Betta Build Group Pty Ltd v El Baba

THE REFEREE

1. Mr Smith has had extensive experience as a quantity surveyor, numbering over 45 years. His credentials include his authoring a text on costs, as well as lecturing. He is also familiar with the litigious process in relation to building disputes.
2. He prepared a comprehensive and detailed Scott Schedule, which relevantly compared the costs of the experts engaged by the Owner (Mr Whyte) and the Builder (Mr Lee), with his own.

METHODOLOGY

1. Mr Smith correctly surmised that My Earlier Reasons established the appropriate method of rectification and assumed, again correctly, that the extent of the works had to be ascertained from the documents.
2. His report consists of the main following parts: an indication as to how he priced the works; and then a pricing of the defects. In relation to the latter, he considered Mr Whyte's pricing first, and followed up with a review of Mr Lee's costings. That process has given rise to the Builder's main critique of his report.

Pricing methodology

1. Mr Smith's assessment of the fair and reasonable costs used rates and prices current at the time of the report. Mr Smith notably did not rely simply on the Rawlinsons cost book; nor even the Cordell's costs book that he authored and edited; though he used them to guide him.
2. He noted factors affecting pricing and, so far as quantities were concerned, he used dimensions in the drawings where he was able to. The drawings provided to him were not drawn to scale.
3. His costings could be dissected into different components: estimations of the hours of labour; an hourly charge out rate, material cost for each item; and any plant or equipment required to complete the work.
4. His report explained what he meant by preliminary costs, being those costs distinct from and separate to sub-contractor costs. Mr Smith then explained how he assessed builder's margin, which he determined should be 20%.

Site visit

1. Mr Smith candidly expressed his view that, notwithstanding that he was told that it was unnecessary, he would have liked to have conducted a site visit. Having said that, he acknowledged that this may not have been possible, given that the property had been sold.

Pricing the defects

1. He generally concluded that the quantities provided by Mr Whyte were on the generous side and identified some mathematical errors in the latter's spreadsheet. He also differed from Mr Whyte by not providing for additional costs associated with the tools and equipment: this was already included in the tradesman's hourly rates. As already noted, once he had conducted a pricing of the defects, he reviewed the Builder's calculation.
2. Mr Smith provided an extremely detailed Scott Schedule for each individual defective item (Annexure E). He provided supplementary commentary in the body of his report.
3. It is convenient to address the report when considering this application, by reference to the criticisms, such as they are, of the Builder.

Denial of procedural fairness

1. The Builder primarily contended that the Court should not adopt the report in its entirety, since his reasoning on 'pricing the defects' was centred solely upon acceptance of the Owner's surveying expert, and, if the Builder's surveying expert was considered at all, his conclusions were considered merely as an afterthought. The Owner's expert's report was avowedly used as a starting point. This was exemplified by the section in his report (paragraphs 72 to 159) explaining the referee's reasons for findings on costs of defects, in which repeated reference was made to the opinions of the Owner's surveying expert, but no reference was made to the Builder's expert. It was only after expressing those reasons that the referee (at paragraphs 160 to 164) expressly referred, albeit very briefly, to a small (5) number of observations made by the Builder's expert.
2. This, it was said, gave rise to prejudgment. It was not so much that Mr Lee's opinions were not considered. The express references to his views in the referee's reports indicated that the referee did consider them. It was that the referee's mind was closed before they were considered. This was, so it was submitted, apparent on the face of paragraphs 9, 13, 62-63 and 71 of the body of the report. In particular, at paragraph 71, the referee stated "After I had priced the Defects I then reviewed Mr Lee's assessment" (emphasis added).
3. Accordingly, it was contended, the referee did not accord natural justice to the Builder. It also, so it was contended, did not accord with the terms of the reference, which required the referee to consider only the evidence of the quantity surveying evidence of each party.

Apprehended bias

1. Secondly, and alternatively, this approach by the referee manifested apprehended bias. The same facts relied upon in support of the natural justice argument were said to sustain this argument.

