(2) even where there was no direct evidence of request, direction or authorisation, if it were shown that Como Hotel had accepted work knowing that it was a variation, then he could infer the existence of an agreement, sufficient to satisfy clause 8, for the performance of that variation.
40 Put shortly, the referee was saying that either direct evidence of an agreement, or evidence from which the existence of agreement could be inferred, could prove, on the balance of probabilities, an agreement pursuant to clause 8 to vary the works. This approach seems to me to be consistent with the reasoning of the High Court of Australia in Liebe v Molloy (1906) 4 CLR 347. That was a case of a building contract under which no claim for extra work would be recognised unless it were directed in writing, signed by the architect and endorsed by the proprietor. There was a claim for extras which were not so directed. Griffith CJ, who gave the judgment of the Court, said at 353-354:
"… The question therefore is whether, notwithstanding the absence of written orders, the contractor is entitled to recover these sums, or in other words, whether under the circumstances of the case an implied contract to pay for them is to be inferred. That is an inference of fact to be drawn by the tribunal which is called upon to determine the matter, that is, the umpire. Now, the only fact found is that the employer had such knowledge as to these works as may be fairly inferred from the fact that he was constantly on the work, and taking an active interest therein. But a further inference must be drawn before a liability to pay arises, namely, that there was an implied contract to pay. It might be inferred, on the one hand, that, having regard to the nature of the works, the fact of the owner's presence, and the nature of the interest he took, he knew that they were outside the contract, and knew that the contractor expected to be paid for them as extras. On the other hand, it might be inferred as to all or some of them that he did not know that they were extras, or did not know or believe that the contractor expected to be paid for them. … An implied contract may be proved in various ways. When a man does work for another without any express contract relating to the matter, an implied contract arises to pay for it at its fair value. Such an implication of course arises from an express request to do work made under such circumstances as to exclude the idea that the work was covered by a written contract. So it would arise from the owner standing by and seeing the work done by the other party, knowing that the other party, in this case the contractor, was doing the work in the belief that he would be paid for it as extra work. If the umpire was of opinion that any of this work was done under such circumstances that the owner knew or understood that the contractor was doing the work in the belief that he would be paid for it as extra work, then the umpire might, and probably would, infer that there was an implied promise to pay for it."
41 However, the referee went further. He reminded himself in paragraph 164 of the relevant circumstances. They included the involvement of "numerous of the Defendant's consultants", and to the circumstance that "the Defendant's directors and shareholders [had] assorted types of participation". For those reasons, he said, "there would need, I think, to be "clear" agreement in respect of extra work." However, in saying this, the referee was directing himself to the quality of the proof that would be required to satisfy him. In other words, he was saying simply that, having regard to all the circumstances (including, prominently, the multiplicity or confusion of roles), he would need clear evidence to be satisfied in any given case that there was an agreement to vary. He was not, however, saying either that, as a matter of the construction of clause 8, "clear" agreement was needed; or that, contrary to the general rule, proof other than on the balance of probabilities was needed. Indeed, he made this clear when he said that the need for "clear" agreement "would involve, however, more the application, than the construction, of the condition."
42 In my judgment, the referee's analysis of clause 8, and his direction to himself as to the approach that he should take in considering, for each variation, whether there was sufficient evidence of agreement, were correct.
43 The referee further reminded himself of the need to take care in assessing the evidence when he said (again in paragraph 164) that he should see whether there was any conflict of interest arising because Messrs Hall and Parkes were directors of both the builder and the proprietor; and he concluded that there was no such situation.
44 In paragraph 165, the referee indicated the kinds of "clear indicia" from which he could infer agreement:
"165. I should, on this approach, be looking at situations involving extra work for clear indicia of the Defendant's involvement in any extra work such as changes called for by the construction certificate drawings when read against the Contract drawings, discussions with directors of the Defendant, directions from the Defendant's consultants or changes that were significant and obvious to persons connected with the Defendant on the site at the time."
45 In paragraph 166, the referee referred, in summary form, to features of the evidence (already detailed by him) that showed the extent of Como Hotel's awareness and acknowledgment "that significant extra work and extra costs were involved in the project".
46 Against that background, the referee turned (after considering other matters) to each disputed variation. In a number of cases, he indicated what it was that led him to find, either expressly or by inference, that there was agreement. In some cases, where variations were connected (so that the work comprised in one was, as the referee found, a necessary consequence of work comprised in another), the relevant finding was made only once.
