31 Thus ADC claimed that the whole of its expenditure on the Quadrant project after the steel contract was entered into was damage occasioned "by" the contravention of s 52 and that it was entitled to recover that expenditure after allowing for the value it had received. However Einstein J upheld the second referee's finding that this expenditure had not been caused by the contravention. The referee summarised his conclusions as follows:
"If there had been no breach of section 52 … it seems to me that, on the balance of probabilities, ADC would have entered into a similar contract with ACT for the construction of the residential tower in concrete for about the same price and that, in the circumstances, ADC suffered no loss as a consequence of WIL's breach of section 52".
32 Mr Jackson QC challenged the factual and legal bases for this finding. It will be convenient to deal first with the factual challenge, but this can only be understood against the background of events since 1983.
33 A 99 year lease over Block 5 Section 8 Canberra City, which became known as the Quadrant project, was purchased by Permanent Trustee Nominees (Canberra) Ltd at auction on 26 July 1983 under arrangements with ADC and a third party. The lessee was required to erect major office and residential buildings on the site and the lease provided that building work would be commenced within 12 months and completed within 36 months. The arrangements with the trustee company and the third party did not proceed and ADC acquired the lease for $2 million in October 1985.
34 The building had to be completed by July 1986 but in June that year construction had not even commenced and the Department of Territories was threatening to forfeit the lease. ADC made lengthy written representations to the Minister on 16 June, 15 July and 4 August 1986 to pre-empt moves to terminate the lease. However on 21 November the Department gave ADC notice of the Commonwealth's intention to determine the lease for failure to comply with the development conditions. On 24 November Mr Ward, a Director of ADC, again wrote to the Department seeking further time to comply with the conditions. The letter stated: "We have a builder ready and keen to commence construction".
35 Shortly afterwards Mr Amann sent a memo to Mr Ward stating that WIL could start in about two weeks. At the beginning of December the Department agreed in principle that an extension would be granted if ADC provided a bank guarantee that construction would commence by 31 March 1987.
36 On 4 December ADC wrote to the Department stating that on information supplied by WIL it was in a position to commence work prior to 1 April 1987 subject to obtaining the necessary approvals.
37 On 24 December the lease in the name of Permanent Trustee Nominees (Canberra) Ltd was determined and a new lease was granted to ADC Ltd for a term of 96 years. Building work was to commence on or before 31 March 1987 or damages of $1 million would be payable. Completion of the building was to take place on or before 1 March 1989 or within such further time as may be approved in writing. On acceptance of the lease a bank guarantee had to be provided for the $1 million damages.
38 The building was originally designed for the use of reinforced concrete in the slabs and columns of the residential tower. On 28 June 1985 ADC received the original tenders. The WIL tender was $17,900,000 subject to rise and fall and other conditions. It was by far the cheapest. The other six tenders were between $3 million and $4.8 million more. ADC entered into negotiations with WIL to identify cost savings. On 14 August 1985 WIL submitted to ADC a schedule of cost savings totalling $1,150,878 based on revised floor plans.
39 By June 1985 ADC had incurred costs on the Quadrant project in the vicinity of $2 million. On 9 January 1986 Mr Ward, in a memorandum to Mr Fischer, referred to "the danger of losing the site and moneys we have already paid". On 13 May 1986 WIL submitted a "firm price" offer of $16,003,634 for the project, subject to various conditions, one of which involved a reduction of the car park area at a saving of $933,500.
40 ADC was again in contact with WIL during November/December 1986 and negotiations began in earnest on 5 January 1987. WIL indicated that its price was $18.1 million but the use of structural steel for the residential tower was already under consideration. This followed a conversation between Mr Amann and Mr Fischer in late November or early December (Red 2/454-5). On 28 January WIL advised ADC of its revised final offer of $18,485,000 based on the use of structural steel.
41 The contemporary documents indicate the urgency with which ADC approached the negotiations. Notes of the meeting of 5 January taken by Mr Hook of WIL state "a substantial start must be made by 31/3/87 otherwise ADC lose the site" (Red 2/439). This must have been said by Mr Ward, the only representative of ADC present. The same concerns were repeated in the letter ADC wrote to WIL on 21 January which stated "it is important that the contract provides that the project will be commenced by 31 March 1987, when practical work must be commenced - initial sheds and staff on site. This is a condition imposed under the lease" (Red 2/443). Letters ADC wrote to Rex Hotels on 5 February, 6 February, 10 February and 12 February all made the same point (Red 2/445, 446, 447 and 448).
42 The second referee accepted WIL's written submissions on this question which included the following:
"It is quite clear that the historical reasons for the dealings with the White Group had nothing to do with the building of the residential tower in steel. The White Group was well regarded by ADC and had proved expertise in building in the Canberra area and elsewhere. Most importantly of all, it was the lowest tenderer in the 1985 tendering process. The price at which it was prepared to build was a price which ADC was prepared, albeit reluctantly, to accept. Its price was indeed the only one which ADC was prepared to contemplate accepting. The other prices were right out of the question. This made the White Group the logical choice for the contract".
