit findings in relation to the second respondent and generally accepted his evidence. In contrast, each of the Larsens was found to be a difficult witness and their evidence was rejected where it was contradicted by a contemporaneous document or an otherwise reliable witness.

Her Honour found that there was no contractual relationship between the Larsens and the Respondents in respect of which they could bring a claim because they contracted with Tastec in their personal capacity. Alternatively, it was held that their claim failed on various other bases, including that the Larsens had failed to establish either damage and/or causation in respect of their various contractual claims related to defects in cladding, windows and doors. Significantly, Her Honour also concluded that the Larsens failed to establish that the Respondents had made false or misleading representations on which the Larsens had relied to their detriment.

The issues on appeal

There were numerous grounds of appeal submitted by the Larsens including that that Her Honour erred in dismissing the allegations that the Respondents had made false or misleading representations about the cladding which the Larsens had relied on to their detriment; that Her Honour had wrongly concluded that the Larsens had contracted with Tastec in their personal capacity and not as trustees of the Fund and further, erred in dismissing the allegations in respect of windows, internal doors and external doors.

The decision on appeal

The appeal was allowed. After re-examining the evidence, the Court of Appeal concluded that:

  • The trial judge fell into error in relation to the contractual findings. In circumstances where the Fund was the owner of the land on which the house was built, the Larsens could have had no capacity to enter into the contract with the Respondents other than as trustees of the Fund.
  • The trial judge did not err in dismissing the Larsens’ claims for loss and damage in relation to the doors and windows.
  • The appeal against the trial judge’s failure to find that the respondent owed the Larsens a duty of care pursuant to the Design and Building Practitioners Act 2020 (NSW) did not have to be determined because the loss and damage claimed rested on evidence which Her Honour rejected, and that rejection was not challenged on appeal.

As for the claim of misleading and deceptive conduct, it was found that the following representations were made by the Respondents:

  • The solution offered did not involve use of the product the Larsens had seen and rejected previously;
  • The 'Extraline 294' was a customized option which the cladding manufacturer had refined and was covered by the manufacturer’s warranty; and
  • The 'Extraline 294' was an equivalent or superior product to the Maxline product in terms of aesthetics and functionality.

Ultimately, it was held that:

  • The representations by the Respondents (aside from that relating to the manufacturer’s warranty) were misleading or deceptive or were likely to mislead or deceive, and were relied upon by the Larsens in deciding to proceed with the cladding solution ultimately installed.
  • The trial judge erred by failing to assess reliance at the time when the Larsens executed the variation to the contract which led to the change in cladding material. This error also infected conclusions reached as to the loss or damage sustained.

Implications for you

This decision highlights the care which should be taken by design and building professionals when negotiating contract variations with their clients. This is especially so given that the conduct of any person alleged to have engaged to be misleading or deceptive will be viewed as a whole1 and there is no requirement that the contravening conduct be the sole cause of loss or damage as it will suffice that the conduct 'make some non-trivial, material, or substantial, contribution to the decision of a claimant to act in a particular way.2' Accordingly, the importance of documenting all discussions and instructions about variations including involving particular products especially where parties have specific aesthetic and functional requirements cannot be understated.

Larsen v Tastec Pty Ltd [2023] NSWCA 39

[1] Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60.

[2] I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109; [2002] HCA 41.

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