47 In a number of cases, the referee indicated why he did not find that there was agreement. For example, in paragraph 192, he was not satisfied "that there was any involvement of any representative of the Defendant or any consultant in the decision" to carry out the work in question. Thus, even though the experts agreed that there had been a variation in the scope of work and on the cost thereof, he disallowed the claim. The same approach may be found (for example) in paragraph 212, where the referee did "not feel a sufficient persuasion on the material before [him] that there was an appropriate authorisation". On other occasions, the referee referred to disputed discussions, and failed to be satisfied, having regard to the dispute and his inability to resolve it, that there was authorisation: see, for example, paragraph 227.
48 In general, I am satisfied that the referee approached the problem in an appropriate and methodical way. It may very well be that, in any given variation, his statement of the evidence on which he found, or from which he inferred, agreement was brief. However, there were some forty two disputed variations to the scope of works and a further sixteen disputed variations relating to fit-out. (It may be noted that many of the disputed variations, in both categories, included numerous sub items.) The oral evidence occupied some fourteen days. I was informed from the Bar table, without dissent, that the documentary evidence was "voluminous". It would have been burdensome in the extreme for the referee to set out, in detail, the evidence that he relied upon to find agreement for each of the forty seven (out of fifty eight) variations that he found was justified. Given that his methodology was sound, and given that (as is conceded) there was evidence to support his conclusion of agreement in each case, it does not seem to me that the requirement to give reasons obliged the referee to set out, in minute detail, the totality of the evidence on which he relied in each case.
49 In a number of cases, the referee relied on the involvement of consultants to find that a particular variation had been requested, directed or authorised by Como Hotel. Como Hotel submits that the basis on which the referee found that the consultants were authorised to bind it is not made clear. However, at a number of places, the referee made it clear how, on his view of the evidence, the consultants were working together with representatives (usually directors) of Como Hotel: see, for example, paragraphs 265, 269, 277, 281 and 300 of the report. Further, as the referee made clear, the syndicate members were (not unnaturally) concerned at the claims for variations and at the resultant cost overruns. The topic was addressed at board meetings, meetings of syndicate members, and in correspondence. It is apparent that, on those occasions, the role of the consultants was mentioned. It may have been desirable for the referee to set out in more detail the basis upon which he was satisfied that directions from consultants were (or became) binding upon Como Hotel. However, I think, it is clear enough that the referee was prepared to infer agreement on the basis of the totality of the facts: including, as I have indicated, the relationship between consultants and representatives of Como Hotel and the apparent acceptance, by directors or by syndicate members as a body, of the fact that variations (including those directed by consultants) had been accepted. I therefore do not regard this as a sufficient reason for rejecting those paragraphs of the report where the only evidence of express authorisation is direction by a consultant.
50 A similar submission was put in relation to the referee's findings on requests, directions or authorisations by directors of Como Hotel. In this case, the referee's reasoning process is more apparent. It is clear that again he relied upon the entirety of the evidence, including the reports to and discussions among the board of Como Hotel and the syndicate members and the circumstance that, to the knowledge of the board and syndicate members, a number of directors were actively involved in giving instructions, to found his conclusions. I do not think that he erred in doing so.
51 In relation to both these matters, it is necessary to make particular reference to the role of Mr Young. He was a director of Como Hotel and the chairman of the building committee of the board. He was also the managing director of one of the principal consultants. The referee found that, when Mr Young through his firm gave instructions, he was not simply acting on behalf of that firm, but was also acting in his role as a director: see paragraphs 198 and 206. In my judgment, it was open to the referee so to find.
52 In summary, as to the challenges to the referee's findings and conclusions in respect of the clause 8 variations, I think that the referee properly directed himself as to the task that he had to carry out. I am comfortably satisfied that he properly explored and considered the factual issues. Accordingly, and in particular because it was not said that there was no evidence to support his conclusion, in respect of any given variation, that there was an agreement to vary, I think that this aspect of the report - paragraphs 154 to 166 and 174 to 242 - should be adopted.
53 For the same reasons, I think that the referee's conclusions in respect of the fit-out variations - contained in paragraphs 258 to 290 - should be adopted.
54 The referee also considered claims made by Parkes Constructions for fees payable to consultants (paragraphs 243 to 246) and fees paid to authorities (paragraphs 247 to 257). There was no challenge to those paragraphs of the report and they too should be adopted.
55 Finally, and arising from what I have said in the last two paragraphs, the referee's summary paragraph 291 should also be adopted.