Inadequate or no reasons

1. Thirdly, the referee failed to give adequate reasons, contrary to the term of reference (which picked up McDougall J's principle in Chocolate Factory) of explaining himself in terms that a disinterested observer could be satisfied showed the application of a considered mind to the facts.
2. As to this criticism, the Builder acknowledged that the referee alluded to the basic criteria he deployed (paragraph 26), but did not explain how each of those criteria were brought to bear in determining the prices, in his reasoning (at paragraphs 72-159 inclusive). Without such transparency in his reasoning, the Court could not be satisfied that the referee did not in fact arrive at an arbitrary result, influenced by improper considerations. This, it was contended, taints his findings in respect to all 29 defects.
3. In response to the submission of the Owner's Counsel pointing to the referee's reasoning process contained in the Scott Schedule which appears in Annexure E to the report, Counsel for the Builder said that the content of the Scott Schedule did not advance the Owner's argument on the adequacy of reasoning: all that the Scott Schedule contained were a set of numbers, for different variables, without reasoned explanation for how those numbers were selected.
4. Counsel submitted that wherever there was a disputed item, it was not enough for the referee to simply outline in his report his reliance upon the general criteria and methodology he followed: in each and every instance where there was a dispute, the referee needed to explain how that criteria was applied.
5. In so saying, as I understood him, Counsel for the Builder accepted that rejection of the whole or part of a referee's report on account of an inadequacy or absence of reasoning should only arise where an item in dispute was material.
6. Fourthly, there were specific instances where no reasons were advanced, in relation to items 7, 27 and the finding of a 3% contingency. Further, no reasons were given for his expressing preference to the Owner's surveying expert's views, over the Builder's expert's view, in relation to items 26 & 28. The Builder submitted that if his other contentions were rejected, the Court should exercise its discretion to reject at least this part of the report.

The natural justice point

1. The Owner submitted that there was little doubt that natural justice had been accorded to the parties. The referee had taken the steps of:

• reviewing the scope of works set out in My Earlier Reasons;
• reviewing the costings prepared by each party's quantity surveyor;
• scanning the drawings to allow him to measure items without dimensions;
• measuring the items of work set out in the Scott Schedule;
• measuring some quantities in Buildsoft (bespoke software) and providing them to the parties; and
• pricing the work described in the Scott Schedule based on the criteria he had indicated.

1. The Owner disputed that the referee engaged in any form of pre-judgment. First, he did not agree with the Owner's expert, Mr Whyte's, quantities. That circumstance alone indicated his objectivity and independence in reviewing the costings. Secondly, he priced the works after reviewing the costings by both parties. Thirdly, and similar to the first point, the referee did not agree with many of Mr Whyte's costings. Fourthly, there were express references in the report to the Builder's expert, Mr Lee's, costings. Fifthly, it was impossible for the referee to consider each expert's costings simultaneously. Sixthly, opportunity was given to Mr Lee, and the Builder's lawyer, to have conferences and make submissions to the referee but that opportunity was not availed of. In this last respect, the Owner relied upon evidence from Mr Elee Georges in his affidavit of 20 May 2020 in which the solicitor deposed to a telephone conference between the solicitors and the referee. The substance of that communication was the referee indicating his intention which accorded with the approach disclosed in his report: he reviewed the Owner's expert (Mr Whyte), would do his own costings and review again Mr Lee's costing before making his findings. He invited the solicitors to indicate whether they had any "issues or further comments" with such approach. Mr Elee Georges deposed to not receiving any further communication on the Builder's behalf opposing this proposed course. This evidence was unchallenged.

Apprehended bias point

1. The Owner did not address this point in his written submission; although at the hearing of the application for adoption of the report, the Owner's counsel referred me to the requirement that a party advocating for ostensible bias would have to clearly identify the facts necessary to make good the contention (Carbotech-Australia Limited v Yates [2008] NSWSC 540 per Brereton J at [47]).