43 By January 1987 the White Group was the only builder in the field and when ADC sought a check price from Leightons, the second lowest tenderer, that company declined to give one.
44 The hypothetical situation that would have arisen if Mr Amann had not made the misrepresentations (para 5 above), or if Mr Fischer had not accepted them, was the subject of much evidence in the second reference. The referee referred extensively to the evidence of Mr Fischer and quoted the following evidence from Mr Amann:
"If I had been instructed to calculate the tender price on the assumption that the residential building was to be constructed using reinforced concrete rather than structural steel, but with the building otherwise being the same in all respects … the tender price which I would have calculated would have been lesser (sic) than the tender price submitted to ADC by $66,710".
45 Reference has already been made (paras 14-20) to the challenge by ADC to the second referee's first report on the causation issue, to Mr Huntstead's evidence, the direction for a further report, that report, and Einstein J's decision to adopt both reports.
46 Mr Jackson QC for ADC took the Court in some detail to Mr Huntstead's evidence and submitted that it was unambiguous and did not disclose any confusion. In cross-examination he had been asked to review Mr Amann's calculations on a hypothetical price for a concrete building. Mr Huntstead accepted Mr Amann's calculations but said that any alternative price tendered by WIL would not have been based on those calculations by Mr Amann. He said that WIL would have calculated the price for a concrete building from scratch.
47 Mr Jackson submitted that there was no evidence as to what WIL's price "from scratch" for a cement building would have been, and no basis for asserting that it would have been a non-viable price of $20 million. In particular Mr Jackson submitted that it was not open to the referee to ignore the evidence of Mr Huntstead because of "some confusion and misunderstanding during cross-examination … in relation to the change back from steel to concrete". He said that the referee's second report did not adequately deal with ADC's objections to the first report, and Einstein J should not have adopted both reports.
48 The relevant evidence of Mr Huntstead in cross-examination and re-examination appears at Black 3 between 842 and 856 and was interrupted by considerable legal argument. Mr Huntstead said he had been responsible for what was referred to as the tender to ADC in January 1987 and had been concerned to see that it had been competently prepared and that the figures were soundly assessed (842). At the time he had complete confidence in Mr Amann (846). He said that if WIL had been asked to submit a price for a concrete building at that time "I most likely would have gone back to square one and had the job re-tendered from scratch because what you are doing here is that you're making adjustments upon adjustments and therein lies the potential for arithmetic and logic mistakes" (843). Later at 846 he said:
"… as I said earlier, I would have probably, and I'd say now almost certainly, have re-tendered the entire project if it was to be considered only in concrete from square one from scratch in the original documents and re-tendered the whole project based on the concrete option with a concrete duration and - etc".
49 He agreed with Mr Amann's methodology and figures for adjusting the steel price to a concrete price as a 15 minute exercise but said again that such calculations "would not be the basis of a detailed estimate and submission" (847). At the time they were chasing work (847). He said: "The whole scope of works would have been changed to a degree where we would have had to have gone back and re-tendered" (848).
50 The position was clarified, or perhaps changed, in re-examination. At 851 he said:
"Q: In other words may we have it clear what did happen when Amann recommended that the steel be used in respect of the actual tender that went in in 1987? Was it the result of going back to scratch in part, in whole or what was the situation?
A: In part; it would have been going back to square one in part.
Q: In part?
A: Yes. A lot of work goes into a tender in terms of a number of different areas and if a tender is varied by a particular amount, such as concrete slabs in this case, you would go back and you would work out what the original concrete was, the original formwork was on the original design, price up a new design based on the new formwork allowance, the edge strips, the stairways, the columns on the new scheme and re-price it from scratch. So whereas the whole tender wouldn't be re-priced from scratch , the whole element of concrete formwork and reinforcing steel would be looked at and an adjustment made on that component of the work.
Q: You have been saying this morning that something would have caused you to go back to scratch; is that in whole or in part that you were speaking about this morning, first of all so far as the change?
A: Once again, we would have gone back to scratch. We wouldn't have probably looked at things like windows or doors or things like that, but we would have looked at the structural component again of the building.
Q: So you mean in part, do you -
A: In part.
Q: Rather than in whole?
A: Yes". (emphasis supplied)
51 When Mr Rayment QC sought to take the re-examination further Mr Liney objected (852) and legal argument ensued which included the following exchange between Mr Rayment and the referee (855-6):
"Mr Rayment: Well at least it's been clarified a little bit … I really want to clarify some answers that my learned friend has taken.
The referee: I thought, from what I heard of his evidence, that he made it pretty clear on that question.
Mr Rayment: But he was assuming the change.
The referee: What he would do, what part he would go back to scratch on.
Mr Rayment: Oh, yes, he made that clear.
The referee: Change in the structure.
Mr Rayment: Yes. He made it clear that he would be looking at only the relevant bits.
The referee: Yes. That's what one would normally expect.
Mr Rayment: Yes.
The referee: I uphold the objection.
