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[2025] NSWCA 235
respondent. Appeal dismissed. The appellants were ordered to pay the respondent's costs: [80].
The Court of Appeal dismissed the builder's and developer's appeal from a judgment based substantially on a referee's reports about defects in an apartment building. The main point was that the owners corporation did not automatically have to give the builder another chance to fix the defects. The builder and developer had to prove that refusing further access was unreasonable. They could not shift that burden merely by showing that access had been refused. The Court also found no procedural unfairness in the referee's treatment of correspondence, and no established error about the bathroom standard or the invoices.
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Ceerose Pty Ltd was the builder, and Prisand Investments Australia Pty Limited was the developer, of The Eliza, a 16-level apartment building in central Sydney. Construction was completed in 2014. The owners corporation alleged that aspects of the building work did not comply with statutory warranties under the Home Building Act 1989 (NSW). It commenced proceedings in 2016 in the Tribunal, and the matter was transferred to the Supreme Court in 2017 [2], [8], [11].
The parties discussed settlement, including a proposed arrangement under which Ceerose would carry out rectification work. In October 2018 they told the Court that they had reached an “in principle” settlement, but they did not finalise a deed. The appellants accepted on appeal that the arrangement was probably not specifically enforceable because it remained subject to finalisation [8]. During 2018 and 2019, the owners corporation's solicitors said that their client was losing, or had lost, confidence in Ceerose and would not permit further rectification access. A letter of 8 November 2019 stated that the owners corporation had “lost confidence” in Ceerose's ability or desire to perform the works properly and in time [10].
The appellants said they had been willing and able to rectify the defects, and that the owners corporation's refusal amounted to a failure to mitigate loss. A referee, Mr Steven Goldstein, who was both an engineer and a barrister, considered liability, the scope of rectification, and quantum [2]-[3]. He concluded that the owners corporation had not acted unreasonably in losing confidence in the appellants or refusing further access [14].
The primary judge substantially adopted the referee's reports and entered judgment for the owners corporation for approximately $1.95 million, exclusive of GST [3]. The appellants challenged that decision on four broad subjects: mitigation and burden of proof; procedural fairness concerning the referee's use of correspondence; the Australian Standard applied to bathroom drainage; and invoices for work at the building [5]-[6]. The Court of Appeal dismissed the appeal and ordered the appellants to pay the respondent's costs [80].
The main legal question concerned the onus in a failure-to-mitigate claim. Section 18BA(1) of the Home Building Act provides that a party suffering loss from breach of a statutory warranty has a duty to mitigate, and that the party alleging failure to mitigate bears the onus of establishing it [26]. The parties proceeded on the basis that common law principles applied alongside the provision, and the Court adopted that assumption because no contrary argument was advanced [27].
The Court explained that the defendant must prove facts showing the plaintiff acted unreasonably. That can involve unreasonable spending, or an omission to take a step that reasonably should have been taken to reduce loss [28]-[29]. The plaintiff is not required to establish that it perfectly mitigated its loss. The Court referred to the principle that a wrongdoer should not make “captious objections” to reasonable efforts to repair or reduce harm, and that reasonable errors of judgment do not automatically make those efforts unreasonable [30]. It also adopted the summary in Karacominakis that the defendant bears the onus and that a plaintiff need not prove it fulfilled a supposed positive duty [31].
That reasoning answered the argument about rectification access. The Court considered the statement in Di Blasio that an owner will generally need to give a builder a reasonable opportunity to rectify. Read in context, the Court said this did not create an automatic rule. Giving the builder that opportunity may be a reasonable step in some circumstances, particularly where it could avoid more expensive work by a replacement contractor, but whether it is reasonable depends on the circumstances [32]-[33]. Refusal of access is therefore a relevant fact, not proof by itself that the owner acted unreasonably. Kirk JA put it this way: “it was the start of the argument, not the end of it” [34].
The Court rejected the appellants' contention that the evidential onus shifted to the owners corporation once refusal of access was shown. It distinguished an actual evidential onus from what is sometimes called a tactical onus, which describes an assessment of which side's evidence currently appears stronger. The Court warned that calling the latter a “shifting” or “evidential” onus risks confusing it with legal burdens. At the end of the evidence, the party bearing the legal onus bears the risk of not persuading the decision-maker [35]-[38]. The appellants therefore had to prove that the refusal was unreasonable throughout. The owners corporation did not have to prove why it refused access [38]-[40].
On procedural fairness, the appellants said the referee had ruled that correspondence could not prove the truth of statements in it, then relied on that correspondence to find the owners corporation had lost confidence in Ceerose. The Court examined how the evidence had been introduced. The appellants themselves tendered the correspondence and did not then seek a restriction on its use. The referee's later remarks were not an unequivocal ruling about whether the material could be considered as evidence of the owners corporation's state of mind [43]-[53]. Further, the referee's conclusion drew on contemporaneous committee minutes, Mr Machado's evidence, and the broader history, rather than relying only on the letters [56]-[67]. The appellants had not cross-examined relevant witnesses about the asserted loss of confidence or sought to reopen the evidence [54], [70]. The Court concluded that no procedural unfairness had been established [71].
The judgment did not announce that owners may always refuse a builder access, nor that builders are always entitled to a rectification opportunity. It rejected both categorical positions. Before this judgment, the appellants relied on the proposition that a builder should receive a reasonable opportunity to rectify defects, drawing in part on the discussion in Di Blasio [32]. The Court clarified that this is not an invariable common law rule. It may be reasonable in a particular case to let the original builder rectify, but the relevant question is whether the owner's conduct was unreasonable in all the circumstances [32]-[34].
The judgment also clarified the burden of proof in this setting. The statutory text places the onus of establishing failure to mitigate on the party alleging it [26]. The Court treated the appellants, as defendants to the owners corporation's claim, as bearing the legal and evidential onus to establish the facts supporting their allegation of unreasonable conduct [33]-[34]. It rejected a proposed sequence in which proving refusal of access would move the burden to the owners corporation to demonstrate that its decision was reasonable [35]-[39].
The Court's discussion of tactical onus is significant to how the evidence is analysed. A party's case may appear stronger or weaker as evidence is led, but that does not alter the legal burden. The Court drew on XJS World to explain the risk of using “shifting onus” without specifying what kind of burden is meant [35]-[36]. It also considered CJD Equipment, noting that a statement about an evidential onus shifting “during the trial” invoked a tactical concept and did not answer who carried the legal burden at the end [37].
The judgment did not decide whether the reasonable cost of rectification should be assessed by reference to standards in force when rectification occurs. It expressly said that question need not be determined because the referee's decision did not depend on treating the later standard as legally irrelevant [73]. Accordingly, this aspect should not be read as resolving the applicable-standard question in other disputes.
At [33], the Court stated: “There is no invariable requirement that the owner provide the builder with an opportunity to rectify defects.” In plain English, the builder's entitlement to another chance is not automatic merely because a defect is alleged. The circumstances matter, including whether access would be a reasonable way of reducing the loss.
At [34], Kirk JA said that refusal of access was “the start of the argument, not the end of it.” The practical meaning is that proof of refusal does not alone prove a failure to mitigate. The party making that allegation must establish why the refusal was unreasonable in the circumstances.
At [38], the Court said the appellants bore “the onus of proof and persuasion from beginning to end” on their claim that the owners corporation acted unreasonably. That distinguishes the legal burden from a tactical view about which side's evidence appears stronger at a particular point. If the final evidence does not persuade the decision-maker that the refusal was unreasonable, the party bearing the legal burden has not proved the allegation.
