Betta Build Group Pty Ltd v El Baba - [2020] NSWDC 238 - NSWDC 2020 case summary — Zoe

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Betta Build Group Pty Ltd v El Baba

[2020] NSWDC 238

District Court of NSW|2020-05-22|Before: McDougall J

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Source facts

Court

District Court of NSW

Decision date

2020-05-22

Before

McDougall J

Source

Original judgment source is linked above.

Judgment (22 paragraphs)

[1]

INTRODUCTION

This case concerned construction works undertaken on a residential property at Bankstown between October 2015 and February 2017. After making payments for 5 of 6 stages for payment, the defendant/cross-claimant (the 'Owner') terminated the contract with the plaintiff (the 'Builder') and brought a claim for damages against the Builder (the 'Builder') for breach of warranties implied under the Home Building Act 1989 (NSW).
On 17 July 2019, I delivered reasons for judgment in this proceeding, in which I rejected the two claims propounded by the Builder and accepted the claim of the Owner in relation to defective works. A claim in relation to overpayment for a relatively modest figure was also upheld [1] . After identifying the defects and indicating the nature of the rectification works, I referred the issue of quantification of the rectification of costs to a referee and deferred the making of dispositive orders, including costs of the referral and the proceeding generally, until that issue had been determined. There has been a significant delay in that referral process, for reasons which are unnecessary to go into, although they may be relevant to the ultimate questions of costs.
By notice of motion dated 8 May 2020, the Owner applies for the adoption of the report. The Builder opposes the Court's adoption of the report, wholly or partly.
The Owner relies upon the referee's report of Mr Scott Smith, of the firm Leighton Kesteven Corporation Pty Ltd, dated 16 April 2020. He also relied upon affidavits from his solicitor, Elee Luke Georges dated 28 February 2020 and 20 May 2020; although the former appears more directed to the issue of costs of the application for adoption.
The Builder did not rely upon any evidence in this application. Its criticisms were made with reference to the content of the report alone.

[2]

PRINCIPLES

I recently had occasion to consider the principles for adoption of a referee's report in this specific context in Morrison v Moss (No. 3) [2020] NSWDC 136 at [13]-[16]. I do not consider it necessary to re-state those principles. They are incorporated in these reasons. It suffices to say that I substantially adopted the principles distilled by McDougall J in Chocolate Factory Apartments Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784 at [7]. Those principles were accepted as applicable to the regime for references in Part 20 Div 3 of the Uniform Civil Procedure Rules 2005 (NSW) in one of the decisions the Builder brought to my attention, Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd (2013) 84 NSWLR 410 per Barrett JA at [16] (Meagher JA and Ward JA agreeing).
The Builder emphasised the following principles, which are uncontroversial: 1. referees are required to afford parties natural justice. The content of that requirement may vary, but it requires that parties be given proper opportunity of putting their contentions before the referee. It also means that a referee should not form a concluded opinion when considering the parties' contentions before all the evidence is in: Telecomputing PCS v Bridge Wholesale Accept Corporation (Aust) Ltd (1991) 24 NSWLR 513 at 523.7; 2. a court is also likely to reject a referee's report where the referee exhibits actual bias or there is a reasonable apprehension of bias: The Owners-Strata Plan No. 30791 v Southern Cross Constructions (ACT) Pty Ltd (in liq) [2017] NSWSC 1660 at [5]; and 3. referees should give reasons for their opinion so as to enable the parties, the Court and disinterested observers to know that their conclusions are not arbitrary, or influenced by improper considerations, but are the result of a process of logic and the application of a considered mind to the proven factual circumstances: Chocolate Factory (at [7]).
On the issue of natural justice, the Owner noted that whether that requirement has been complied with must be viewed in the context of the proceeding as a whole (New Price Retail Services Pty Ltd v Hanna [2014] NSWSC 553 at [29]).
On the more general question of whether the discretion to adopt a referee's report should be exercised, it is not a sufficient ground for an opponent of adoption to state its disagreement with factual findings made (Ryde City Council v Tourtouras [2007] NSWCA 218)

[10]

Inadequate or no reasons

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.
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.
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.
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.
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.
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.

[11]

The natural justice point

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.

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.

[15]

Natural justice

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.
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.
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.
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.
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.
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.
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.
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.
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.

[17]

Failure to give reasons

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.
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.
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.
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).
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.
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.
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.

[18]

Specific findings

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.
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.
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.

Betta Build Group Pty Ltd v El Baba

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