The construction of clause 6
56 The referee held (report paragraph 167) that clause 6 "would not apply to work outside the contract drawing (and specification) which was called for by the Council, after the Contract, as a condition of giving a construction certificate or otherwise." Como Hotel submitted that the referee erred in law, saying (outline of submissions dated 6 March 2004, para 29):
"The very purpose of condition 6 is to provide a regime where work outside the contract scope is required by some regulatory body. The construction certificate was necessary before the work depicted in the contract drawings (which were the DA drawings) could be carried out. To the extent that they (like the DA itself) imposed requirements for additional work as a condition of the reconstruction of the Como Hotel, they triggered the operation of condition 6."
57 The referee's approach to the construction of clause 6 was based on the judgment of Priestley JA (with whom Samuels JA agreed) in Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20 NSWLR 251. That case concerned either the same or an earlier form of the BC3 contract that was used in the present case. Clause 6 of the two forms of the contract appears to be identical.
58 Priestley JA dealt with clause 6 at 273-274. First, he contrasted it with clause 8 (which again seems to have been identical to the present clause 8). He then said:
"By contrast with the consensual character of cl 8 variations, cl 6 was a clause under which obligations could be imposed on the builder. Clause 6(a) imposed upon the builder the obligation to comply with and give all notices required by any Act of Parliament or by any regulation or by law of any local authority or authority with jurisdiction with regard to the works, and also to bear any charges payable under such provisions, except those imposed after the date of contract. Presumably this sub clause dealt with matters bound to arise under such Acts and regulations and with such authorities from the actual work shown upon the contract drawings and described by or referred to in the specification and conditions referred to art 1. This subcl thus operated, for practical purposes, to make the builder allow in the agreed price for any costs of matters, within cl 6(a), arising from carrying out the unvaried contract. Clause 6(b) then turned to the possibility that compliance with subcl (a) might require variation from the contract drawings or specification and required the builder before making any such variation, to give written notice to the proprietor; subcll (c), (d) and (e) then spelt out procedures to be followed in cases where cl 6(b) applied. If the builder followed the procedures, extra cost under cl 6(b) would become payable by the proprietor.
Clause 6 thus dealt with the cost of what might be called for short, public authority requirements, imposed the cost of compliance with subcl (a) requirements upon the builder, and of compliance with other such requirements upon the proprietor, if certain conditions were fulfilled."
59 In my judgment, the question of construction of clause 6 is settled by the judgment of Priestley JA in Update. It is clear, from the passage that I have quoted, that his Honour regarded clause 6(a) as dealing with the impact of requirements of the relevant kinds on "the actual work shown upon the contract drawings and described by or referred to in the specifications and conditions …". Where compliance with those requirements did not require variation from the contract drawings or specification, then it was to be effected at the cost of the builder. Where it did require variation then, as long as the other provisions of clause 6 were satisfied, compliance might be at the cost of the proprietor. But in either case the question, as Priestley JA made clear, related to "the cost of compliance with subcl (a) requirements": ie, requirements imposed by an Act of Parliament, or by an applicable regulation or by law, on the actual work shown in the drawings and described in the specification and conditions.
60 Further, I think, the submission for Como Hotel is based upon a misreading of clause 6(a). Clause 6 does not apply "where work outside the contract scope is required by some regulatory body". It does not speak at all of the requirements of regulatory bodies. Clause 6 is concerned only with requirements of Acts of Parliament or applicable regulations or by laws. A regulation or by law will be applicable if it is one "of any local authority or of any public service company or authority which has any jurisdiction with regard to the Works or with whose systems the same are or will be connected". This does not mean that a requirement of such a regulation or by law is a requirement of the relevant local authority or public service company or authority. A requirement imposed by an Act of Parliament is not the same as a requirement imposed, by someone authorised so to do, under authority of that Act of Parliament. There is good reason why this distinction might be of importance. The requirements of legislation may be objectively ascertained and their operation and impact may be understood. The requirements of authorities acting pursuant to some legislative or quasi legislative power will often involve the exercise of discretions, which in turn will require the analysis and balancing of competing rights and interests. The former category of requirements is foreseeable; the latter may not be.
61 In my judgment, the referee directed himself accurately in his construction and application of clause 6.
Analysis: the referee's findings on the clause 6 variation
62 There were seven variations to which, Como Hotel submitted, the clause 6 regime was applicable. The referee rejected two of those claims for reasons other than non compliance with clause 6. As to a third claim (which comprised three components), the referee rejected two components because the evidence did not "persuade" him that they were valid variations; and in one case he found that "it may also have problems with condition 6".
63 The referee allowed the other claims in this category. He found that they did not come within clause 6 as he had construed it. As I understand the case for Como Hotel, it is not submitted that clause 6 would still be relevant if the referee's construction of it were correct.