At [71], the Court summarised its procedural fairness conclusion. The appellants had tendered the letters, the referee's ruling was not as unequivocal as they claimed, and other evidence supported the finding about the owners corporation's view. The translation is that an asserted evidentiary restriction must be assessed against the whole hearing record, including who introduced the material, what the ruling actually said, what other evidence was available, and whether a party had a fair chance to respond.
At [78], the Court observed that “Procedural fairness is a matter of substance not form.” In the invoice context, the relevant question was whether the appellants had a fair opportunity to meet the claim, rather than simply whether each invoice appeared in a particular schedule.
The decision is particularly relevant where a defendant says that a plaintiff could have reduced a damages claim by accepting an offer, permitting remedial work, spending less, or taking another step. The defendant must identify and prove the unreasonable conduct alleged, rather than treating the plaintiff's refusal or omission as enough by itself [29], [33]-[34].
In building-defect disputes, the decision is relevant where the owner has declined to let the original builder return to the site. The fact of refusal is relevant, and an opportunity to rectify may be reasonable in some cases, especially where the alternative is a more costly replacement contractor [32]. But the decision calls for an examination of the surrounding facts, not a presumption that the owner was unreasonable. The record in Ceerose included the history of urgent fire-safety work, alleged delays and communication problems, the parties' uncompleted settlement discussions, committee minutes, and evidence about loss of confidence [8]-[14], [56]-[68].
The judgment is also relevant where a party argues that the other side's burden shifted during the evidence. It requires careful distinction between the legal burden, an evidential burden to raise an issue, and a tactical assessment of the state of the evidence [35]-[39]. On procedural fairness, it may be relevant where a referee or other decision-maker considers correspondence or material whose permitted use is disputed. Ceerose emphasises the need to examine the actual ruling, the tendering history, the opportunity to respond, and the other evidence supporting the finding [43]-[55], [67]-[71].
It also addresses challenges to a referee's treatment of technical standards and invoices. For the standard issue, the Court found no need to resolve a general question that did not affect the reasoning on the record before it [72]-[75]. For invoices, timing after commencement of litigation and alleged omission from a schedule did not, without established error or unfairness, require rejection [76]-[79].
The supplied judgment is dated 27 October 2025 and identifies XJS World Pty Ltd v Central West Civil Pty Ltd [2025] NSWCA 133 as a recent decision it relied on when explaining tactical onus [35]. Ceerose therefore uses XJS World as part of its reasoning about the distinction between a legal burden and a tactical assessment of the evidence.
The judgment also refers to CJD Equipment Pty Ltd v A&C Constructions Pty Ltd [2011] NSWCA 188. It treats the relevant statement in that case as describing a tactical onus during trial, and notes that the other two members of the Court in CJD Equipment did not adopt the same mitigation analysis [37]. It does not treat CJD Equipment as displacing the legal burden described in Ceerose.
The provided judgment text does not identify decisions issued after Ceerose or give a history of later judicial treatment of Ceerose itself. Accordingly, later application, approval, distinction, or reconsideration cannot be determined from this source alone. The outcome stated here is the Court of Appeal's own holding in this appeal, not a claim about how subsequent courts have applied it.
The Court expressly left open whether a reasonable rectification-cost assessment should take account of standards in force at the time the rectification is carried out [73]. Its decision rested on the particular evidence: the experts agreed that all bathrooms had inadequate falls, the later standard's ponding method had limitations, and the appellants had time to explore that issue before the referee heard evidence [72]-[74]. A case in which the applicable standard is decisive, properly tested, and contested on a different evidentiary record could require the question to be resolved.
The judgment also leaves the reasonableness of refusing rectification access dependent on the facts of each case. It does not prescribe a checklist or set a threshold for when a builder's past performance, delay, communication, or the relationship between the parties makes refusal reasonable. It establishes the governing question and burden, not the answer for every building dispute [32]-[34].
The Court proceeded on the parties' assumption that common law mitigation principles applied alongside s 18BA, because no contrary argument was presented [27]. The judgment therefore does not analyse possible differences between the statutory provision and common law principles in a case where that interaction is squarely disputed.
Finally, Ceerose does not determine the weight to be given to every category of correspondence or witness evidence in a referee hearing. Its procedural fairness conclusion turned on the particular tender, the content and ambiguity of the referee's remarks, the supporting evidence, and the appellants' forensic choices [43]-[71]. Different circumstances, including a clear evidentiary restriction followed by reliance on the restricted material without a fair opportunity to respond, would require separate assessment.
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Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: Ceerose Pty Ltd v The Owners – Strata Plan No 89074 [2025] NSWCA 235
Hearing dates: 1 July 2025
Date of orders: 27 October 2025
Decision date: 27 October 2025
Before: Leeming JA at [1];
Kirk JA at [2];
Ball JA at [81]
Decision: (1) Appeal dismissed.
(2) Appellants to pay the respondent’s costs.
Catchwords: CONTRACTS — remedies — damages — mitigation of loss — whether conduct was unreasonable in the circumstances such that some or all of the claimed loss should be disregarded — legal and evidentiary onus on the party asserting a failure to mitigate — no “positive obligation” to provide builder an opportunity to rectify damage — invocation of a “shifting” or “tactical onus” misconceived and should be avoided
CIVIL PROCEDURE — alternative dispute resolution — court referral to referee — claimed denial of procedural fairness — no procedural unfairness established
Legislation Cited: Home Building Act 1989 (NSW), ss 18B, 18BA
Uniform Civil Procedure Rules 2005 (NSW), r 20.24
Cases Cited: Arsalan v Rixon (2021) 274 CLR 606; [2021] HCA 40
Bagnall v National Tobacco Corporation of Australia Ltd (1934) 34 SR (NSW) 421
Cessnock City Council v 123 259 932 Pty Ltd [2024] HCA 17; (2024) 98 ALJR 719
CJD Equipment Pty Ltd v A&C Constructions Pty Ltd [2011] NSWCA 188
Jones v Dunkel [(1959) 101 CLR 298; [1959] HCA 8
Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313; (2000) 10 BPR 18,235
Lodge Holes Colliery Company Ltd v Wednesbury Corporation [1908] AC 323
Munce v Vinidex Tube Makers Pty Ltd [1974] 2 NSWLR 235
Owners SP 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067
XJS World Pty Ltd v Central West Civil Pty Ltd [2025] NSWCA 133
Texts Cited: Julian Bailey, Construction Law: Volume II (1st ed, 2011, Routledge)
Category: Principal judgment
Parties: Ceerose Pty Ltd (First appellant)
Prisand Investments Australia Pty Limited ACN 105 064 239 (Second appellant)
The Owners – Strata Plan No 89074 (Respondent)
Representation: Counsel:
M Ashhurst SC / MT Keene (Appellants)
F Hicks SC / W Marshall (Respondent)
Solicitors:
Salim Rutherford Lawyers (Appellants)
Hamilton Locke Lawyers (Respondent)
File Number(s): 2024/475105
Publication restriction: Nil
[This headnote is not to be read as part of the judgment]
Ceerose Pty Ltd (the first appellant) and Prisand Investments Australia Pty Limited ACN 105 064 239 (the second appellant) were the builder and developer, respectively, of an apartment building in the centre of Sydney known as “The Eliza”. The building was completed in 2014, and in light of defects which emerged, the owners corporation (the respondent) commenced proceedings. The respondent alleged that the building work did not comply with the requirements of the Home Building Act 1989 (NSW), identifying a range of defects. The appellants implicitly admitted the existence of some of these, claiming that they had always been ready, willing and able to rectify the defects but that the respondent would not let them do so, which was said to constitute a failure by the respondent to mitigate damage. On a number of occasions in 2018-2019 the respondent’s solicitors had informed the appellants’ solicitors that the respondent was losing or had lost confidence in Ceerose and that it was unwilling to allow Ceerose any further opportunities to repair the defects.
The matter was referred to a referee who produced a report on liability issues and then a report on quantum for the rectification works. On the mitigation issue the referee concluded that the appellants bore the onus to prove facts establishing that the decision to deny access to rectify was unreasonable. He concluded that the respondent did not act unreasonably in losing confidence in the appellants and in refusing to allow them access to carry out further rectification works.
The respondent sought that both reports be adopted by the Supreme Court and that judgment be entered for an identified sum. The respondents filed a countervailing motion seeking the rejection of certain aspects of the reports and a declaration that the respondent had failed to mitigate its loss such that any avoidable loss could not be recovered. The primary judge rejected almost all of the challenges to the reports, substantially adopted them, and gave judgment for the respondent in the amount of some $1.95 million excluding GST.
On appeal the appellants challenged the adoption decision, raising the following issues:
(1) whether the primary judge erred in failing to find that the referee had denied the appellants procedural fairness by relying on evidence contrary to an earlier ruling;
(2) whether the primary judge erred by failing to find that the referee had misapplied the legal principles relating to mitigation, in particular by not accepting that the respondent had a “positive obligation” to afford the builder a reasonable opportunity to rectify alleged defects;
(3) whether the primary judge erred in failing to find that the referee applied a superseded version of an Australian Standard to be applied to a bathroom drainage issue; and
(4) whether the primary judge erred by not rejecting that part of the referee’s reports which took account of certain invoices.
The Court held (Kirk JA, Leeming and Ball JJA agreeing), dismissing the appeal:
Failure to mitigate
1. It was convenient to address this issue first, as doing so served to put the procedural fairness argument in context. It has long been established that even though a plaintiff bears the duty of establishing a loss, the onus is on the defendant to prove facts going to a claim of failing to mitigate a loss, including where the plaintiff incurs costs while attempting to ameliorate its loss or whether it is claimed that the plaintiff should have taken steps to reduce its loss. Establishing a failure to mitigate depends on the defendant establishing that the plaintiff has acted unreasonably in some respect: [27]-[29]. In relation to building contracts, there is no invariable requirement that the owner provide the builder with an opportunity to rectify defects: [32]. The issue is whether the plaintiff’s conduct was unreasonable in the circumstances such that some or all of the claimed loss should be disregarded. The defendant bears both the legal and evidential onus in that regard. The respondent had no “positive obligation” to provide the appellants an opportunity to rectify the defects: [33]-[34].
Arsalan v Rixon (2021) 274 CLR 606; [2021] HCA 40; Cessnock City Council v 123 259 932 Pty Ltd [2024] HCA 17; (2024) 98 ALJR 719; Bagnall v National Tobacco Corporation of Australia Ltd (1934) 34 SR (NSW) 421; Munce v Vinidex Tube Makers Pty Ltd [1974] 2 NSWLR 235; Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313; (2000) 10 BPR 18,235; Owners SP 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067; Lodge Holes Colliery Company Ltd v Wednesbury Corporation [1908] AC 323, referred to.
2. The appellants’ assertion that “the evidentiary onus shifted” if the defendant established that the plaintiff had not provided it with an opportunity to rectify the defects, thereby invoking what has been called a “tactical” onus, is misconceived. The appellants bore the onus of proof and persuasion from beginning to end with respect to their claim that the respondent acted unreasonably. The respondent did not have “to positively establish grounds upon which a reasonable person in its position would reject the builder’s offer…”. The appellants’ speculation as to another purpose for failing to provide the builder another opportunity did little if anything towards discharging their onus: [35]-[40].
XJS World Pty Ltd v Central West Civil Pty Ltd [2025] NSWCA 133, referred to.
CJD Equipment Pty Ltd v A&C Constructions Pty Ltd [2011] NSWCA 188, considered.
P**rocedural fairness
3. The appellants accused the referee of a “procedural ambush” by relying on what was said in letters sent by the respondent’s solicitors about the respondent losing or having lost confidence in Ceerose’s ability and willingness to rectify defects where it was said the referee had ruled they would not be so used: [41]. The appellants’ case before the referee, in the court below and in this Court was based on the misunderstanding that the respondent bore the onus because it had “shifted”. Their complaint relates to letters that they themselves tendered, where they sought no restriction on the use of the letters when this occurred. The retrospective ruling of the referee was not as unequivocal as they claim. And even if the ruling was understood so as not to allow the letters to be relied upon as going to the state of mind of the respondent, there is no unfairness because the referee’s conclusion that they did in fact manifest the view of the respondent was based upon other evidence. No procedural unfairness has been established: [71]
Application of incorrect Australian Standard
4. The appellants argued that the referee should have had regard to the standards in force at the time the rectification is carried out. It is not necessary to determine that point. The referee did indicate that he considered the later standard was not applicable. However, his decision did not depend on a conclusion that the later version was legally irrelevant. Further, there is no error in the analysis by the primary judge to the effect that the appellants had ample time to explore the matter but had not done so by the time the referee heard evidence on the issue: [72]-[75]
Failure to reject certain invoices
5. The appellants argued that certain invoices should have been rejected because: they were rendered after the commencement of litigation; they did not form part of a particular schedule; and details were lacking as to the works the subject of the invoices. No error has been established in the primary judge’s conclusion in relation to each of those claims: [76]-[79].
LEEMING JA: I agree with Kirk JA.
KIRK JA: This appeal stems from a building dispute concerning an apartment building known as “The Eliza” on Elizabeth Street in the centre of Sydney. The first appellant, Ceerose Pty Ltd, is the builder. The second appellant, Prisand Investments Australia Pty Limited ACN 105 064 239, is the developer. The respondent is the owners corporation. The proceedings were commenced by the respondent against the appellants in 2016 in the Civil and Administrative Tribunal and transferred to the Equity Division of the Supreme Court in 2017. After a prolonged delay caused by settlement discussions, followed by the service of pleadings and evidence, orders were made for the matter to be referred to a referee, Mr Steven Goldstein, for inquiry and report under Pt 20, Div 3 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). The referee is both an engineer and a barrister.
The referee produced a report on liability and the rectification scope of works in March 2023 (the Liability Report). In June 2024 he produced a report on quantum for the rectification works. The respondent then sought that the two reports be adopted by the Supreme Court and, on that basis, sought judgment for an identified sum. The appellants filed a countervailing motion seeking that certain parts of the reports be rejected, and also sought a declaration that the respondent had “failed to mitigate its loss, reasonably or otherwise, such that any avoidable loss cannot be recovered”. The primary judge, Rees J, rejected nearly all of the respondents’ challenges to the reports (other than with respect to some minor arithmetic errors), substantially adopted the reports, and gave judgment for the respondent in the amount of some $1.95 million exclusive of GST: The Owners – Strata Plan No 89074 v Ceerose Pty Ltd [2024] NSWSC 1494 (J).
The appellants have challenged the adoption decision, advancing 10 grounds of appeal. The decision whether or not to adopt a referee’s report is discretionary: UCPR, r 20.24. The appellants are thus required to establish an error of House v The King kind. The respondent raised eight points in a notice of contention which, in the event, it is unnecessary to address. The errors asserted by the appellants are not established. The appeal should be dismissed with costs.
The issues raised by the appellants are as follows:
Their “primary issue” was whether the court below erred in failing to find that the referee had denied the appellants procedural fairness (grounds 1-4). The claimed denial was “determining several issues of fact … by reliance on hearsay evidence contrary to the earlier rulings on evidence previously made by the Referee”. That evidence went to a central matter in dispute, being the appellants’ claim that the respondent had failed to mitigate its loss.
The appellants entered into building contracts to construct a 16 level apartment building consisting of 19 residential lots, one commercial lot and a basement car park. Construction was completed in 2014. Disputes arose about defects in the building, leading to the proceedings being commenced. On the first 17 occasions the proceedings were listed before the Court (after being transferred from the Tribunal) they were stood over at the parties’ request to enable settlement discussions to progress. In October 2018 the parties informed the Court that the parties had reached an “in principle” settlement and were in the process of finalising a deed of settlement which would provide for the appellants to undertake a list of rectification work. However, the parties could not reach final agreement on the terms of the settlement. The appellants’ senior counsel accepted in this Court that such agreement as had been reached was “probably not capable of being specifically enforced” because it was always to be subject to finalisation in a deed.
An extraordinary general meeting of the respondent was held on 29 April 2019 at which it was resolved to impose a special levy to raise $820,000 for purposes which included legal pursuit of the claim against the appellants. The meeting also resolved to authorise the executive committee to “use its discretion and make decisions about the Defects claim, subject to taking into account legal advice from DEA Lawyers, which includes (but is not limited to), negotiating with Ceerose and Prisand and resolving the Defects Claim”. DEA Lawyers were the respondent’s then solicitors with respect to the claim.
On a number of occasions in 2018-2019 the respondent’s solicitors informed the appellants’ solicitors that their client was losing or had lost confidence in the builder and was unwilling to allow the builder any further opportunity to repair the defects. Ultimately, the following was said in a letter dated 8 November 2019:
It is also important to repeat that my client has lost confidence that your client has the ability or desire to perform the rectification works properly and in a timely manner and, as such, it is unwilling to allow your client any further opportunity to repair the defects.
In its technology and construction list statement the respondent alleged that the building work by Ceerose did not conform to the requirements of the statutory warranties set out in s 18B of the Home Building Act 1989 (NSW). A range of defects were identified in a schedule. In their list response the appellants implicitly admitted the existence of some defects. However, they said (amongst other things) that they had always been ready, willing and able to rectify any defective works but the respondent had not permitted them to do so. That was said to constitute a failure by the respondent to mitigate its damage. Annexure A to the list response was a table setting out 95 defects which the appellants said they had offered to undertake to rectify on a without admissions basis, which offer had been refused. The annexure was based upon a schedule attached to an iteration of the draft deed of settlement. Both sides indicated in their respective list documents that all issues were appropriate for referral to a referee.
A key dispute between the parties in relation to the mitigation issue related to the issue of onus of proof. In the Liability Report the referee summarised the parties’ positions as follows (footnotes omitted):
75. The Owners submitted that in respect of the Defendants’ ‘failure to mitigate defence’, the Defendants bore the legal and evidentiary onus with respect to this defence. It was not for the Owners to prove that it acted reasonably.
76. The Defendants submitted that once a builder had established that the principal had refused it access to rectify the defects, then the builder had discharged its onus of proving failure to mitigate. It was then incumbent on the principal to prove that it was reasonable in all circumstances for it not to have done so. Whilst the defendant carries the ultimate legal onus and the initial evidentiary onus of proving a failure to mitigate this does not prevent the evidentiary onus shifting to the plaintiff during the trial.
77. In the present case, the Defendants submitted that as they could demonstrate that on 8 November 2019, the Owners refused the Builder access to rectify the defects, the evidentiary onus was on the Owners to establish that it was reasonable for it to have acted in this way.
The referee did not accept the respondents’ argument, saying that “the onus of proof rests with the Defendants to prove the facts which establish that the decision to deny access on 8 November 2019, or at any other time, was unreasonable”.
The referee addressed the mitigation issue in detail at paras 54-244 of the Liability Report. He summarised his conclusions as follows:
a. The Defendants were given a reasonable opportunity to undertake defect rectification to the urgent fire safety works: … [then giving details]
b. The Defendants failed to keep the Owners properly informed about the progress of the rectification works in that: … [then giving details]
c. The Owners did not act unreasonably in losing confidence in the Defendants in relation to all of the urgent works described above;
d. The Owners did not act unreasonably on 8 November 2019 when they refused to allow the Defendants access to carry out any further rectification work; and
e. The Owners did not act unreasonably in losing confidence in the Defendants’ willingness and ability to carry out the other non-urgent defect rectification work.
Once Ceerose established that it was willing and able to undertake rectification, that the parties had agreed on the terms of that rectification and was denied the opportunity, the evidentiary onus shifted decisively to the Respondent to prove that its refusal was reasonable in all the circumstances. The Respondent had to positively establish grounds upon which a reasonable person in its position would reject the builder's offer to rectify at potentially lower cost. The primary judge did not engage with whether the Referee correctly applied this onus. [footnote omitted]
What was possibly being considered here was instead of proceeding with the entitlement to have the defects all repaired, the alternative is to get a cash settlement and then that money may or may not get allocated to carrying out the repairs, and it may be that there would be a windfall to the owners corporation because they have a judgment against the builder, and with no necessity to actually carry out those repairs, and they could bank the moneys that were not required to carry out the repairs.
The appellants pointed to no material evidence in support of this claim, other than the fact that the parties had come close to agreeing on settlement of their dispute involving Ceerose undertaking rectification of defects (as noted above, the appellants did not assert that a contractual agreement on rectification had been reached). Senior counsel for the appellants said of this alternative theory, “[i]t’s possible, and we put it no higher than this”. He later described the possibility by saying that “there may be an alternative available inference”.
The appellants argued that once the claimed “evidentiary onus” had shifted to the respondent then it was for the respondent to prove that it had refused to let Ceerose rectify the defects because of a loss of confidence. More broadly, it “had to positively establish grounds upon which a reasonable person in its position would reject the builder’s offer”. In substance, the appellants argued that a refusal by an owner to allow the builder to undertake rectification work – at least in circumstances where there had been some advanced negotiations to that end – created a rebuttable presumption that the owner had acted unreasonably and failed to mitigate its loss.
The appellants said that the referee erred in relying upon what was said in letters sent by the solicitors asserting the respondent’s loss of confidence in Ceerose, including the clear statement in the letter of 8 November 2019 (quoted above at [10]). They asserted that in the course of the liability hearing the referee “unequivocally made the Ruling that correspondence between the parties would not be admitted to prove the truth of the statements made therein” (the nature of this ruling is discussed below). The referee’s departure from this “clear and unmistakable” ruling constituted a “procedural ambush”, in breach of the requirements of procedural fairness. The requirements of procedural fairness applied regardless of whether or not the rules of evidence were applicable. This “fundamental procedural breach … manifested primarily in the Referee’s impermissible reliance on hearsay evidence – specifically, assertions within solicitor correspondence”.
It was also asserted that there was an “unexplained failure” by the respondent to call “direct evidence” from members of its strata executive committee as to whether or not the committee had lost confidence in Ceerose. The appellants said that this “compels the application of the principle in Jones v Dunkel [(1959) 101 CLR 298; [1959] HCA 8]”, and that this gap in the evidence “strongly suggests” that “their evidence would have been damaging to the Respondent’s assertion of a reasonable loss of confidence”. The appellants noted (correctly) that the minutes of the strata committee did not record in terms the claimed lack of confidence. The respondent did call evidence from Mr Patrick Machado, who was part of the executive committee from about 2016 to 2020 and who (to quote J [58]) “ran the owner’s defects sub-committee”. The appellants said that evidence rose no higher than Mr Machado’s own views.
The consequence of this procedural dereliction was not trivial; it inflicted substantial and irremediable prejudice upon Ceerose. Having conducted its case in legitimate reliance upon the Referee’s express “Ruling” – foregoing lines of cross-examination directed at the truth of the correspondence and potentially necessary rebuttal evidence – Ceerose was left utterly unable to counter the Referee’s retrospective reliance on that very material. This denial of a fair opportunity to be heard on evidence ultimately used against it renders the affected parts of the Report unsafe, unjust, and liable to rejection by this Court. [footnotes omitted]
The appellants noted that they had not challenged Mr Machado in cross-examination on the respondent’s reasons for declining to allow Ceerose to rectify the defects, and they had not cross-examined the strata manager, Mr Van Oort, at all (he had provided two affidavits).
The appellants’ conclusion, asserted in ground 7 of the notice of appeal, was:
The primary judge should have held that as a consequence of the ruling there was not evidence enough, or at all, for the Respondent to displace its evidentiary onus of establishing that a reasonable person in the Respondent’s position would have in all the circumstances refused the Appellant access on 8 November 2019, to rectify the defects.
Breach of a statutory warranty implied in a contract constitutes a breach of the contract and accordingly—
(a) a party to the contract who suffers loss arising from the breach has a duty to mitigate their loss, and
(b) the onus of establishing a failure to mitigate loss is on the party alleging the failure.
At all levels the parties have proceeded on the assumption that common law principles relating to mitigation apply, unaffected by the Act, including with respect to onus. In the absence of argument to the contrary, I shall do the same.
It has long been established that even though a plaintiff bears the duty of establishing loss, the onus is on the defendant to prove facts going to a claim that the plaintiff failed to mitigate the loss: see, eg, Bagnall v National Tobacco Corporation of Australia Ltd (1934) 34 SR (NSW) 421 at 430 (Jordan CJ). The High Court said this in Arsalan v Rixon (2021) 274 CLR 606; [2021] HCA 40:
[32] Where a plaintiff acts in an attempt to reduce a loss, the onus shifts to the defendant to show that the acts actually taken by the plaintiff were unreasonable acts of mitigation. Unless the plaintiff’s actions are shown to be unreasonable, costs that are incurred in an attempt to mitigate loss caused by wrongdoing become, themselves, a head of damage that can be recovered. Even if the costs incurred by the plaintiff are greater than the loss that was attempted to be mitigated, those costs will be recoverable other than to the extent that they are shown to be unreasonable. [footnotes omitted]
The High Court was addressing circumstances where the plaintiff incurs costs in attempting to ameliorate the loss or its effects. The principle as to onus is the same where the defendant claims the plaintiff should have taken steps to reduce loss. That type of issue is addressed as a matter of mitigation even though, as Ball J has pointed out, “the [plaintiff] is not mitigating its loss, but rather the [defendant’s] damages”: Owners SP 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067 at [44]. Whether or not a failure to mitigate is established depends upon the defendant establishing that the plaintiff has acted unreasonably in some respect. That might be so by acts (incurring unnecessary or unreasonable expenses) or omissions (failing to take steps that reasonably should have been taken to reduce the loss). Loss “which is due to unreasonable or improvident actions of the plaintiff is generally disregarded by application of the rules of mitigation of loss”: Cessnock City Council v 123 259 932 Pty Ltd [2024] HCA 17; (2024) 98 ALJR 719 at [120(3)] (Edelman, Steward, Gleeson and Beech-Jones JJ).
Neither excessive diligence nor perfection is required of a plaintiff in this regard. As Lord Loreburn LC said in Lodge Holes Colliery Company Ltd v Wednesbury Corporation [1908] AC 323 at 325:
Now I think a Court of justice ought to be very slow in countenancing any attempt by a wrong-doer to make captious objections to the methods by which those whom he has injured have sought to repair the injury. … Errors of judgment may be committed in this as in other affairs of life. It would be intolerable if persons so situated could be called to account by the wrong-doer in a minute scrutiny of the expense, as though they were his agents, for any mistake or miscalculation, provided they act honestly and reasonably.
[187] A plaintiff who acts unreasonably in failing to minimise his loss from the defendant’s breach of contract will have his damages reduced to the extent to which, had he acted reasonably, his loss would have been less. This is often misleadingly referred to as a duty to mitigate, although the plaintiff is not under a positive duty. The plaintiff does not have to show that he has fulfilled his so-called duty, and the onus is on the defendant to show that he has not and the extent to which he has not. Since the defendant is a wrongdoer, in determining whether the plaintiff has acted unreasonably a high standard of conduct will not be required, and the plaintiff will not be held to have acted unreasonably simply because the defendant can suggest other and more beneficial conduct if it was reasonable for the plaintiff to do what he did. [citations omitted]
Even where a contract does not require the owner, or the contract administrator, to give the contractor the opportunity of correcting a defect for which it is responsible, it may, in the circumstances, be a reasonable step for the owner, in attempting to mitigate its loss, to give the contractor such an opportunity. This is especially so where the alternative is for the owner to engage a new contractor to perform the remedial work, where the new contractor may – rightly – only wish to undertake the remedial work on the basis that it be performed from scratch (and for a substantial cost), rather than attempting to fix up the suspect or shoddy work of the first contractor; whereas if the first contractor were given the opportunity to correct its work the cost would be relatively small. [citations omitted, emphasis added]
As this explanation indicates, there is no invariable requirement that the owner provide the builder with an opportunity to rectify defects. The issue is whether the conduct of the plaintiff – including the failure to provide an opportunity to rectify – was unreasonable in all the circumstances, such that some or all of the claimed loss resulting from the breach of contract should be disregarded. The onus of proof and persuasion in that regard is on the defendant. That onus is a legal one. It is for the defendant to establish the relevant facts on the balance of probabilities and to persuade the decision-maker of the conclusion. The defendant also bears the evidential onus on the point, that is, it is for the defendant to identify evidence sufficient to raise the issue: Munce v Vinidex Tube Makers Pty Ltd [1974] 2 NSWLR 235 at 239.
The respondent did not have a “positive obligation” to provide the appellants an opportunity to rectify the claimed defects (to quote grounds 5 and 6 of the notice of appeal). The refusal of such an opportunity by the respondent was a relevant fact which the appellants could invoke in arguing that the respondent’s damages claim should not be upheld in whole or part. But it was the start of the argument, not the end of it. The appellants needed to persuade the referee that in all the circumstances of the case the respondent’s refusal was unreasonable, and they needed to establish the facts which supported that argument.
The appellants asserted that “the evidentiary onus shifted” if the defendant established that the plaintiff had not provided it with an opportunity to rectify defects. They accused the respondent of “conflat[ing] the stable legal onus with the shifting evidentiary onus”. The appellants seemed thereby to invoke the notion of what has been called a “tactical” onus given that, as discussed, both the legal and evidential onuses were on the appellants. Their argument illustrates (again) the confusion commonly created by that notion, and why its invocation is best avoided. Given the centrality of this point to the appellants case, it is worth repeating what this Court said recently in XJS World Pty Ltd v Central West Civil Pty Ltd [2025] NSWCA 133:
[45] Both parties referred to the notion of a “shifting” onus. That language can be apt to deceive: note Brady (Inspector of Taxes) v Group Lotus Car Cos plc [1987] 2 All ER 674 at 686-687. What is generally meant by that language … is to refer to what has been called the “tactical” onus, that being simply “a tactical evaluation of who is winning at a particular point in time”: CR Williams, “Burdens and Standards in Civil Litigation” (2003) 25 Sydney Law Review 165 at 168. The “tactical” understanding of onus is liable to be confused with instances where there is an evidentiary onus requiring that the side bearing that onus points to sufficient evidence for an issue to be raised (after which the legal onus may be on the other side). It can also be distinguished from the principle of judicial reasoning that all evidence is to be weighed according to the proof which it is in the power of one side to have produced and the power of the other to have contradicted: Blatch v Archer (1774) 1 Cowper 63 at 65; 98 ER 969 at 970; Vetter v Lake Macquarie City Council (2001) 202 CLR 439; [2001] HCA 12 at [36]. ...
[46] This Court has warned of the dangers of confusion when invoking the notion of a “shifting” or “tactical” onus. Macfarlan JA explained the point as follows in Commissioner of Police (New South Wales Police Force) v Zisopoulos [2020] NSWCA 236; (2020) 299 IR 314 (see also Bell P at [61]-[62] and [88] and Wright J at [170] and [215]):
[97] As stated in JD Heydon, Cross on Evidence (online ed, March 2020, LexisNexis Australia) at [7210] this type of [tactical] burden is “devoid of legal significance because there is no means of telling when it has been brought into existence or when it has been discharged”. This is because those conducting a case will not know whilst the case is in progress what the judicial officer is thinking about who will win if no further evidence is adduced. There is good reason therefore to avoid reference to the concept during a hearing. If reference is to be made to it in a judgment describing, in retrospect, the course that the hearing took, a name, such as “tactical onus”, should be used to preclude ambiguity.
[98] It can be confusing to describe the concept as the “evidential onus” as that term refers instead to the distinct concept of an onus of introducing evidence. That onus arises when a case will be decided without consideration of a particular issue unless the party upon whom the evidential onus rests adduces some evidence to require the party bearing the legal burden of proof to address it (see for example Purkess v Crittenden (1965) 114 CLR 164 at 168; [1965] HCA 34 and Strong v Woolworths Ltd (2012) 246 CLR 182; [2012] HCA 5 at [52]). …
[47] The notion of a “tactical” or “shifting” onus is also of doubtful utility at the end of a hearing (or in an appeal) when the course of adducing evidence has come to an end. The question at that point with respect to a factual matter properly raised is whether the party bearing the legal burden of proof has discharged it. The risk of non-persuasion lies on the person bearing the legal burden.
The tactical notion of onus is employed as though litigation were a sporting contest, addressing which side is leading at a particular point in the game. But in sporting contests the winner is the person or team ahead when the game ends. In litigation, disputes are resolved when receipt of the evidence has concluded and the evidence is assessed. In the case of a draw – where the court is not persuaded either way – the party bearing the legal onus loses.
The appellants referred to a statement by Handley AJA that “[t]he fact that the defendant carries the ultimate legal onus and the initial evidentiary onus of proving a failure to mitigate does not prevent the evidentiary onus shifting to the plaintiff during the trial”: CJD Equipment Pty Ltd v A&C Constructions Pty Ltd [2011] NSWCA 188 at [88]. That statement invokes a tactical onus, as illustrated by the reference to what occurs during the trial. It is not relevant to the assessment at the end of the trial. It can also be noted that the other two members of this Court did not adopt his Honour’s analysis on mitigation.
The appellants’ arguments about onus are thus misconceived. It is wrong to say that “the evidentiary onus shifted decisively to the Respondent to prove that its refusal was reasonable in all the circumstances” once it was established that Ceerose was ready and willing to undertake rectification works. The appellants bore the onus of proof and persuasion from beginning to end with respect to their claim that the respondent had acted unreasonably. The respondent did not have “to positively establish grounds upon which a reasonable person in its position would reject the builder’s offer to rectify at potentially lower cost”.
The appellants’ case theory was, in effect, that it was for the respondent to prove that its decision not to allow Ceerose to undertake rectification works was because it had lost confidence in Ceerose’s ability and willingness to undertake the works rather than for some other reason. Yet the respondent bore no onus. The appellants’ forensic choice not to cross-examine Mr Machado and Mr Van Oort on the issue simply means that they did not explore an issue on which they bore the onus; it does nothing to assist them to discharge that onus. Their speculation as to another purpose – which they conceded was a mere possibility – did little if anything towards discharging their onus.
The primary judge thus did not err in failing to hold that there “was not evidence enough, or at all, for the Respondent to displace its evidentiary onus”. Grounds 5-7 must be rejected.
The appellants accused the referee of a “procedural ambush” – a term suggestive of bad faith – saying that his finding that the respondent had lost confidence in the builder was “fatally undermined by profound procedural unfairness”. The supposed ambush was the referee’s reliance on what was said in letters sent by the respondent’s solicitors about the respondent losing or having lost confidence in Ceerose’s ability and willingness to rectify defects, where it was said the referee had ruled that the letters would not be so used. There was no such ambush. There was no procedural unfairness, let alone of a profound kind.
The premise of the complaint is that the respondent bore a positive onus on the mitigation issue and was required to put forward evidence which would demonstrate that it had not acted unreasonably. The impermissible reliance on the letters as evidence would thus undermine the basis upon which the referee could make such a determination. As just explained, the respondent did not bear any such onus. The respondent did not need to prove that it had not acted unreasonably. Rather, the appellants had to prove that the respondent had acted unreasonably. That the appellants chose not to cross-examine on the issue or to call further evidence, in claimed reliance on the ruling, was a forensic choice made based upon their own legal misunderstanding. Those choices were made at the appellants’ own risk.
No procedural fairness has been established by the appellants. To begin with, it is necessary to address what the referee’s ruling was and how it came about. The oddity, if not absurdity, of the appellants’ position is that they complain of the referee relying on what was said in letters sent by the respondent’s solicitors, yet it was the appellants themselves who tendered those letters, and at the time they did so they did not seek any restriction on the use to which they could be put.
The liability hearing before the referee commenced on 19 April 2022. At the beginning of the hearing the respondent’s counsel complained that affidavits had been served late by the appellants. One of those affidavits was by a director of both appellants, Mr Edward Doueihi, which exhibited the correspondence between the parties as to the defendant’s offers to rectify the defects. As to that affidavit, the respondent’s counsel (Mr Hand) complained about the lateness of the material being served and the non-compliance with the court-imposed timetable; about prejudice in having to gather material in response; and about the fact that some of the correspondence was “without prejudice”. As to the claimed prejudice, senior counsel for the appellants (Mr Ashhurst) said this:
He says they need to speak to witnesses. Why? This is correspondence passing between the parties. There’s no alleged conversations that are relevant. It’s correspondence passing between the parties. He doesn’t explain why he needs to speak to any of these witnesses.
Firstly, there has to be some evidence of where that document comes from that’s attached to the pleading. Otherwise we don’t know the basis for that.
I’m prepared to allow the affidavit, but it’s subject to objections to any – what ..... subject to any without prejudice discussions involving settlement, and I will give the plaintiff the opportunity to put on an affidavit and any attachments in reply …
Neither side sought any limitation be placed on the use to which the correspondence attached to the affidavit could be put (leaving aside the issue of whether any significance should be attached to the “without prejudice” nature of the correspondence, which was left for later debate). No such limitation was imposed. Indeed, the appellants’ senior counsel had rejected any suggestion that witness evidence was needed to explain the contents of the correspondence which, he suggested, spoke for itself.
The respondent later served an affidavit of Mr Machado dealing with the issue. The appellants had a number of objections to that affidavit. The appellants’ position with respect to the use that could be made of correspondence now reversed, their senior counsel saying this:
I’m assuming that the exhibit of the correspondence between the parties is not tendered to prove the truth of the statements made in the annexures; only that the communications were made.
However, we agree what’s sauce for the goose is sauce for the gander, and we do not tender any of that material as evidence of anything other than the correspondence: “These are the communications.” And that’s why I think we said earlier we could have tendered all of that evidence simply as, “Here’s the communications.”
MR HAND: I understood that they were relying on the correspondence attached to Mr Doueihi’s affidavit for purposes other than proof of the fact of the communication.
MR GOLDSTEIN: Mr Ashhurst has said no.
MR ASHHURST: It’s not.
MR GOLDSTEIN: And if that’s the case, then I would have thought, again, what’s good for the goose is good for the gander.
MR HAND: Yes. Yes. Yes.
MR GOLDSTEIN: That, if both of those affidavits and the supporting correspondence are received on that basis, then that ought to remove that objection.
MR HAND: Yes. And I make one further point, which is that you as referee are not bound by the rules of evidence.
MR GOLDSTEIN: I know that. Yes. But it still doesn’t mean that I should allow without prejudice communications in on a willy-nilly basis. I think I have still got to be fairly responsible in the approach. [emphasis added]
In the Defendants’ mitigation submissions, the defendants submitted that when considering the chronology, it was important for me to note that an assertion in correspondence between solicitors was not proof of the existence of the fact so asserted. In this regard, it was pointed out (correctly) that I had already made a general ruling to that effect during the hearing.
It thus appears that in the end there was some ruling made which retrospectively limited the use that either side might make of the correspondence relating to Ceerose rectifying defects. But the appellants’ stridently expressed complaints ring rather hollow in the context outlined.
Moreover, the ruling cannot be said to be “unequivocal”. The basis on which it was received was as “proof of the fact of the communication” (to quote what Mr Hand said at the start of the exchange just set out). It did not address issues of state of mind and, in particular, whose mind was relevant. The appellants did not dispute that the correspondence could be used as evidence of the state of mind of the sender, but said that the sender (relevantly) was the respondent’s solicitors, and their state of mind was not to the point. That issue was not addressed directly in the ruling.
It is also notable that despite the appellants’ complaints of a “procedural ambush”, in fact the referee drew upon submissions made by the respondent which invoked the correspondence and argued why it could be relied upon, to which the appellants had the chance to respond, which opportunity they took. As the respondent correctly said in its submissions to this Court:
No submissions were made to the Referee that the correspondence could not be used to establish the loss of confidence of the Respondent because of any forensic decision or particular prejudice to the Appellants. Further, the Appellants could have sought to withdraw their tender of the correspondence or communications, sought leave to further cross-examine witnesses, or sought leave to reopen to call rebuttal evidence. They did none of these things.
Even if the ruling is understood to mean that the letters of the respondent’s solicitors could not be relied upon per se to prove the truth of the fact that the respondent was losing or had lost confidence in Ceerose undertaking rectification work, no material prejudice or unfairness has been identified by the appellants.
In the Liability Report the referee addressed the issue by determining whether the claims made in the relevant correspondence was supported by other evidence or inferences. Four letters relevantly were referred to by the referee in relation to the alleged loss of confidence. In a letter dated 6 December 2018, the respondent’s solicitors said this:
The unexplained delay to the commencement of the urgent works and the failure to keep the Owners informed as to a programme for the urgent works is causing my client to lose faith in the capacity of Ceerose to carry out the rectification of the defects promptly and in a good and tradesman like manner.
The collective view of the Strata Committee is that as Ceerose continues to stall with undertaking the urgent building defects, they continue to lose faith in Ceerose being engaged to undertake the remaining defect works.
As the referee noted, those minutes also recorded that Mr Machado was to attend an onsite meeting on 28 November 2018 with a lawyer from DEA Lawyers to discuss the defects claim; that he would speak with her “noting the Committee’s above concerns”. The minutes also note that Mr Machado would seek advice on whether it was in the respondent’s “best interest” to wait and have Ceerose attend the site or proceed with the repairs at their own cost. There is nothing remarkable in this minute, nor anything supportive of the appellants’ speculative theory about some other motivation of the respondent. The respondent was entitled to take account of its own interests.
It is true that the referee ended his analysis with respect to the 6 December 2018 in these terms:
Accordingly, I accept that the letter from the Owners’ solicitor, DEA lawyers dated 6 December 2018 is a statement of the state of mind of the Owners at that time, and therefore is admissible as evidence on that basis.
However, as the word “accordingly” indicates, this was a statement of the referee’s conclusion based upon the other evidence to which he referred; he concluded that the letter did in fact manifest the view of the respondent. He was not treating the letter per se as evidence of the state of mind of the respondent. The referee’s approach was much the same with respect to the other letters.
In a letter dated 4 April 2019, the respondent’s solicitors said:
In circumstances where Ceerose and Prisand have failed to complete the urgent AFSS fire safety rectification works in breach of its agreement with the Owners, I am instructed that the Owners have no confidence that your clients are willing or able to carry out the works in accordance with the time frame for submission of the SFSS or at all.
Due to the Defendants’ conduct in failing to fully respond to the fire safety defect over an extended, I, as a member of the executive committee of the Owners Corporation, lost confidence in the Defendants’ ability to be ready, willing and able to attend to the remainder of the fire safety defects and other defects identified in the Building.
Whilst that evidence goes only to Mr Machado’s view, he was a key figure both as a member of the executive committee and as the person who ran the respondent’s defects sub-committee. It is some evidence – even if not conclusive – going towards a conclusion that the executive committee’s decision not to allow Ceerose to rectify the defects was taken because of the concern he expressed.
The referee also noted that the solicitors were “always careful to state that they were acting under instructions” and there “was no evidence which suggested that DEA Lawyers had misunderstood its instructions”. The referee cannot be criticised for drawing the obvious inference, in the absence of evidence to the contrary, that the state of mind of solicitors about their client’s position was based upon instructions.
In a letter dated 1 October 2019, the respondent’s solicitors said the following (and this paragraph was actually quoted in Mr Doueihi’s affidavit):
Most importantly, my client has lost confidence that your client has the ability or desire to perform the rectification works properly and in a timely manner and, as such, is unwilling to allow your client any further opportunity to repair the defects. That loss of confidence arises from several factors in the history of my client’s dealings with your client, including …
The letter sent by the respondent’s solicitor on 8 November 2019 has already been quoted (above at [10]).
The primary judge correctly summarised the approach of the referee in this way:
[77] … the referee had regard to the correspondence in combination with other contemporaneous documents which together painted a cohesive picture of the owner having lost confidence in the builder to attend to the rectification of defects in a timely manner or at all or in a manner which the owner regarded as acceptable.
Moreover, as her Honour observed (J [67]), the fact that a year had passed since an “in principle” agreement had been reached, without final resolution, of itself “speaks volumes” about the parties’ inability to agree on rectification.
There is an air of unreality about the appellants’ complaints. The following exchange in this Court illustrates the point:
BALL JA: But weren’t [the letters] also relevant to demonstrating the relationship between the parties? Irrespective of what particular assertions were made in the letters, they illustrate the relationship between the parties, and might it not be inferred from the nature of that relationship that it had broken down? Isn’t that really what the referee did?
ASHHURST: There’s a number of problems with that. The primary one is the one I started with, which is was this an engineered breakdown of the relationship?
As explained, it was not incumbent on the respondent to prove why it decided not to allow Ceerose to rectify the defects; it was for the appellants to prove that that decision was unreasonable. The letters themselves are some evidence of the breakdown in the relationship, and there was other evidence going to the respondent having lost confidence in Ceerose. The suggestion that this breakdown was “engineered” was speculative. The appellants made no real attempt to prove that claim. They chose not to put their claim to Mr Machado in cross-examination.
The appellants’ case before the referee, in the court below and in this Court was based on the misunderstanding that the respondent bore the onus because it had “shifted”. Their complaint relates to letters that they themselves tendered, where they sought no restriction on the use of the letters when this occurred. The retrospective ruling of the referee was not as unequivocal as they claim. And even if the ruling was understood so as not to allow the letters to be relied upon as going to the state of mind of the respondent, there is no unfairness because the referee’s conclusion that they did in fact manifest the view of the respondent was based upon other evidence. No procedural unfairness has been established.
The appellants argued that the primary judge erred by rejecting their contention that the referee had determined the respondent’s claims relating to claimed defects in the falls of bathroom floors by reference to a superseded standard. Each side had called a building expert who addressed the issue. In the liability hearing the appellants put to the referee that “[n]either expert carried out proper testing to determine whether ponding [of water] was in fact subsisting to such a degree (or at all), that it was causing damage” (quoting the Liability Report). There was no definition of ponding in the version of the relevant Australian Standard that applied when the building was constructed, being AS3740-2004. However, the current version of that standard, AS3740-2021, outlines a process for determining ponding, which potentially involves observing whether water evaporates within 5 hours in certain atmospheric conditions. That type of testing had not been done by either expert. The appellants submitted that “further tests should be conducted to ascertain whether the floors as they currently exist” complied with the later standard. The referee rejected the contention that the experts had failed to carry out proper testing, implicitly rejecting the appellants’ argument that his determination should await further testing.
The appellants argued both in the court below and in this Court that a proper assessment of the reasonable cost of rectification must have regard to the standards in force at the time it is carried out, and that the referee erred in concluding to the contrary. It is not necessary to determine that point. The referee did indicate in the Liability Report that he considered the later standard was not applicable. However, he also based his decision upon a conclusion that the method of determining ponding in the later version of the standard “imposes a number of conditions which would be difficult, if not impossible, to achieve in practice”. And he noted that the preface to the later standard made it clear that the appendix which included the ponding test was provided only for information and guidance and was not an integral part of the standard. Thus the referee’s decision did not depend upon a conclusion that the later version of the standard was legally irrelevant.
Further, there is no error in the following analysis by the primary judge:
[102] The referee had before him two building experts, who agreed that there were inadequate falls in all of the bathrooms. The only point of controversy was the method of rectification. The possibility that the bathrooms, or some of them, might not have ‘ponding’ according to the method described in the 2021 standard was just that: a possibility. Some six years had passed between the commencement of these proceedings in NCAT and the expert conclave on this issue in September 2022. The defendants had ample time to explore this matter, but had not done so by the time the referee heard the evidence on this issue. Where the experts, including the defendants’ expert, agreed that there was a defect, it is difficult to see why the referee erred in proceeding as he did.
The appellants contended that the primary judge erred in not rejecting that part of the referee’s report which allowed costs the subject of two categories of invoices: first, those issued by Mr Gary Yedalian, mechanical services engineer, for his works in the building; and second, those for other rectification works in the building attached to an affidavit of Mr Van Oort, the strata manager. The appellants argued below and on appeal that the claims for these invoices should have been rejected for three reasons:
they were rendered after the commencement of litigation and so were to be characterised as costs of litigation, not damages;
they did not form part of the Scott Schedule before the referee listing the defects in question and associated costs; and
details were lacking as to the works the subject of the invoices.
As to the first point, the fact that the invoices were rendered after the litigation commenced does not necessarily mean that they cannot be claimed as damages. Whether the invoices were claimable was addressed by the referee. No error has been established in the conclusion of the primary judge that “[i]t is clear from the referee’s report that he closely examined each and every invoice and formed a view”, and “[w]hether that view was right or wrong, it was clearly available to the referee and is no basis to reject the report” (J [124]). The same answer applies to the third point, which the appellants supported with a half-hearted argument that the invoices were “potentially lacking sufficient detail and verification” and “may not have constituted adequate proof of the loss claimed”.
As to the second point, the primary judge concluded that whether or not the invoices were included in the Scott Schedule, the respondents’ claim for them had been made clear well in advance, and there had been no denial of natural justice relating to the claim for these amounts (J [122]-[123]). No error has been shown in that conclusion. Procedural fairness is a matter of substance not form.
Ground 10 is not made out.
The orders of the Court should be as follows:
Appeal dismissed.
Appellants to pay the respondent’s costs.
BALL JA: I agree with Kirk JA.
**********
Corrections to the name of the second appellant on the coversheet, headnote and at [2].
Ceerose Pty Ltd
The Owners �e" Strata Plan No 89074 [2025] NSWCA 235
(2021) 274 CLR 606
(2024) 98 ALJR 719
(2001) 202 CLR 439
(2020) 299 IR 314
(1965) 114 CLR 164
(2012) 246 CLR 182
Appeal dismissed. The appellants were ordered to pay the respondent's costs: [80].
The appellants said that the primary judge erred in failing to find that the referee had misapplied the legal principles relating to mitigation, in particular by not accepting that the respondent had a “positive obligation” to afford the builder a reasonable opportunity to rectify alleged defects, which opportunity had not been provided (grounds 5-7).
They asserted that the primary judge erred in failing to find the referee had applied an incorrect, superseded version of an Australian Standard to be applied with respect to a bathroom drainage issue (grounds 8-9).
They claimed that the primary judge erred in not rejecting that part of the referee’s reports which took account of certain invoices (ground 10).
Grounds 8-10 were the subject of only brief written submissions by the appellants and were not mentioned in oral address.
In what follows I first briefly set out the background to the matter, then summarise the appellants’ overlapping arguments as to procedural fairness and mitigation. Although ordinarily the procedural fairness complaint should be addressed first, here it is convenient to consider it after addressing the appellants’ arguments as to principles of mitigation, as doing so serves to put the procedural fairness argument in context. I address grounds 8-9 and 10 at the end of these reasons.
As the primary judge explained (J [7]-[8] and [20]), the usual order for reference was made by the Supreme Court, pursuant to which “the referee is not bound by the rules of evidence but may inform himself or herself in relation to any matter in such manner as the referee thinks fit”. The appellants’ arguments as to hearsay and Jones v Dunkel thus were not independent complaints but were founded on their procedural fairness complaint.
It was said that the referee’s finding that the respondent had lost confidence in the builder was “fatally undermined by profound procedural unfairness”. In particular: