(2) Identify the extra costs incurred in complying with those directions.
87 The referee did not do this; and his global approach produces an outcome that cannot be supported under GC1.33.1.
First error: multiple causes of delay and disruption
88 In the present case, it is clear from the referee's analysis that there were many factors leading to the delay, and consequent increased costs (through loss of productivity and increased supervision) that he purported to measure through his global methodology. The global methodology, by necessity, did not provide a separate measure of those costs that were compensable under GC1.33.1, as incurred by reason of compliance with directions. The referee concluded that all the causes of delay were attributable to the State (or, more accurately, to the "Principal"): R609. Whether or not that is correct, it does not follow that all those causes were compensable under GC1.33.1. Indeed, even if the claim extended beyond GC1.33.1, it does not follow that the State (standing behind the Principal) has a legal liability for the consequence of each and every one of those causes for which it is "responsible". In this context, it is necessary to bear in mind that (for example) the trade contract explicitly, by the deletion of GC1.36, excluded any entitlement to compensation for delay costs.
89 Thus, even if the claim for damages for breach of the implied term had succeeded, it would not follow that the State is liable because each and every one of the listed causes must be necessarily either an event under GC1.33.1 or an instance of a breach of the implied term.
90 For this reason, the referee's conclusion on the claim under GC1.33.1 must be rejected.
Second error: internal inconsistency
91 Further, this aspect of the report contains what appears to me to be a fundamental inconsistency. At R563 and following, the referee dealt with an as built program prepared by Mr Byford (who, I repeat, was an expert witness called by Banabelle). The as built program purported to show the work that had been carried out and the sequence of that work. The referee accepted the accuracy of that program (R565).
92 Mr Byford and Mr Holland (who, I repeat, was an expert witness called by the defendants) gave evidence that Mr Byford's as built program indicated dislocations to Banabelle's work: ie, the impacts of, among other things, delay and disruption. Thus, the referee said of the program, at R566:
"In my opinion, an as-built programme is an invaluable document. It is a means by which one can identify what particular activities or areas were displaced or extended in duration compared to the manner in which the works were planned in the programmes used to drive the work during the currency of the project."
93 Having reached those conclusions, the referee then found that "not every gap in the as-built program can be attributed to the Principal" (R567). It seems to me, in context, that the reference to "gaps" is a reference to work that, in Mr Holland's words, had "been dislocated from [original time envelope] to [a later time envelope]" (R564, citing the joint report of Messrs Byford and Holland). In other words, it seems to me in context, what the referee found in R567 was that not every instance of dislocation shown in the program could be attributed to the State.
94 I raised this with Counsel for Banabelle. Mr Gracie, who was addressing on this issue, confirmed that my understanding of R567 was correct: ie, that the referee was to be taken as saying that not every instance of dislocation (ie, delay or disruption) shown on the as built program (which, I repeat, he had accepted as substantially accurate) could be attributed to the State: T 209.15.
95 This is inconsistent with the referee's statement in R609(i) that "[n]o event or action for which the Principal was not responsible caused or contributed to the disruption." Even if I am wrong in what I have said as to the fallacy in R609(i) - conflating all causes of delay or disruption, and assuming that all are compensable under GC1.33.1 - it is clear that the referee's detailed analysis, culminating in R567, is inconsistent with the statement in R609(i).
96 As I have pointed out, a necessary - indeed, fundamental - element in the referee's approach to assessment under GC1.33.1 (comparing adjusted total cost with adjusted total recovery) is that the totality of the loss thereby demonstrated is something, or comprises elements, for which the Principal alone is responsible. R567 is inconsistent with that assumption. To my mind, it demonstrates an inherent flaw in a fundamental part of the referee's analysis. At the very least, it is sufficient to indicate that the analysis lacks the necessary degree of logic and rigour to justify its adoption. In reality, I think, it requires that the analysis be rejected.
