Bitar Pty Ltd v Hebbel Constructions Pty Ltd

Background

1. Bitar and the respondent (Hebbel) are former partners that carried out a residential and commercial development at Petersham. Bitar and Hebbel equally owned the shares in Bitar Hebbel Constructions Pty Ltd (BHC), the company which undertook the construction. Following a dispute between the partners as to their respective entitlements, Hebbel commenced proceedings claiming a variety of relief, including the dissolution and winding up of the partnership. With respect to that application, Mr Gwynne, who had been engaged jointly by the parties, provided an expert report dated 3 August 2016 (the first report) concerning the affairs of the partnership.
2. On 4 July 2017, Rein J made orders and declarations that the partnership should be dissolved as of that date, appointing Mr Daniel Frisken as receiver and manager (the Receiver) to wind up the affairs and business of the partnership, and appointing Mr Gwynne as referee to determine six questions that remained in dispute.

December 2017 hearing

1. After receiving submissions from the parties, Mr Gwynne provided his second report on 24 October 2017 (the second report) answering the six questions. The proceedings were listed for hearing on 15 December 2017 on the question of whether the second report should be adopted by the Court. On that occasion, Bitar did not consent to or oppose the adoption of the report, but sought to rely on two expert reports of its own accountant, Mr Paul Culhane, annexed to affidavits dated 30 November 2017 and 13 December 2017. Rein J did not admit those reports into evidence, giving the following reasons at [12]: I refused leave to the defendants to rely on that report because the time for any such report was at the hearing of the matter before me or if the defendants wanted to put material before the referee during the reference. I note that there was an expert report initially sought to be relied on by the defendant at the hearing before me in May/June, but on 1 June Mr Culhane's report was withdrawn: see T228.17.
2. His Honour continued at [13] setting out the summary of principles by McDougall J in Chocolate Factory Apartments Pty Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784 ("Chocolate Factory") at [7], in relation to the Court's consideration of, and discretion to adopt, vary or reject a report of a referee, before concluding at [14]: In the light of those principles I took the view that it was not appropriate for the defendants to be entitled to now ventilate expert matters that could and should have been ventilated at an earlier time and I particularly draw attention to sub paragraphs (3), (7), (9), (11) and (12).
3. An understanding of the primary judge's reasons is assisted by setting out in full sub-pars (3), (7), (9) and (12) of [7] in Chocolate Factory, to which his Honour specifically referred: (3) The purpose of Pt 72 [now Uniform Civil Procedure Rules 2005 (NSW) (UCPR), Pt 20] is to provide, where the interests of justice so require, a form of partial resolution of disputes alternative to orthodox litigation, that purpose would be frustrated if the reference were to be treated as some kind of warm up for the real contest. … (7) Generally, the referee's findings of fact should not be re-agitated in the Court. The Court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he or she did, particularly where the disputed questions are in a technical area in which the referee enjoys an appropriate expertise. Thus, the Court will not ordinarily interfere with findings of fact by a referee where the referee has based his or her findings upon a choice between conflicting evidence. … (9) The Court is entitled to consider the futility and cost of re-litigating an issue determined by the referee where the parties have had ample opportunity to place before the referee such evidence and submissions as they desire. … (12) The right to be heard does not involve the right to be heard twice.
4. His Honour did not adopt the second report; instead, an order was made that Mr Gwynne provide a further report answering two additional questions. After receiving further submissions from the parties, Mr Gwynne provided a third report dated 23 February 2018 (the third report).

July 2018 hearing

1. The proceedings were listed for hearing on 26 July 2018 on the question of whether the second and third reports should be adopted. At that hearing, Bitar sought to rely on an affidavit of Mr Joseph Katter, a director of Bitar, sworn 26 July 2018 (the Katter affidavit) and the two affidavits of Mr Culhane which had previously been rejected at the December 2017 hearing. Rein J refused leave to Bitar to rely upon that late material, given the late service of the material on the morning of the hearing, and that the material raised issues that could and should have been raised earlier. His Honour continued at [9]: I accept Mr Wiggins' submissions. I do not think it is appropriate in the circumstances to permit Bitar to now raise, at such a late stage, what are said to be deficiencies in the Gwynne reports. In coming to this view, I take into account, not only ss 56-59 of the Civil Procedure Act 2005 (NSW) and the matters to which regard needs to be had in decisions on whether to permit an application of this kind, but also having regard to the matters identified in the December Reasons at [13] and [14], as appropriate for consideration in determinations by referees.
2. After noting at [10] that Bitar did not oppose the adoption of the second and third reports, his Honour made orders adopting those reports, finding that the reports were "thorough, analytical and appropriate … because they clearly expose the process of reasoning to reach the conclusions to which Mr Gwynne has arrived".

Bitar's argument

1. In oral argument Bitar confined its complaints to challenging the primary judge's evidentiary ruling, and the failure to vary the second and third reports to take into account three adjustments which were based on the Katter affidavit, namely:

• rental income received by Hebbel from units (other than unit 11) estimated in the first report (at par 11.4.4) as $99,152, and described as the amount that "could be expected to be received" in the period November 2015 to July 2016;
• payments to Mr Taouk from the Gavel & Page trust account of $133,174, characterised as reimbursements, which Bitar contends that it never agreed to; and,
• a reduction of $64,054 in the amount of the Bitar loan account of $342,324, which the referee determined was owed to the partnership.
• Only brief reference was made to the Culhane affidavits; that was in connection with the third adjustment referred to above.

Disposition of application

1. The approach to an application for leave to appeal is well established. As summarised in Secretary, Department of Family and Community Services v Smith (2017) 95 NSWLR 597; [2017] NSWCA 206 at [28] (Gleeson JA, Macfarlan and Payne JJA agreeing): Only if the decision is attended with sufficient doubt to warrant its reconsideration on appeal will leave be granted: Sharpe v Heywood [2013] NSWCA 192 at [34]; McMahon v Permanent Custodians Ltd [2013] NSWCA 275 at [57]. Ordinarily, it is only appropriate to grant leave where there is an issue of principle, a question of general public importance, or an injustice which is reasonably clear, in the sense of going beyond what is merely arguable: Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 at [46]. It is well established that it is not sufficient merely to show that the trial judge was arguably wrong: Be Financial Pty Ltd as Trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 at [32].
2. Here, the proposed appeal does not involve an issue of principle or a question of general public importance. Bitar based its leave application on the contention that the orders sought to be challenged wrought manifest injustice. For the reasons that follow, I do not accept that contention. It is convenient first to deal with the substantive complaints in proposed grounds 2 to 5 before addressing grounds 1 and 6.

Grounds 2 to 5

1. Bitar asserts that his Honour should not have adopted the second and third reports without making certain adjustments to the amounts owed by Bitar and Hebbel to the partnership, including those referred to above at [10].
2. Bitar's submissions in support of these grounds assumed that, in the event of a grant of leave to appeal, this Court would review the referee's reports. That is incorrect. As Gleeson CJ (Meagher JA and Handley JA agreeing) explained in Nine Network Pty Ltd v Kennedy Miller Television Pty Ltd (Court of Appeal (NSW), 6 May 1994, unrep) at 6: The important point is that it is the judge at first instance who reviews what the referee did; the Court of Appeal, within the limits of the ordinary rules governing appeals, reviews what the judge did.
3. In Nine Network Pty Ltd v Kennedy Miller Television Pty Ltd, Gleeson CJ went on to explain at 6 that the judge at first instance may fall into appealable error if there is a material error on the part of the judge such as, an error of law, an error in the approach taken to the exercise of the wide discretion conferred by the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) (see now UCPR, r 20.24), or possibly, an error of fact upon which the decision to adopt the report was based. See also: Flender (Aust) Pty Ltd v Warman International Ltd (Court of Appeal (NSW), 7 and 18 August 1997, 19 June 1998, unrep) at 12, Beazley JA (Handley JA and Sheppard AJA agreeing); Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253 at [9]-[11] (Giles JA, McColl and Campbell JJA agreeing); Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633 at [21]; [2014] NSWCA 184 (Leeming JA, Ward and Emmett JJA agreeing).
4. Further and importantly, in Nine Network Pty Ltd v Kennedy Miller Television Pty Ltd, Gleeson CJ said at 6: [I]f the judge, in the proper exercise of the discretion given by the rules, declines to consider afresh questions of fact that have been decided by the referee, then it is not open to the party aggrieved to invite this Court to re-visit those questions on the basis that, by virtue of the adoption of the referee's report, the judge's decision is vitiated by any errors in it.

Ground 2

1. Proposed ground 2 asserts that his Honour erred in adopting the second and third reports without addressing the question of the rentals received and the deposits not banked (by Hebbel).
2. As to the question of rentals (other than unit 11), the primary judge found at [7]: … [the matter] … should have been raised at the latest on 15 December 2017 and it was not. Nor am I sure that Mr Gwynne would not have considered the matters raised in coming to the conclusions to which he has come.
3. There is no injustice in the primary judge refusing to consider afresh the asserted adjustment of $99,152 in relation to rental income for the period November 2015 to July 2016.
4. First, the premise of Bitar's complaint - that Hebbel "pocketed" the rental income - has not been shown to be more than merely arguable. Indeed there is material in the first report and the Gavel & Page trust account that contradicts this premise. Mr Gwynne noted in the first report (at par 2.9.2) that the amount he "estimated" as the rental income received by Hebbel in the relevant period "is said to now be paid to Gavel & Page Lawyers Trust Account". Further, the credit entries in the Gavel & Page trust account annexed to the Katter affidavit record the receipt of amounts described as "rent from Ray White" totalling $82,950.49 in the period November 2015 to July 2016: Affidavit, Joseph Katter, 26 July 2018 at pp 11-12. Given that the higher figure of $99,152 referred to in the first report was only an estimate of what could be expected to be received by Hebbel in the relevant period, the difference between these two amounts is readily explicable.
5. Second, that the referee considered the character of the transactions recorded in the Gavel & Page trust account in coming to his conclusions, is apparent from the terms of the second report. It was open to the referee to conclude that Hebbel accounted to the partnership for the "actual" rental income received for the period November 2015 to July 2016 by the amounts paid by Ray White into the Gavel & Page trust account in the relevant period, and that the earlier estimate of rental income for that period had overstated the actual receipts by Hebbel.
6. Third, and in any event, Bitar was afforded an opportunity in August 2017 to make submissions to the referee with respect to the amounts owed by Hebbel and Bitar to the partnership, which included the subject matter of the Gavel & Page trust account, and had not done so: Chocolate Factory at [9] and [12]. Nor did Bitar raise the asserted omission in the referee's second report at the December 2017 hearing, or seek an order that this issue be the subject of an additional question for determination by the referee.
7. As to the question of deposits (other than unit 11), the primary judge found at [8] that this matter could be raised with the Receiver who is responsible for "dealing with all of the proceeds of sale of units being sold now", and also noted that it was a matter that should have been raised earlier.
8. Bitar did not advance any written or oral submissions directed to challenging this aspect of the primary judge's reasons. Nor did it attempt to identify any deposits allegedly received by Hebbel, which had not been addressed by the referee. There is no merit in this complaint.

Ground 3

1. Proposed ground 3 asserts that his Honour erred in not permitting Bitar to challenge the referee's classification of payments from the Gavel & Page trust account as construction or partnership expenses. Bitar's contention before the primary judge was that the total payments to Mr Mansour Taouk recorded in the Gavel & Page trust account amounted to $133,000, not $62,455.51 as determined by the referee.
2. The referee determined in the second report (at par 10.34) that payments were received from Mr Mansour Taouk of Hebbel into the BHC bank account of $63,000. The circumstances of these payments had been addressed in the first report (at pars 7.18-7.19) where the referee, acting as expert, found that Mr Mansour Taouk had made payments totalling $62,455.51 to the partnership, and had received payments of $62,455 from the Gavel & Page trust account in repayment of those amounts.
3. As mentioned, in response to the referee seeking submissions in August 2017 on the six questions referred for determination, Hebbel made submissions on this issue and Bitar chose not to do so.
4. There is no injustice in the primary judge not considering afresh the referee's factual findings concerning the transactions recorded in the Gavel & Page trust account, given that (a) in the first report, the referee had determined (as expert) the amount of payments to Mr Mansour Taouk from the trust account of $62,445 were repayments to him of amounts he had paid for the benefit of the partnership, (b) Bitar had been afforded an opportunity to make submissions including concerning the transactions recorded in the trust account, but chose not to do so and (c) those transactions had been addressed by the referee in Question 6 in the second report: Chocolate Factory at [7].

Ground 4

1. Proposed ground 4 asserts that his Honour erred in not analysing the sum of $448,593.29 referred to in the Gavel & Page trust account and in failing to find that it was not a partnership expense or a building expense. This complaint is based upon the Katter affidavit (at par 7), which was rejected by his Honour for the reasons referred to above at [8]. No oral argument was directed to proposed ground 4. That is unsurprising.
2. First, this matter had not been raised by Bitar before the referee, nor raised by Bitar at the December 2017 hearing as an issue that ought to be the subject of an additional question for determination by the referee.
3. Second, the referee had addressed the transactions on the Gavel & Page trust account in his second report (at pars 10.25-10.26). No basis has been demonstrated why the primary judge should have considered afresh the referee's factual findings.
4. Third, the assertion by Bitar that particular disbursements from the Gavel & Page trust account totalling $448,593.29 were not authorised is prima facie contradicted by the further affidavit evidence read by Hebbel on this application: Affidavit, Patrick Wiggins, 30 November 2018, p 2, par 2. It is not necessary to set out the detail of that evidence. It is sufficient to note the absence of any submissions by Bitar challenging that evidence or seeking to support this proposed ground.

Ground 5

1. Proposed ground 5 asserts that his Honour erred in not reducing the adjustment of $342,324 in favour of the partnership against Bitar by $64,054. This complaint is based on a number of transactions identified in Mr Culhane's report (page 5-6) annexed to his affidavit of 30 November 2017. The effect of the proposed adjustment would be to reduce Bitar's debt to the partnership. As indicated, the primary judge refused leave to Bitar to rely upon the Culhane reports.
2. Again, there is no injustice in the primary judge not considering afresh the referee's factual findings in relation to Question 6, given that Bitar was afforded the opportunity to make submissions to the referee in connection with Question 6 and chose not to do so, and had not raised the asserted omission in the second report at the December 2017 hearing or sought an order that this issue be the subject of an additional question for determination by the referee.

Ground 1

1. Proposed ground 1 challenges the decision of the primary judge refusing leave for Bitar to rely on the late material comprised in the Katter affidavit and the two affidavits of Mr Culhane.
2. The evidentiary ruling made by the primary judge on 26 July 2018 was a discretionary order. Appellate intervention would have been justified only on grounds of the kind discussed by Dixon, Evatt and McTiernan JJ in House v The King (1936) 55 CLR 499 at 504-505; [1936] HCA 40 and, since it was an order with respect to case management, after exercise of the particular restraint that is called for when the challenged decision is a discretionary decision on a matter of practice and procedure: In the Will of F B Gilbert (1946) 46 SR(NSW) 318; Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at 177 (Gibbs CJ, Aickin, Wilson and Brennan JJ) and 180 (Murphy J); [1981] HCA 39; Rich v Westpac Banking Corporation [2014] NSWCA 136 at [33]-[36].
3. In refusing Bitar leave to rely upon the late material, the primary judge took into account the long listing date for the hearing, and the unexplained delay in service of the late affidavits. His Honour was entitled to have regard to these matters, and case management principles (Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27), as well as the statutory dictates in ss 56-59 of the Civil Procedure Act 2005 (NSW), in particular, that the overriding purpose of the Act and the rules of court is to facilitate the just, quick and cheap resolution of the real issues in proceedings.
4. Bitar submitted that the primary judge erred in taking into account delay in serving the affidavits because the issues sought to be raised by Bitar at the July 2018 hearing were not new to the parties or their legal representatives, and there was no prejudice to Hebbel in dealing with the issues sought to be raised. I do not agree.
5. The Katter affidavit was served on the morning of the July 2018 hearing. The solicitor for Hebbel objected on the ground of late notice and indicated that he was not in a position to deal with the matters sought to be raised by Bitar: Tcpt, 26 July 2018, p 10(28-41). Counsel for Bitar frankly accepted before the primary judge that he had not raised the matters the subject of the Katter affidavit at the December 2017 hearing and no explanation for that omission was proffered by Bitar: Tcpt, 26 July 2018, p 23(47)-24(5). Plainly, allowing the late affidavits would have prejudiced Hebbel and necessitated an adjournment to afford Hebbel an opportunity to address that material.
6. Contrary to Bitar's submissions, the issues sought to be raised with respect to the adoption of the second report were new, in the sense that Bitar had not previously advanced them before the referee in connection with the second report, despite the referee affording an opportunity to both Bitar and Hebbel in August 2017 to make submissions on the six questions referred for determination.
7. No error of the House v King kind has been identified with respect to his Honour's discretionary decision not to permit Bitar to rely upon the late affidavits.

Ground 6

1. Proposed ground 6 asserts that his Honour erred in adopting the second and third reports without resolving the merits of the issues referred to in grounds 1 to 5. This ground does not take the matter any further, given the above conclusions with respect to the earlier proposed grounds.

Conclusion

1. For the reasons given above, leave to appeal should be refused. There is no reason why costs should not follow the event: UCPR, r 42.1. Accordingly, I propose the following orders: 1. Summons seeking leave to appeal dismissed. 2. Applicant pay the respondent's costs of the summons.
2. McCALLUM JA: I agree with Gleeson JA.

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