Failure to give adequate reasons

1. The Owner responded that the Builder's submissions did not fairly recognise the intellectual process engaged in by the referee, which included his:

• use of dimensions on the drawings where able to do so, measured items of work set out in the Scott Schedule, and used Buildsoft software to derive appropriate quantities;
• providing detailed explanation with respect to each item;
• providing full calculations setting out his independent assessment of the price; including setting out all applicable rates and quantities; and
• the rates identified are not palpably exorbitant or unreasonable and were the collective product of the referee's general explanation for how he went about his task.

1. The critical aspect, the Owner submitted, was that the referee's reasoning process was sufficiently disclosed so that the Court could be satisfied that the referee's conclusions were the result of that intellectual process.

Failure to give any reasons

1. The Owner submitted that, in relation to each of the items specifically singled out by the Builder, reasons were apparent, in all cases in Annexure E, but even if the reasoning there was inadequate, the items in question were inconsequential.
2. As to item 7, the referee allowed two hours for an engineer to inspect the slab at a rate of $150 per hour. If that was not sufficient reasoning, because of the small amount in question, this was no basis for the Court to interfere.
3. As to item 26, the referee preferred Mr Whyte's estimate of 20 hours to Mr Lee's estimate of 16 hours and Mr Whyte's opinion as to material costs. Mr Lee did not state a position on the materials required.
4. As to item 27, the Owner said that the reasons were apparent in the report. If they were inadequate, then the smallness of the amount would not warrant the Court's interference.
5. As to item 28, this item was broken up into components (a)-(d) (incl.). There was little difference between the parties' respective experts on all but one of those components, being component (c). The dispute about component (c) carried a monetary value of only $150.
6. As to item 29, this was another small amount in dispute.
7. As to the 3% contingency, although no express reason was given as to the figure for the contingency, the Court should infer that it was derived from the referee's experience and the methodology he outlined at paragraph 26.

Natural justice

1. I raised with Counsel for the Builder whether a complaint of pre-judgment might, formally, be regarded as a species of the rule against bias; or whether it amounts to a denial of natural justice. He submitted that, in substance, it did not matter - there was overlap between the points and either of them, if made good, should vitiate the report. I accept that submission. As Counsel accepted, if he did not succeed with his natural justice point, he could not succeed with his argument about apprehended bias in any event.
2. I have noted that the Builder makes no complaint per se that the referee considered Mr Whyte's views in advance of Mr Lee's. That is the course that the referee had foreshadowed to the parties' solicitors in correspondence. This is not a case where opinions have been formed before parties have put their contentions (orally or in writing) to the referee. It is narrower, that in the ordering of reasons, the referee has exhibited pre-judgment. But in circumstances where there is no requirement for referees to frame their reasons in any way, it is likely to be more difficult for a party to assert a closing of a referee's mind, simply on the basis of what appears in the reasons.
3. I do not accept that the referee closed his mind to what was contended on the Builder's behalf. If he had, he would not likely have made any reference to those views at all. Counsel for the Builder accepted that if his submission was to be accepted, what the referee said in paragraph 71, and, for that matter, paragraphs 160 to 164 (incl.), 173, 178, 180 and 187 of the referee's report constituted merely an attempt, on the referee's part, to convey the appearance that he had considered Mr Lee's opinions. That, as I understand it, is another way of saying that the referee was engaged in an exercise of window-dressing.
4. That is a serious charge to level against a referee (per s 140 of the Evidence Act 1995 (NSW)) who, I infer, was selected (so I was informed, by the Builder itself) not only because of his expertise but also because of his perceived independence and impartiality. It would need cogent proof.
5. I am not satisfied that such cogent proof has been established. Read as a whole, and fairly, the referee plainly indicated in his report that: 1. his first reference to the views of Mr Whyte was only an "initial" part of the process (paragraph 63); 2. his reference to having priced the defects was followed by a review of Mr Lee's assessment (paragraph 71); and 3. in his assessment of Mr Lee's views, the referee noted that Mr Lee's views coincided with his own assessments of: (i) the replacement of brick sills (paragraph 164); and (ii) the exclusion of supervision within base cost (paragraphs 177-178) and inclusion with the costs of Preliminaries.
6. I accept Counsel for the Owner's submission that the best evidence to suggest that the referee had not closed his mind to Mr Lee's views, after considering Mr Whyte's views, was the table of costs reproduced at paragraph 184, within the body of the report. With one exception (item 6), the referee arrived at costs for all items in lesser amounts to Mr Whyte. In addition to that, the referee's conclusions on costs for individual items were also closer in range to Mr Lee's views - where Mr Lee expressed views.
7. By way of further example, in the Scott Schedule, in item 5, the referee arrived at the same hourly rate as Mr Lee for work in the hallway. For the same item, to the extent that the work required hire of a jackhammer, he accepted Mr Lee's view that this should be priced at an hourly basis.
8. I consider that it is very likely that, in these and other respects, where the referee diverged from Mr Whyte's views, he did so under the influence of his considering Mr Lee's views. At any rate, the conduct is entirely inconsistent with the proposition that the referee closed his mind to Mr Lee's views.
9. The Builder has not made out, to the requisite standard of proof on the serious charge it makes, that the referee did not accord natural justice to it, on the basis of his closing his mind to anything Mr Lee had to say.