97 For this reason also, the referee's conclusions on the claim under GC1.33.1 must be rejected.
Third error: inclusion of variations
98 Further, I think, the referee's approach is flawed because he included as a cause of delay for which Banabelle was entitled to global compensation the obligation to perform variations. However, the entitlement to be paid for variations is covered expressly by GC1.40.1, under which (absent agreement) the variation is to be valued under GC1.40.2. Banabelle submitted that an instruction to perform variations was a direction for the purposes of GC1.33.1, so that it was entitled not only to the payment calculated in accordance with GC1.40.2, but also to compensation for the effects of compliance under GC1.33.1.
99 The regimes under GC1.33.1 and 1.40.1 are separate. They are directed to separate aspects of the management of, and performance of works under, the contract. In each case, the measure of Banabelle's entitlement is to be valued under GC1.40.2. Each, therefore, may include an allowance for delay or disruption (including a reasonable amount for overheads but not including thereby profit or loss of profit): (GC1.40.2(f)); and each may include, through the Daywork formula, an allowance that includes "profit and attendance" (GC1.41(f)). If, as appears to be the case, a claim for the execution of variations pursuant to GC1.40.1 may require a valuation of extra costs incurred for delay or disruption, there can be no basis for thinking that a separate allowance for delay and disruption ought to be made under GC1.33.1.
100 For this reason also, the referee's conclusions on the claim under GC1.33.1 must be rejected.
Fourth error: period of delay and disruption; identification of directions
101 Further, on this aspect of the claim, I think that the referee's approach is fundamentally flawed because he assessed the claim from the beginning of the contract and not from the effective commencement of work on 11 January 2000. I do not understand how there could have been any effective direction under GC1.33.1 during the initial period, when Banabelle was effectively excluded from the site for the purposes of its trade contract. The loss to Banabelle flowing from exclusion from the site sounded in damages for breach of GC1.27.1. To include that period also in the period of disruption and delay (whether attributable to directions under GC1.33.1, or more generally to some other breach of obligation) is, again, to double count. More fundamentally, I do not think that it is correct to say that an exclusion from the site can amount to a direction for the purposes of GC1.33.1. I think, for the reasons that I have just given, that the very notion of exclusion is inconsistent with the existence of an effective or operative direction under GC1.33.1.
102 Bearing on this is the alleged failure of the referee to identify any directions. To an extent, I think, the referee did not do that because he considered the topic in the more generalised way indicated by the heading to which I have referred. Further, this to some extent overlaps, or is concurrent with, what I have said in paras [88] to [90] above.
103 The referee did, however, refer to the topic of directions on more than one occasion. It is apparent from the material tendered without objection on the adoption application that Banabelle had given extensive particulars of what it claimed were directions; that the relevant experts (Mr Byford for Banabelle and Mr Holland for the State) had considered the question; and that a number of documents said to constitute, or evidence, directions had been put before the referee.
104 The referee considered the question of directions in several places. I think it is not unfair to refer to his summary at R609(e) where he said that "Banabelle was probably directed to work in sequences other than as scheduled…". Similar, and generalised, views were expressed at R178 (in reference to out of sequence work in the last three months of the project); and R202 (referring to "acts or directions of the Principal or its agent Walter [that] caused [Banabelle] to remain on site for an extra year."
105 At R563 to 566, the referee considered the evidence of Messrs Byford and Holland. It is clear that they remained in dispute. Mr Byford prepared an as built program, and the referee appeared to accept that it was substantially accurate, and that, among other things, it indicated work that, in Mr Holland's words, "appears to have been dislocated from the original time envelope to a later time envelope" (R564).