64 It followed, on the referee's analysis, that the remaining claims fell to be considered as clause 8 variations. There was therefore only the necessity to prove, either expressly or by implication, an agreement for the work to be done. In each case, the referee found that there was such an agreement. In doing so, he followed the methodology that I have already described above in my analysis of his findings on the clause 8 variations.
65 In my judgment, the referee approached the correct question in an appropriate way. Since it was not submitted that there was no evidence of agreement (ie, it was not submitted that his conclusions as to agreement were not open to him on the evidence), I see no basis remaining to reject his findings. Indeed, even if the referee's (and my) construction of clause 6 were wrong, and the variations in question were caught by clause 6, the referee's conclusion on the agreements (although not his reasoning leading to that conclusion) would be supported by the decision of the High Court in Liebe (see para [40] above).
66 The result is that the relevant paragraphs of the report, namely paragraphs 292 to 303, should be adopted.
Omissions, Goods and Services Tax and loan interest
67 The referee considered these topics at paragraphs 305 to 308 of his report. There is an agreed arithmetical error in paragraph 305. That paragraph should be varied by substituting the figure "$49,471.50" for the figure "$55,862.50". There is no dispute as to that paragraph as varied, or as to paragraphs 306 to 308. They should be adopted (in the case of paragraph 305, as varied).
68 The mistake in paragraph 305 flows through into the summary paragraphs, 309 and 310. It is accepted that the item for "omissions" in paragraph 309 should be amended from $55,862.50 to $49,471.50. This flows through into the calculation of preliminaries, profit margin and GST. The figure for preliminaries should be amended from $193,936.65 to $194,895.35. The profit figure should be amended from $148,684.80 to $149,417.77. The GST figure should be amended from $163,553.28 to $164,361.74. The total should be amended from $1,809,318.10 to $1,818,211.23.
69 Paragraph 309, so varied, should be adopted.
70 The amendments to paragraph 309 flow through into paragraph 310. The amount for variations and loan interest should be amended from $1,809,318.10 to $1,818,211.23. The following sub total should be amended from $5,093,918.10 to $5,102,811.23. The total amount owing should be amended from $1,849,288.10 to $1,858,181.23.
71 Paragraph 310, so varied, should be adopted.
Interest up to judgment
72 The referee dealt with this question in paragraph 311 of the report. He referred to clause 17(f) of the building contract. He noted that none of the variations had been included in a progress claim during the currency of the project. He said that they were included in progress claims 8, 9, 10 and 11 and the final claim "to an incomplete extent". He doubted "that a situation exists where there were unpaid progress claims or an unpaid final claim in respect of those claims of Parkes Construction [sic] that were referred to him for enquiry and report."
73 The referee commented that "[t]his issue was not fully addressed before me". Nor was it before me. If the variations in question were not included in progress claims, so that (as the referee thought might be the case) there were no unpaid progress claims, and was no unpaid final claim, in respect of the amounts of those variations, then clause 17(f) would not apply.
74 I was not taken to any material that would demonstrate error in the conclusions, or tentative conclusions, to which I have referred. The issue was not specifically addressed in either parties' written submissions. It was addressed, briefly, in oral submissions.
75 Mr Faulkner SC, who appeared for Parkes Constructions, submitted that there had been a progress claim, within clause 17(a), that comprehended the variations that were the subject of the order for reference. He referred to a document, somewhat incongruously entitled "Final Claim" and dated 16 October 2001, that was part of the material tendered by consent before me. It is not apparent on the face of that document that it included the subject claims. It is, however, apparent that the document could not have been what it was described to be, namely a final claim. That is because, under clause 23, the final claim is to be made once the defects liability period has expired, and any defects notified during the course of, or at the end of that period have been rectified: something that, on any view, had not occurred by 16 October 2001.
76 Mr Webb SC, who appeared for Como Hotel, submitted that clause 17(f) of the contract was not applicable because there was not, in terms of clause 17(a), a claim for a payment "made progressively during the execution of the Works".
77 The referee's finding in paragraph 311 supports Mr Webb's submission. It follows that there is no entitlement to interest under clause 17(f).
78 In the circumstances, interest on the amounts outstanding should be calculated under s 94 of the Supreme Court Act in accordance with the rates specified in Schedule J to the Supreme Court Rules.
Conclusions and order
79 The report, varied in the manner referred to above in relation to paragraphs 305, 309 and 310, should be adopted. Como Hotel is liable to the plaintiff in an amount of $1,858,181.23, together with interest at Schedule J rates, and less the conceded amount of $576737.46 for which there has already been judgment pursuant to Pt 18 r 3.
80 I direct the parties to bring in short minutes of order to give effect to these reasons.
81 I will hear the parties on costs.