Mr Rayment: Then I have concluded the examination-in-chief ". (sic)
52 The building comprised a 3 storey office block, 20 storey residential tower, and an underground car park. The hypothetical change from steel back to concrete would have affected the basic structural components of the residential tower and not the other parts of the project.
53 It had become clear during Mr Huntstead's re-examination that he was not suggesting that a change back from steel to concrete in January 1987 would have triggered a complete re-costing of the entire project from square one but that WIL would only have looked again at "the relevant bits".
54 Einstein J considered the significance of Mr Huntstead's evidence in his first judgment (Red 1, 263-285). The referee's conclusion that but for the contravention of s 52 ADC would have continued to deal with WIL, and would have entered into a concrete contract at a comparable price, was supported on other grounds. Mr Copping, a quantity surveyor, said that adjusting ADC's 1985 tender price for cost increases and design modifications to January 1987 resulted in a notional concrete price of $20 million (271). The making of a firm offer by WIL at this price would only have required it to continue quoting as it had done between June 1985, when its original tender was submitted, and May 1986.
55 Reference has already been made to the fact that WIL was the only builder still interested in the job, that it was anxious to secure more work, and that ADC was most anxious to enter into a contract with a suitable builder so that construction could commence by 31 March 1987. If ADC failed to achieve a commencement of construction by 31 March 1987, it faced the forfeiture of its lease, the loss of its investment in the site which, as at 24 November 1986, was already $3.1 million (Red 2/431), and the calling up of its bank bond for $1 million.
56 ADC's submission that Mr Huntstead's evidence established that a reversion from steel to concrete in January-February 1987, and the re-costing of the work from scratch would have brought to light the serious under-pricing in the steel quote lacks reality. The errors in WIL's original tender were not discovered in the course of re-costing the job or parts of it on several occasions during 1985 and 1986. Moreover, as Einstein J noted (274), in January-February 1987 Mr Amann, at the request of Mr Huntstead, had gone back and repriced the job from scratch. The people then involved at WIL had been involved in the pricing decisions in 1985 and 1986 (274-5).
57 As Einstein J said in his first decision there was ample other evidence which supported the referee's critical finding (283).
58 The referee's second report is cryptic and not altogether easy to follow. He quoted part of par 127 of the judgment of Einstein J (2/515) where the Judge said that Mr Huntstead was "responsible for recommending to the directors the offer to be submitted to ADC including the hypothetical offer under consideration". The referee said that this was not how he had interpreted the evidence and that both Mr Amann and Mr Huntstead "were giving evidence in respect to the preparation of the tender in about January 1987 to ADC. It did not include the hypothetical exercise under consideration".
59 It seems that the referee understood from the quoted passage that Einstein J thought that WIL had costed the job in concrete in January 1987 although it did not make an offer on that basis. The referee did not quote the whole of that paragraph in Einstein J's judgment, and a fair reading shows that the Judge was not under any such misapprehension. However the Judge's statement that Mr Huntstead was "responsible for recommending to the directors the offer to be submitted to ADC including the hypothetical offer under consideration", read literally and in isolation, could suggest that the hypothetical offer was submitted to the Board along with the actual offer. The Judge understood that Mr Huntstead would have been responsible for recommending the hypothetical offer if the negotiations with ADC had so required. Properly understood this section of the referee's second report does not evidence any error which would prevent its adoption.
60 In the balance of this report the referee explained that in his view "Mr Huntstead's evidence had become a non-issue". In context the referee was referring to Mr Huntstead's evidence that in the hypothetical exercise of a formal concrete offer he would have followed his normal practice and gone back to square one or scratch in doing the costing to support such an offer. As Mr Huntstead's cross-examination and re-examination demonstrate, any re-costing for the hypothetical concrete offer would only have involved those parts of the work affected by the change. The whole job would not have been costed again from scratch.
61 In acting in this way Mr Huntstead would only have been following his normal practice which he had followed when re-costing WIL's original tender in 1985 and 1986, and in preparing and checking the costing for the steel offer in January and February 1987. The evidence that the referee was referring to was about Mr Huntstead going back to square one or scratch if he had actually been required to undertake the hypothetical exercise. He had done this more than once since the original tender, and this part of his evidence had therefore, as the referee said, become a non issue.
62 In his judgment of 10 June 1999 adopting both reports, Einstein J said that he understood the referee to be saying in his second report "that it would be erroneous to think that the hypothetical exercise which was the subject of the evidence of Messrs Amann and Huntstead ever formed part of the actual recommendations made to ADC". I agree with this conclusion for the reasons expressed in paragraphs 57-61.
63 Einstein J was also satisfied with the reasons given by the referee for the absence of any reference to the evidence of Mr Huntstead in his first report. The Judge's reasoning on this question is compressed if not cryptic. The relevant passages from the cross-examination and re-examination of Mr Huntstead are set out in paras 47-51 above. My independent evaluation of that evidence in paras 59-60 has satisfied me that this evidence had become a non issue and that the Judge's decision on this point was also correct. It follows that ADC has failed to establish that its losses following entry into the steel contract with ACT were in fact caused or occasioned by WIL's contravention of s 52.