Apprehended bias

1. The Builder accepted that its argument on bias would follow the result of its argument on natural justice. This argument therefore also fails.

Failure to give reasons

1. The next criticism concerned a failure to give adequate reasons implicitly accepts that reasons were in fact generally given. It is notable that there is no suggestion that findings were made which were contrary to evidence. The real issue is whether the reasoning is sufficient to indicate why the referee determined as he did.
2. In this regard, it is important to acknowledge that a referee is not a judge, and is not even (necessarily) a lawyer, or someone with litigious experience, but has received the reference because of his or her technical (and practical) expertise and experience. I do not read McDougall J's reference in Chocolate Factory at [7], with respect, as laying down any prescriptive requirement for what a referee must do to disclose his or her reasoning process. What must be done is enough to persuade a Court considering adoption whether there is a rational and intelligible, and not arbitrary or capricious, process of reasoning supporting conclusions. Another way of saying that is to ask whether the report discloses a thorough, analytical and scientific approach.
3. The Builder correctly acknowledges the criteria (referred to in paragraph 26 of the referee's report) which the referee stated he applied when formulating his opinions on prices for 29 defects. It may be added that in section 2 of the report, titled 'Pricing Methodology' (particularly paragraphs 25-37) and in the section on 'Quantities' (paragraphs 38-45), the referee respectively explained his methodologies for outlining rates and measurements.
4. In my opinion, it goes too far to expect a referee to engage in the sort of delineation of how each of the criteria he said he applied applies in respect to each and every defect in dispute. To do so is not only unrealistic, but would probably give rise to questions impossible for a referee to answer, such as 'what particular experience did you have in mind?' or 'what aspect of market conditions are you relying upon?' Expecting a referee to descend to that level of analysis would, almost certainly, produce a work which would result in considerably greater expense and probably be the product of significant delay. The point only needs to be stated to indicate that such putative obligation would be antithetical to case management objectives in ss 56-60 of the Civil Procedure Act 2005 (NSW).
5. The Builder's critique of the referee's report does not acknowledge the detailed commentary and reasoning that appears in the Scott Schedule, which is Annexure E to the report. But the commentary in the body of the report is not to be excised by the reasoning in Annexure E. That would be unfair to the referee. What, I apprehend, the referee was trying to do in the part of the report which runs from paragraphs 78 to 164 of his report was to emphasise certain points referable to each of the disputed items; with those points to be construed with more detailed commentary in the Scott Schedule.
6. I reject the argument that the Scott Schedule presents a jumble of inexplicable numbers and variables. That argument makes the same mistake of severing part of the reasoning process of one part of the report from the other: only that this time, the severance has flipped the argument in that the Scott Schedule is to be viewed in isolation from the body of the report.
7. As it happens, Annexure E to the report is part of the disclosure of the reasoning process in voluminous detail for all items. I further find that the referee set out, at paragraphs [39]-[41] and [45] of the body of the report, when read with the general description of methodology at [26], and his methodologies for assessing rates and measurements, indicated a rational reasoning process for the respective findings in that Schedule.

Specific findings

1. Counsel for the Builder submitted that, if I accepted that there was any inadequacy or failure by the referee to give reasons on any disputed item, I should reject that particular item. I disagree. Firstly, in my view, the error has to be material. Where an item only concerns, say, a couple of hundred dollars, I do not consider that the Court needs to intervene. The Court may adopt an impugned part of a referee's report without adopting reasons for that part (Astor Properties Pty Ltd v L'Union des Assurance de Paris (1989) 17 NSWLR 483). Logically, I do not see why it cannot adopt the impugned part if there are no reasons, or no adequate reasons, not to, if the Court is satisfied that the report generally demonstrates a thorough, analytical and scientific approach: Chloride Batteries Australia Ltd v Glendale Chemical Products Pty Ltd (1988) 17 NSWLR 60 at 67.
2. At a more specific level, in my view, it is not a constructive use of the Court's time and resources to be adjudicating disputes or, for that matter, remitting them for further consideration to the referee, in respect to items measured only in hundreds of dollars. I agree with the Owner that even if there was some inadequacy in the reasons disclosed in Annexure E, and the specific references in the body of report to the items that the Builder has referred to, the amounts in question for these subject items are relatively immaterial and do not warrant rejection.
3. The complaint about the adoption of the 3% contingency figure should be viewed separately. As I understand the Builder's position, the criticism is not that no contingency should have been provided at all, but the omission to explain why the figure of 3% was selected. I agree with the Owner's submission that it is appropriate for the Court to infer that this figure was selected in accordance with the referee's general approach to the assessment of prices outlined in paragraph 26; and, in particular, the referee's reliance upon his practical experience.

Conclusion

1. I am not persuaded that the Builder has demonstrated any "patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding" which is usually required to enliven the Court's discretion to reject the whole or part of the report (Foxman Holdings Pty Ltd v NMBE Pty Ltd (1994) 38 NSWLR 615 at [620]; The Owners-Strata Plan No. 30791 v Southern Cross Constructions (ACT) Pty Ltd (in liq) [2017] NSWSC 1660 at [5]). To the contrary, I considered his fact findings to be balanced, the product of independent assessment and demonstrably the result of the application of his technical expertise and experience to the evidence.

ORDERS

1. I therefore order that, pursuant to r 20.24(1)(a) of the Uniform Civil Procedure Rules 2005 (NSW), the report of Scott Leighton Smith dated 16 April 2020 be adopted in its entirety.
2. I also order that the plaintiff/cross-defendant pay the costs of the cross-claimant's notice of motion dated 8 May 2020.
3. I also make the following orders: 1. The Amended Statement of Claim is dismissed. 2. Judgment for the Cross-claimant in the sum of $227,941.21 in respect of the Owner's claim regarding defective works. 3. Interest should run on the judgment sum ($227,941.21) on the claim for defective works from 23 February 2018 to today's date. 4. Pursuant to s 100 of Civil Procedure Act 2005 (NSW), on the judgment that was formerly awarded to the cross-claimant in relation to the overpayment of the sum of $29,961.36, the cross-claimant is entitled for interest from the date of the payment, being 20 June 2016, until 17 July 2019.
4. I further direct that the defendant/cross-claimant is to serve its affidavit supporting its application on costs of the proceeding generally, together with a short outline of written submissions, by 27 May 2020. The plaintiff/cross-defendant is to serve a short outline of written submissions in reply by 29 May 2020, and thereafter I will make judgment on the issue of costs on the papers.

Endnote

1. Betta Build Group Pty Ltd v El Baba [2019] NSWDC 331 ('My Earlier Reasons') at [325]-[327].

Amendments 27 May 2020 - Minor (typo) corrections made to paras 45, 59 and 68. 27 May 2020 - Minor typo correction. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 27 May 2020