106 However, the referee said of Mr Byford's as built program that Mr Byford acknowledged "that not every gap [in it] can be attributed to the Principal" (R567). I have referred already to the inconsistency of this with the proposition at R609(i) that there was "no event or action for which the Principal was not responsible [that] caused or contributed to the disruption". In the present context, however, it indicates the need to find what were the directions under GC1.33.1, compliance with which caused delay or disruption in the execution of Banabelle's works; and the delay or disruption attributable to those directions. The second requirement may be satisfied, depending on the facts, by a global rather than an individual finding; but for such a finding to be justified there must be both identification of the directions and exclusion of all other causes. The referee did not address in any sufficient detail the first of those requirements, and as I have said more than once, his inconsistent conclusions on the second mean that the necessary finding in favour of Banabelle cannot be made.
107 Again, in this context, the referee at R529 referred to some eleven causes of the problems with which "the project was replete". Even if all of these may to be said to have been within the area of the State's responsibility, it does not follow that they are all compensable under GC1.33.1. Clearly, not all of those causes are referable to directions under GC1.33.1; and again, there is no disentangling of the consequences.
108 For these reasons also (which to an extent duplicate what I have said in paras [88] to [90] above), the referee's conclusions on the claim under GC1.33.1 must be rejected.
Banabelle's response
109 Banabelle submitted that what I have identified as fundamental flaws were not in fact flaws at all; and that it was open to the referee to take the approach that he did. Even if (contrary to my conclusion) a direction to vary work under GC1.40 could amount also to a direction under GC1.33.1, the referee did not consider the variations (there were some 400 identified) to see whether the direction to perform them had effect also as a direction under GC1.33.1. Further, and more fundamentally, even if my conclusion were wrong, it would mean, at best, that to the extent that delay or disruption were attributable to either a direction under GC1.33.1 in terms, or an equivalent direction by reason of a direction to perform variations under GC1.40, then the referee's analysis might in principle be justified. It still would not disentangle, and make adequate allowance (by deduction from the total) for, the other contributing causes, including those that, as found in R567, could not be attributed to the State.
110 In essence, GC1.33.1 - whether or not it includes the effect of a direction to vary under GC1.40 - provides for a contractual regime to justify what might otherwise be a breach of, or departure from the requirements of, the contract. To the extent that the matters recounted by the referee as causes of delay and disruption are, or on analysis would amount to, breaches of contract for which the State is responsible, they are not, conceptually or otherwise, recoverable as compensation under GC1.33.1. The referee's approach, in looking at the criterion of the State's responsibility in a global sense, rather than the State's responsibility pursuant to particular contractual provisions, approached the question on a wrong basis.
111 Banabelle, however, submitted that the referee's finding of the reasonable costs of the work did exclude non-compensable items. It relied on what the referee had said at Table 5, referred to in R211. It is correct to say that the referee carried out a number of adjustments to the total costs reported by Banabelle. However, those adjustments were to remove inaccurate classifications of rates, inaccurate or unsubstantiated amounts for materials, and the like (see Table 5 under the heading "Audit Adjustments"). The referee further adjusted the costs to allow for additional costs that were not recorded in the Costs Report, and for the deduction of what he called "Unreasonable and/or Unrecoverable Costs". None of that shows that the referee eliminated, from the "Adjusted Total Direct Project Costs" that he found and summarised in Table 5, the costs consequences of delays, disruptions or inefficiencies which (in accordance with R567) could not be attributed to the State.
112 Further, and even if Banabelle's submission were accepted, it would not answer the point that the referee's approach, taking into account as it did the whole period of the contract (including that for which damages under GC1.27.1 were claimed and allowed), was flawed for the reasons given in para [101] above.
113 Whilst I accept that the Court does not rehear the matter, and that the adoption application is not an appeal from the referee, I am nonetheless left in the position that what I regard as the confusion of concepts evident in the referee's reasoning on the topic of "delay, disruption and loss of productivity" is such as to indicate that his analysis does not possess the degree of logical rigour that is necessary to give me a feeling of comfort sufficient to warrant adoption. It may be, as Banabelle submitted, that many of the conclusions in the reasoning process were open to the referee. But what is lacking is an overall framework of analysis and reasoning sufficient, when coupled with the appropriate allowance in favour of his findings, and view of the evidence that is dictated both by his status as referee and his undoubted expertise, to justify adoption.
114 In short, I do not find this aspect of the report persuasive.
Denial of natural justice
115 Further, I do not think that the charge of denial of natural justice has been rebutted. In saying this, I do of course accept that it is for the State to make out that it has been denied natural justice, and not for Banabelle to prove that the State has been given that measure of natural justice to which it was entitled. However, I think, it is clear from reading the relevant section of the report that the referee did depart from the analysis propounded by each side, including through their respective experts. Indeed, the referee clearly acknowledged this in R635 where he said:
"Whilst this assessment has used different methodology to that adopted by Messrs Byford and Holland, it is based on the evidence available which is in the knowledge of the parties. Such a course would seem to comply with the intent of what the High Court said in the damages case of Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10, 77 ALJR 768 at 769. Further, this is a case where the Referee has expertise in the area of the dispute."
116 That picks up what the referee had already made plain in R630, where he said:
"It follows from what I have earlier said that I am not able to adopt the valuation methods of either expert for this head of claim."
117 It is correct to say, as Banabelle submitted, that the evidence on which the referee relied for the quantification pursuant to his methodology was available, and that it had been debated at length, both in the conference/conclave processes and in the witness box, by the relevant experts. But it is the application of that evidence - the way in which the referee used it to reach his conclusion - that was the subject of the State's complaint. It is in this area that, being satisfied from my reading of the report that the referee departed from the methodologies advanced by the parties, I am satisfied that the methodology that he did in fact adopt should have been, but was not, notified to the parties so as to give them any opportunity to respond (whether by way of evidence, submission or both).
118 Banabelle submitted that the methodology used by the referee corresponded with one used by Mr Holland for calculating the delay costs attributable to the first period (ie, that ending on 10 January 2000). However, when one looks at Mr Holland's report (which was tendered without objection on the adoption application), it is clear that this is not so; on the contrary, it is clear, Mr Holland is disavowing the methodology, but saying that if it is to be applied then a particular consequence follows. In any event, the submission is inconsistent with R630 and R635; and on this point, I think, the allowance that I should make for the referee's expertise requires me to accept that he was correct when he said that his valuation methodology was not that of either expert.
119 For this reason also, the referee's conclusions on the claim under GC1.33.1 must be rejected.
Sufficiency of the contract price
120 The assertion that the referee did not find, as necessarily he must have found to justify his global assessment, that the works could have been performed (except for variations) for the contract sum, is more contentious. The referee did refer to this issue at R539:
"Mr Holland was of the view that Banabelle's tender was underestimated by the amount of $616,087. In response, Mr Byford stated that the tender was market tested, it was only $90,000 to $100,000 below the next lowest tender, and that this was an insignificant difference. Whilst the second lowest tender was actually about $111,000 or 2.6% above Banabelle's tender, I was not satisfied with the basis of Mr Holland's assessment and, in the circumstances of the market testing by the competitive tender process, I am not able to accept that, on the balance of probabilities, Banabelle underestimated its tender."
121 This, I think, should be taken as a finding that the works could have been performed (except for variations) for the contract sum. The referee did not appear to consider this point in the context to which I have referred; but he does refer to it in his consideration of the general topic "delay, disruption and loss of opportunity".
122 The State said that the conclusion was so perverse or unreasonable as not to be capable of adoption. Although there is force in the State's submissions, I do not need to express a concluded view. The views that I have expressed are sufficient to cause me to reject entirely the referee's conclusions on GC1.33.1, to the extent that these are considered under the heading "delay, disruption and loss of opportunity"; and, indeed, all his conclusions under that heading.
Banabelle's secondary challenges
123 Banabelle challenged some aspects of the referee's quantification of its claim under GC1.33.1. Those challenges related to: