Conditionex Design & Construct Pty Ltd trading as Conditionex Mechanical Services v Nationwide Builders Pty Ltd

The cross-claim and the related Scott Schedule

1. The Scott Schedule identified 16 items of disputed cross-claim that were costed in the total sum of $236,258.86, as follows: 1. Items 1 to 7 related to the Canley Heights project and involved amounts totalling $55,062.80; 2. Items 8 to 12 related to the Villawood project and involved sums totalling $53,696.06; 3. Items 13 to 16 related to the Penrith project and involved sums totalling $127,500.
2. The ultimate effect of the defendant/cross-claimant's submissions to the Referee, after adjustments, was that it was seeking as against the plaintiff's claim, a set-off in the amount of $101,657 inclusive of GST, plus interest and costs.
3. It appears that adjustments were required because earlier, on 6 April 2020, and significantly, the parties had entered into a settlement agreement on quantum issues which altered the effect of their contractual relationship.

Evidence and submissions before the Referee

1. The parties provided a Common Court Book which was before the Referee: Exhibit "A", Volumes 1 - 3, pp 1 - 1233. Those volumes contained the relevant contractual documents and the related supporting correspondence. On 10 October 2022 the Referee's report was marked Exhibit "B".
2. The supporting materials provided to the Referee for his consideration included the following materials: 1. Defendant/cross-claimant's contentions of fact and law dated 23 August 2022 prepared pursuant to UCPR r 20.20(5): MFI "9"; 2. Defendant/cross-claimant's closing statement on the Reference dated 29 August 2022: MFI "10"; 3. Defendant/cross-claimant's submissions in reply on the Reference dated 31 August 2022: MFI "11".
3. It is plainly evident from the structure and content of the Referee's report that he gave the materials provided to him close consideration in the sequence that was outlined in the Scott Schedule.

Events subsequent to release of Referee's report

1. Following the release of the Referee's report to the parties, they took disparate positions concerning its content.
2. The plaintiff/cross-defendant argued that in accordance with established legal principles, the Referee's report should be adopted in its entirety, with the result that the defendant's cross-claim should consequently be dismissed. In contrast, the defendant/cross-claimant, whilst conceding a number of the findings made by the Referee, advanced a series of challenges to the approach taken by the Referee. Those matters will be identified in the paragraphs that now follow.

Defendant/cross-claimant's general criticisms of the Referee's report

1. Before considering the detailed submissions of the parties and the specific findings of the Referee in respect of the individual items as identified within each of the 3 projects as referred to in the Scott Schedule, it is convenient to identify and deal with the defendant/cross-claimant's general challenges of the Referee's report.
2. In summary, the defendant/cross-claimant's challenges to the Referee's report involved a general submission to the effect that the Referee has overlooked or ignored submissions or has misapprehended the evidence (T127.39), and has thus fallen into error. Having examined the Referee's report, I have concluded that submission cannot be sustained. The report, on its face, indicates the Referee undertook a systematic review of the material before him and undertook his analysis in a methodical and adequately rational manner. The submission that the Referee overlooked or ignored evidence and submissions cannot be sustained.
3. The defendant/cross-claimant asserted that at paragraphs 33 to 35 of the Referee's report (which related to page 803 of the Court Book concerning Item 1 of the Scott Schedule), the Referee had not taken evidence into account when construing an email chain that passed between the parties: T128.40 - T130.22.
4. I do not accept the correctness of that submission. At paragraph 33 of his report, and then at paragraphs 34 to 35, it is quite clear that the Referee did his best to construe those emails. He did so in a manner that was open to him on the evidence. The complaint of ignoring evidence cannot be sustained.
5. The defendant/cross-claimant also criticised the Referee's report on a matter of technical form in that the report did not annex relevant documents. In my view, there is no substance to that criticism. The critical content of those documents were incorporated into the Referee's report. This is an issue of form that can be comfortably dispensed with in the circumstances without injustice to any party: Civil Procedure Act 2005 (NSW), s 14.
6. In contrast to the submissions of the defendant/cross-claimant, the plaintiff/cross-defendant argued for the adoption of the Referee's report, and argued that the defendant/cross-claimant has not identified with precision any relevant error or omission, approach or detail on the part of the Referee. Accordingly, it was submitted that absent demonstration of manifest error or anything approaching that, the Court should adopt the Referee's report.
7. Consequently, I do not accept or uphold those general challenges to the Referee's report.

Applicable legal principles

1. The parties were in general agreement that the principles to be applied with respect to the question of adoption of a referee's report are summarised in Chocolate Factory Apartments v Westpoint Finance & Ors [2005] NSWSC 784 at [7], as was more recently applied in proceedings entitled: In the Matter of Sunnyside Accountants [2022] NSWSC 1313, at [40]. Uncontroversially, the plaintiff/cross-defendant summarised those principles in a condensed form, as follows. 1. where a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the Court would have a disposition towards acceptance of the report, for to do otherwise would be to negate both the purpose and the facility of referring complex technical issues to independent experts for enquiry and report; 2. 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; 3. 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; 4. even if it were shown that the Court might have reached a different conclusion in some respect from that of the referee, it would not be (in the absence of some error of principle, absence or excessive jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding) a proper exercise of the Court's discretion to allow matters agitated before the referee to be re-explored so as to lead to qualification or rejection of the report; and 5. the right of a party to be heard does not involve the right to be heard twice.
2. On the question of the assessment of the measure of damages in the case of a building dispute, the defendant/cross-claimant relied upon a line of authority represented by the decision in Bellgrove v Eldridge [1954] HCA 6. That case (at p 618) is authority for the well-settled proposition that the measure of damages for breach of a building contract is the difference between the contract price of the work contracted for, and the cost of the work to be carried out to make the works conform to the contract.
3. Although the above principle as to the measure of damages is not in dispute, the application of that principle to the circumstances of a particular case necessarily requires that the party claiming the loss must shoulder the burden of satisfactorily proving the loss so claimed.
4. It is for the Court, or in this case, for the Referee, to assess damages in accordance with those accepted principles. A claim for damages due to losses resulting from a breach of contract requires proof that a measurable loss has actually been incurred: Commonwealth of Australia v Amman Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 84, at [35]. A complaint of loss without proof is insufficient, especially where nominal damages would not amount to proper compensation.
5. My review of the Referee's report will be guided by the above principles.

Fundamental matters of fact that need to be taken into account

1. In final submissions the plaintiff/cross-defendant identified two fundamental matters of fact that it submitted must be taken into account when considering the defendant's cross-claim and the defendant's Scott Schedule.
2. The first matter of fact requiring such consideration is that the claims made by the defendant/cross-claimant in respect of each of the 3 projects have been raised outside the relevant defect liability period. In respect of the Canley Heights and the Penrith projects the defect liability period expired on 30 May 2020. In respect of the Villawood project, it expired on 31 October 2020. This is problematic to the success of the cross-claim.
3. The second matter of fact requiring such consideration is that in respect of each of the three contracts, the amounts alleged to be due were the subject of a compromise reached on 6 April 2020 by means of a settlement agreement with the result that no further amounts were payable or claimable pursuant to the respective contracts other than the April 2020 payment schedule: Conditionex Design & Construct Pty Ltd trading as Conditionex Mechanical Services v Nationwide Builders Pty Ltd [2022] NSWDC 166.
4. Plainly, as appears from the face of the reasons of the Referee, he took those matters into account when making his determination, as was open to him in the circumstances of the Reference.
5. In my analysis and consideration of the Referee's report, in respect of each of the 3 disputed building projects, for context, the individual items in dispute as specifically identified in the Scott Schedule will be tabulated with references to the amount claimed by the defendant/cross-claimant including the particular basis for the amount claimed, along with the responses by the plaintiff/cross-defendant, followed by a reference to the outcome of the Referee's determination of each identified issue.
6. I now turn to the tabulation of the Items and findings relating to the individual items within the 3 projects in question in the order set out in the Scott Schedule.

The Canley Heights project - Tabulation

1. In accordance with the format identified at paragraph [18] above, the disputed items concerning the Canley Heights project may be summarised as follows: Item Claim Particulars of Cross-claim Cross-defendant's Answers Referee's Determination
2. $25,000 Claim for fire rating works for ventilation ducts Excluded from agreement; not notified as a claim; the claim is outside the defects period Claim not accepted by Referee
3. $12,692.20 Claim for repair of leaking air-conditioning This is the defendant/ cross-claimant's responsibility because of incorrectly installed components. In good faith the plaintiff attended to the leaks regardless of fault in order to reduce any losses; no evidence of loss incurred by defendant/cross-claimant Claim not accepted by Referee
4. $2,000.00 Alleged failure to complete mechanical testing and commissioning on site Claim refuted as ventilation work was completed; no evidence of loss Claim not accepted by Referee
5. $2,000.00 Alleged failure to submit relevant drawings Claim does not arise because of the terms of a compromise settlement agreement between the parties; the claim is arbitrary, and in any event, it is limited to $1,000 Claim not accepted by Referee
6. $1,855.70 Alleged failure to complete mechanical ventilation, including installation of fire dampers at ground level Claim refuted as the work was completed. Furthermore, the claim is not available as it was compromised under a settlement agreement. It therefore does not arise. Claim not accepted by Referee
7. $7,484.90 Alleged failure to complete mechanical ventilation for rooms at all levels, including electrical wiring for ventilation systems on site Claim does not arise as the claims under this contract were compromised by the settlement agreement Claim not accepted by Referee
8. $4,000.00 Alleged inflated contract price invoiced by the plaintiff/cross- defendant Contract price was $362,500 before variation; furthermore, claim does not arise as it has been compromised by a settlement agreement Claim not accepted by Referee Total $55,062.80 $Nil $Nil

The Villawood project - Tabulation

1. In accordance with the format identified at paragraph [18] above, the disputed items concerning the Villawood project may be summarised as follows: Item Claim Particulars of Cross-claim Cross-defendant's Answers Referee's Determination
2. $40,150.00 Variation of original contract price to remove 11 disability accessible apartments Claim not accepted because no evidence of loss or damage has been provided. Instead, the defendant/cross-claimant had accepted a contract variation of $35,750 in circumstances when the parties had proceeded on the basis of the total contract price of the Villawood project being $454,250 plus GST Claim not accepted by Referee
3. $676.06 Claim for deduction for the costs of design, engineering and supervision of 11 disability accessible apartments Claim refuted as no evidence was submitted of loss or damage suffered by defendant/ cross-claimant. Amount claimed is described as being arbitrary and without reference to evidence. Burden of proof on liability and damages not discharged Claim not accepted by Referee
4. $6,370.00 Claim for cost of balancing and commissioning of mechanical ventilation on site Burden of proof not discharged as to proof of liability or quantum. Furthermore, the Villawood contract was compromised by a reduced (overall) payment under the settlement agreement Claim not accepted by Referee
5. $2,000.00 Alleged failure by defendant/cross-claimant to submit electrical mechanical drawings (seems to be a repetition of item 4 above) Burden of proof not discharged as to proof of liability or quantum. Furthermore, the Villawood contract was compromised by a reduced (overall) payment under the settlement agreement Claim not accepted by Referee
6. $4,500.00 Alleged inflation of contract price prior to variation regarding Item 8 - $490,000, not $494,500 Refuted as no evidence produced of any failure to undertake the work in question. No loss or damage suffered by defendant/cross-claimant. Original contract price of $494,500 plus GST varied by agreement to $454,250 Claim not accepted by Referee Total $53,696.06 $Nil $Nil

The Penrith project - Tabulation

1. In accordance with the format identified at paragraph [18] above, the disputed items concerning the Penrith project may be summarised as follows: Item Claim Particulars of Cross-claim Cross-defendant's Answers Referee's Determination
2. $2,000.00 Claim for cost of balancing mechanical ventilation in basement level 1 and ground floor, including supervision Claim refuted as defendant/cross-claimant did not give plaintiff/ cross-defendant an opportunity to attend to any uncompleted balancing work, therefore no liability arises. Furthermore, and in contrast to the claim made, the balance of incomplete work was valued at $400 not $2,000. Claim does not arise on account of overall compromise under the settlement agreement Claim not accepted by Referee
3. $3,500.00 Claim for commissioning of air-conditioning system in apartments 5.2 and 6.3, claim for replacement of zoning control system in apartment 6.3 Claim refuted as defendant/cross-claimant did not give plaintiff/ cross-defendant an opportunity to attend to any uncompleted balancing work, therefore no liability arises. Furthermore, balance of incomplete work was valued at $120 not $3,500. Claim does not arise on account of overall compromise under the settlement agreement Claim not accepted by Referee
4. $2,000.00 Claim for alleged failure to submit electrical mechanical drawings and board drawings (typographical error: Canley Heights project instead of Penrith project) Claim refuted because no evidence of loss or damage. Assertion that work was 99.61% complete so value of any uncompleted design and engineering work is $50. Furthermore, defence is that the Penrith contract was compromised by reduced payment required under the settlement agreement so that no claim arises for this item Claim not accepted by Referee
5. $120,000 Claim for rectification of allegedly defective "and/or" non-compliant works identified by Penrith City Council Fire Safety order The claim is not made out on several bases: First, the plaintiff's quote does not include some of these claimed items. Secondly, some are expressly excluded from the contract. Thirdly, the quote relied upon does not satisfy the requirements for proof of loss. The defendant/ cross-claimant has not satisfied the burden of proof on both liability and quantum Claim not accepted by Referee Total $127,500 $Nil $Nil

Consideration and determination

1. The consideration of the submissions of the parties on the specific individual items in dispute now follows in the same order as the content of the Scott Schedule. In light of the applicable legal principles identified at paragraph [33] above, having regard to the matters of fact identified at paragraphs [38] - [41] above, that consideration does not require a lengthy analysis.

Submissions by the plaintiff/cross-defendant

1. The plaintiff/cross-defendant made a general overarching submission in support of the adoption of the Referee's report by reference to the agreement the parties had reached on 6 April 2020. The effect of that agreement was that aspects of the defendant/cross-claimant's quantum have been subsumed into a compromise sum in a manner that defies accurate dissection. That is the nature of a compromise.
2. That submission by the plaintiff/cross-defendant, which I accept, was to the effect that the defendant/cross-claimant, having compromised its disputed quantum claims arising from the projects in question, is now in fairness precluded from re-agitating the full amounts of the individual items of quantification because to do so would amount to double counting, which is contractually impermissible in the circumstances of an agreed compromise.
3. In my view, that submission by the plaintiff/cross-defendant must carry determinative weight with the result that many items of claim within the defendant/cross-claimant's Scott Schedule are not maintainable by that party, as has been pointed out by the plaintiff/cross-defendant in its submissions in response, which argued for an adoption of the Referee's report.
4. Significantly, the Referee accepted that submitted view, which was open to him on the evidence before him. There is no cogently acceptable legal argument to the contrary. Accordingly, the content of the Scott Schedule must be considered in that light.

Submissions by the defendant/cross-claimant

1. At paragraphs 26 to 28 of the defendant/cross-claimant's written submissions dated 7 October 2022, the following submissions were made: "26. In various parts of the Referee's Report, the Referee discusses the issue of loss and damage and notes that there is no evidence of costs having been incurred or losses suffered by Nationwide in relation to the various items referred to in the Scott Schedule. The Referee thereafter comes to the conclusion that the quantum of damages or the amount which ought to be deducted or set-off is $Nil. This conclusion by the Referee ought to be rejected. 27. Nationwide submits that there is a clear error in law by the Referee in this regard. The Referee, in coming to his conclusion on loss and damage, fails to apply the relevant principles set out in Robinson v Harman [1848] EngR 135; 1848 1 Exch 850 at 855, and Bellgrove v Eldridge [1954] HCA 36, which confirms that in the assessment of damages in a building contract case, damages for defective work are generally the amount necessary to make the work conform with what the contract required. 28. Further, the Referee also failed to consider the principle in Heslop v Howay Travel Pty Limited [2019] NSWCATCD 84 at [87], where it was stated that in relation to incomplete work, damages can also be measured by restitution loss, meaning where there has been a partial performance of a contract and the defaulting party has obtained a benefit, damages are assessable by reference to the benefit obtained by the defaulting party from the partial performance."
2. In my view those submissions should not be accepted because they overlook the matters of principle cited at paragraphs [33] to [36] above concerning the onus of proof on the party claiming damages.
3. In that regard, it is no answer for the defendant/cross-claimant to argue, as was put in oral submissions, that nominal damages should have been awarded to the defendant/cross-claimant rather than the "$Nil" set-off, as was concluded by the Referee. In my view, to award nominal damages in this case would be arbitrary, and without a rational basis, and this would be erroneous.
4. The Referee did not venture down an erroneous path. Instead, he assessed the evidence according to where the onus of proof lay, and found there was no quantum amount to be set-off. That finding was open to him on the evidence. There was no error in that approach.
5. The defendant/cross-claimant was critical of the Referee for not conforming with the requirements of UCPR, r 20.23, in that no statements were annexed to his report which were provided to him pursuant to UCPR, r 20.20(5).
6. In my view, in this case, that complaint is in the nature of de minimus as the questions and the materials that were provided to the Referee are adequately described, referred to, and cited in his report. In those circumstances, the full compliance with those rules can safely be excused without any party incurring a material prejudice: Civil Procedure Act 2005 (NSW), s 14.
7. I now turn to review and consider each of the individual items in the Scott Schedule that were determined by the Referee.

Scott Schedule Item 1 - Canley Heights - Fire rating

1. The Referee did not accept the defendant/cross-claimant's claim of $25,000 for Item 1 concerning the issue of fire rating for ventilation ducts.
2. The defendant/cross-claimant submitted that the Referee had misapprehended the evidence as to the fire rating issue and the non-inclusion of ductwork in the Canley Heights project: T127.39 - T130.22. That submission was developed by reference to paragraphs 7 and 8 of the defendant/cross-claimant's written submissions. It was argued that the Referee had ignored material evidence in arriving at his conclusions on this issue.
3. The defendant/cross-claimant also submitted that the Referee has not recited all the evidence relied upon for his particular conclusion. I do not accept the validity of that submission as it is misplaced. On a fair overall reading of the Referee's report it is plain that he read the materials provided to him and focussed on the essential and pivotal matters that were relevant to determining the individual issues.
4. In undertaking that task, the Referee was not obliged to recite all the evidence when identifying his conclusions on particular issues provided his reasons for those conclusions were adequately exposed. In my view his reasons in that regard were adequately identified in the manner that was required.
5. In the plaintiff/cross-defendant's submissions in reply, which I accept, the plaintiff/cross-defendant has effectively refuted the submission as to the Referee's reasons for determining Item 1 (at T133.3 - T135.15) by pointing to the Referee's methodology and reasoning at paragraphs 17, 36 and 38 of his report, which drew upon clause 7 of the Canley Heights contract, which required the defendant/cross-claimant to give notice to the plaintiff/cross-defendant, notifying that party that it had exercised its discretion to require rectification of an identified defect.
6. It was clear that no such notice had been given by the defendant/cross-claimant, as was required. This was a fundamental matter that was relevant to determining the outcome of Item 1 (and other Items for that matter), which the Referee recognised and applied in his reasoning.
7. Accordingly, no error has been shown with regard to the Referee's construction of the Canley Heights contract. The Referee's conclusion that the defendant/cross-claimant has not proven a relevant liability for the claim comprising Item 1 in the Scott Schedule was open to him on the evidence. No error has been shown in respect of Item 1.

Scott Schedule Item 2 - Canley Heights - Leaking air-conditioning

1. The Referee did not accept the defendant/cross-claimant's claim of $12,692.20 for the repair of leaking air-conditioners.
2. The defendant/cross-claimant asserts that the Referee had misapprehended the evidence as to the cost of rectifying leaking air-conditioning units. In my view, that submission is ill-founded. The Referee's report at paragraphs 51 to 57 shows that he had in fact considered the relevant evidence and had concluded the defendant/cross-claimant had not provided proof of its claimed loss for this particular item.
3. At paragraph 54 of the Referee's report he correctly identified the fact that the defendant/cross-claimant had in effect attempted to reverse the onus of proof of loss on this issue. He analysed the evidence to conclude that no proof was provided as to the cost, or even as to a proportion of the cost, of the claimed rectification work.
4. Accordingly, with regard to Item 2, the Referee found that there was no evidence to show the plaintiff/cross-defendant was liable for this element of the claim. Those findings were open to the Referee on the evidence that was before him. No error has been shown in respect of Item 2.

Scott Schedule Item 3 - Canley Heights - Mechanical testing

1. The Referee did not accept the defendant/cross-claimant's claim of $2000 in respect of an alleged failure to complete the mechanical ventilation testing and the commissioning of the related equipment on site.
2. The defendant/cross-claimant submitted that the Referee's rejection of that claim should not be adopted. The difficulty in the path of an acceptance of that submission is that, as was correctly submitted by the plaintiff/cross-defendant, the defendant/cross-claimant has not produced reliable evidence that the plaintiff/cross-defendant was under an obligation to complete the work as identified.
3. In that regard, the Referee properly observed (at paragraph 58 of his report), that in his assessment, having regard to the terms of the agreement of the parties, the evidence does not support the conclusion that the work in question was incomplete, defective or was carried out in breach of the agreement between the parties. Those findings were open to the Referee on the evidence that was before him. Accordingly, no error has been shown in respect of Item 3.

Scott Schedule Item 4 - Canley Heights - Alleged failure to submit drawings

1. The Referee did not accept the defendant/cross-claimant's claim of $2000 for the provision of relevant drawings.
2. The Referee's findings in that regard appear between paragraphs 59 to 67 of his report. Those findings by the Referee are based on the uncontradicted proposition that the Canley Heights sub-contractor did not specify that maintenance manuals were to be provided by the plaintiff/cross-defendant.
3. The Referee also found that the defendant/cross-claimant has not suffered any proven loss or damage due to this element of its claim. In that regard, as a consequence, the Referee noted that the defendant/cross-claimant had not incurred any loss in respect of rectification expenses. On the evidence, those findings were open to be made by the Referee. Accordingly, no error has been shown in respect of Item 4.

Scott Schedule Item 5 - Canley Heights - Mechanical ventilation & fire dampers

1. The Referee did not accept the defendant/cross-claimant's claim of $1855.70 for completion of mechanical ventilation and fire dampers.
2. The Referee's findings in that regard appear between paragraphs 68 to 75 of his report. He reached that conclusion in the course of a critical evaluation. He concluded that due to a paucity of information in the documentation, as was recorded at paragraph 69 of his report, including on the issue of how this element of the claim came to be valued in the stated amount claimed.
3. On the evidence, those findings were open to be made by the Referee. The defendant/cross-claimant's written submissions did not address this item. Unpersuasively, the oral submissions made by the defendant/cross-claimant did not go into much detail on this item: T138.5; MFI "8". No error has been shown in respect of Item 5.

Scott Schedule Item 6 - Canley Heights - Mechanical ventilation and electrical wiring dampers

1. The Referee did not accept the defendant/cross-claimant's claim of $7484.90 for mechanical ventilation and electrical wiring.
2. The defendant/cross-claimant argued that the Referee's finding at paragraph 78 of his report should be rejected because it did not take into account the material at page 713 of the Court Book, which stated that the variation in respect of the items there mentioned included installation of door grills contrary to the Referee's findings.
3. The defendant/cross-claimant made no additional oral submissions on this item: T138.48. On reviewing that argument it is plain that the defendant/cross-claimant has misconstrued the focus of the Referee's findings on this item, namely, first, there was no evidence that the plaintiff/cross-defendant was responsible for installing the grills, and secondly, there was no evidence of a remedial cost that had been incurred for which the plaintiff/cross-defendant could be held responsible by way of a reduction in its claim against the defendant/cross-claimant.
4. The Referee gave adequate, extensive and acceptable reasons for those conclusions at paragraphs 76 to 84 of his report. The Referee plainly gave a comprehensive and detailed consideration to the materials that were before him. No error has been shown in respect of Item 6.

Scott Schedule Item 7 - Canley Heights - Alleged inflated contract price

1. The Referee did not accept the defendant/cross-claimant's claim of $4000 in respect of an allegedly inflated contract price invoice.
2. It is clear from the report that the Referee carefully reviewed the documentation relating to pricing of the contract. His methodology and analysis for rejecting this element of the defendant/cross-claimant's claim is plainly set out between paragraphs 85 to 92 of his report, which concluded no amount was payable in relation to the cross-claim.
3. The defendant/cross-claimant has not substantiated its argument that the Referee has misapprehended how the "inflated contract sum was taken into account for the purposes of calculating the amount payable under the Settlement Agreement" entered into by the parties.
4. In my view, the plaintiff/cross-defendant has correctly submitted the Referee's analysis does not reveal an erroneous approach. The submission that there is no evidence of a loss having been incurred in relation to this item is correct: T140.9. No error has been shown in respect of Item 7.

Scott Schedule Item 8 - Villawood - Pricing of disability accessible apartments

1. The Referee did not accept the defendant/cross-claimant's claim of $40,150 in respect of a claimed contract variation for removal of 11 disability accessible apartments. The Referee's reasons for that conclusion appear at paragraphs 97 to 109 of his report which plainly and acceptably set out the reasoned basis for that conclusion.
2. The defendant/cross-claimant did not raise any written or oral argument in relation to this item. No error has been shown in respect of Item 8.

Scott Schedule Item 9 - Villawood - Design and engineering costs of disability accessible apartments

1. The Referee did not accept the defendant/cross-claimant's claim of $676.06 for the cost of design, engineering and supervision for the removal of 11 disability accessible apartments raised in relation to Item 8 above. The defendant/cross-claimant ultimately abandoned this element of its claim when making its submissions to the Referee. Accordingly, the Referee was not called upon to make a determination of a dispute in respect of Item 9 of the Scott Schedule.

Scott Schedule Item 10 - Villawood - Balancing and commissioning of mechanical ventilation

1. The Referee did not accept the defendant/cross-claimant's claim of $6370 for the cost of on-site balancing and commissioning of mechanical ventilation in relation to the Villawood project.
2. The Referee examined the merits of that claim between paragraphs 111 and 116 of his report and concluded the defendant/cross-claimant had not made out this element of its claim.
3. As the Referee observed at paragraph 111 of his report, this element of the claim was based on an unsubstantiated assumed failure by the plaintiff/cross-defendant to complete the balancing and commissioning of the air-conditioning on the Villawood site.
4. In the defendant/cross-claimant's brief written submissions on this item, it was submitted that the cited paragraphs of the Referee's report on this item ought to be rejected on the basis that, it was argued, the Referee had misapprehended the defendant/cross-claimant's evidence, or alternatively, the Referee's findings on this item were "manifestly unreasonable". That argument was not further developed in oral submissions: T140.13.
5. In my view, contrary to the defendant/cross-claimant's submissions on this item, it is plain that on a fair reading of the Referee's report, he determined this item on the basis of there being no evidence to justify the amount claimed. He took that view because the claim appeared to be based on an unsupported invoice that required evidence to link the sum claimed to a relevant contractual default on the part of the plaintiff/cross-defendant.
6. The Referee's conclusions at paragraphs 114 and 115 of his report were to the effect that the evidence did not demonstrate that the work, which was carried out by an alternative contractor as claimed, was undertaken due to a relevant failure of the plaintiff/cross-defendant. On the evidence before the Referee, that conclusion was open to him. No error has been shown in respect of Item 10.

Scott Schedule Item 11 - Villawood - Alleged failure to submit electrical mechanical drawings and a related manual

1. The Referee did not accept the defendant/cross-claimant's claim of $2000 for alleged failures by the plaintiff/cross-defendant to provide electrical/mechanical design drawings and an operation manual for the Villawood site.
2. The Referee's reasons for that conclusion appear at paragraphs 117 to 123 of his report, which identified an obvious drafting error, which he correctly took into account. He noted (at paragraph 120 of his report) that some finalised drawings had resulted from exchanges between the plaintiff/cross-defendant and the defendant/cross-claimant's architect. He also noted that the defendant/cross-claimant had not incurred any costs or losses by that process that could support this item of the Scott Schedule. It is plain that he discounted the claimed costs due to a lack of documentary verification.
3. Those findings were open to the Referee on the evidence before him. The defendant/cross-claimant's written submissions did not address this item. The point was not addressed in oral submissions: T140.13. No error has been shown in respect of Item 11.

Scott Schedule Item 12 - Villawood - Allegation contract price was inflated

1. The Referee did not accept the defendant/cross-claimant's claim of $4500 which was claimed and described as the difference between the Villawood sub-contract price and a price which the defendant/cross-claimant asserts was inflated by the plaintiff/cross-defendant by the sum of $4500.
2. The Referee's reasons for his conclusion rejecting that claim appear between paragraphs 124 and 139 of his report. Those reasons demonstrate that the Referee undertook a thorough review of the pricing materials within the Court Book which was before him. His reasons also demonstrate that he undertook a meticulous reconciliation of the claim of an inflated price of $4500, being the difference between the identified amounts of $490,000 and $494,500, as is evident in his detailed exposition at paragraphs 126 to 132 of his report.
3. There was no specific challenge made to the Referee's answers to Item 12, Question 6(1)(7) and Question 6(1)(8), where he concluded that no loss or damage was incurred by the defendant/cross-claimant in respect of this item of claim.
4. The defendant/cross-claimant's written submissions which argued for a rejection of the Referee's findings on this item were brief (at paragraphs 19 and 20). Those submissions referred to the line of authorities cited at paragraph [34] above, which identified that in general, damages should be awarded for defective building work. Plainly, those authorities have no application in this case where there is an absence of proof of the underlying assumptions as to the nature and the cause of the losses claimed. Damages must not be assessed arbitrarily.
5. In oral submissions, the defendant/cross-claimant conceded that the differential amount of $4500 had been taken into account when the parties calculated the amount of the settlement sum they agreed to on 6 April 2020: T140.30.
6. The plaintiff/cross-defendant's response to that submission was that whatever the merit of that argument might be, the fact remains that the defendant/cross-claimant has suffered no proven loss in respect of this item of claim and therefore no damages should be awarded for this item: T141.9. The Referee adopted that approach, as was open to him on the evidence. No error has been shown in respect of Item 12.

Scott Schedule Items 13 & 14 - Penrith - Balancing and commissioning of air-conditioning

1. The Referee did not accept the defendant/cross-claimant's respective claims of $2000 and $3500 for balancing and mechanical ventilation of the air-conditioning in the basement level 1 and the ground floor of the Penrith site, including supervision of same (Item 13), and in respect of the commissioning of the air-conditioning systems in apartments 5.2 and 6.3 at that site, which also incorporated the replacement of the zone control system for apartment 6.3 (Item 14).
2. The Referee's consideration of those two claims, and his reasons for rejecting them, appear between paragraphs 140 to 163 of his report. The Referee's critical findings on these issues appear at paragraphs 151 and 162 of his report.
3. In those paragraphs the Referee's reasons demonstrate that he had appropriately worked through the evidence in the Court Book in order to seek a reasonable explanation which would establish or identify a relevant defect that would enable a conclusion that there had been incomplete balancing work regarding the air-conditioning for the Penrith project. He found that explanation was lacking.
4. In that regard, he found the 4 May affidavit of Mr Afyouni relied upon by the defendant/cross-claimant, did not provide any evidence or any observations as to whether reliable evidence or observations had been provided in respect of what actually did or did not occur in respect of the balancing work that was required.
5. Importantly, the Referee considered that the absence of evidence of relevant evidentiary "guideposts" meant that the specific defects claimed by the defendant/cross-claimant remained undefined. In those circumstances, he noted that the affidavit evidence of Mr Diab did not identify the specific defects that required remedial work: Paragraphs 143 to 146. This was an onus of proof question.
6. Those conclusions by the Referee were open to him on the state of the evidence that was before him.
7. Accordingly, at paragraph 151, the Referee stated: "151 The evidence does not assist in establishing that Conditionex did not complete its air balancing obligations under the Penrith Subcontract. The evidence does not assist in establishing that the air balancing carried out by Conditionex for the Penrith Project was defective in any way. The evidence does not show that Nationwide issued any notice or communicated with Conditionex regarding defects in Conditionex's air balancing before engaging Compact Air to carry out the air balancing invoiced."
8. Additionally, at paragraph 161, the Referee stated: "161 The evidence relied on by Nationwide, and the information in Compact Air's invoice 0001561 in particular, offers almost no assistance in working out either Conditionex's liability or the quantum that should apply. Whilst it is inarguable that commissioning was part of Conditionex's scope of work there is no indication that the commissioning in Compact Air's invoice was for more than 1 of the 25 apartments on the Penrith Project. Even if liability could be established for the commissioning of one apartment, using the only information available as to the Subcontract allowance for commissioning each apartment, that would amount to $140 for commissioning that one unit. As for the air balancing in apartments 5.2 and 6.3 no rate or price is ascertainable from the Compact Air invoice and the evidence does not establish why the air balancing was required for those two units only. The Compact Air invoice also does not assist in working out why the zoning control system was replaced in apartment 6.3 and does not assist in valuing or assessing any monetary amount that could be applicable for replacement of the zoning control in that apartment."
9. Those conclusions were also open to the Referee on the evidence that was before him.
10. In written submissions, the defendant/cross-claimant submits those findings ought to be rejected as being "manifestly unreasonable in the circumstances". The assertion of manifest unreasonableness with respect to the Referee's conclusions was based on the proposition that it was wrong for the Referee to have taken the view that there was no evidence that the plaintiff/cross-defendant did not complete its air-conditioning balancing obligations that arose under the Penrith sub-contract.
11. In written submissions, the nub of the defendant/cross-claimant's complaint about the Referee's conclusions is that by reference to pages 525 and 545 of the Court Book, and on the question of delay, attention was drawn to the Referee's findings that there was no evidence that the claimed remedial work carried out by another contractor, the cost of which was claimed in the cross-claim, was work that the plaintiff/cross-defendant failed, omitted, or simply did not do.
12. The essence of the defendant/cross-claimant's complaint about that finding is the assertion that the Referee omitted to take into account that over 2 months after the issue of the last progress claim for the Penrith project, this being claim number 6, where mechanical testing and commissioning had still remained incomplete, the plaintiff/cross-defendant had failed to provide any explanation for such delay.
13. In relation to this item it is instructive to review page 525 of the Court Book which consists of a copy of the plaintiff/cross-defendant's tabulated itemised job summary for the Penrith project, part of which relates to level 1 and ground floor testing and commissioning of the air-conditioning, and another part which relates to levels 5 and 6 commissioning of air-conditioning, where, as at the date the tabulation in the document was prepared, the completion was marked at "0.0%".
14. Significantly, that document was left undated and it was not otherwise explained as to its date. It therefore did not represent a reliable basis from which to infer that the plaintiff/cross-defendant was in breach of its obligations to complete its work by a particular date.
15. In relation to this item it is also instructive to refer to page 545 of the Court Book, which comprises a copy of an email communication thread between 22 November 2019 and 25 November 2019 between Mr Wassim of the defendant/cross-claimant and Mr Salman Ali and Mr Hazem Afyouni of the plaintiff/cross-defendant, referring to incomplete electrical work on the Penrith site.
16. Significantly, in that email thread it was noted that the apparent cause of such delay was on account of an earlier power failure which led to damaged sub-station components on the site. On the evidence adduced, it remained unclear as to how that problem could reasonably have been attributed to fault on the part of the plaintiff/cross-defendant.
17. In those circumstances, it is unsurprising that on the evidence before him, the Referee was not satisfied that this item of the cross-claim had been made good.
18. The defendant/cross-claimant's oral submissions did not further elaborate or advance its position in respect of Items 13 and 14: T141.50. No error has been shown in respect of Items 13 and 14.

Scott Schedule Item 15 - Penrith - Alleged failure to submit mechanical and board drawings

1. The Referee did not accept the defendant/cross-claimant's claim of $2000 in respect of an alleged failure to submit electrical mechanical drawings and board drawings in respect of the Penrith project. It appears the claim involved a typographical, if not a cut and paste, word processing error.
2. The defendant/cross-claimant's written submissions did not raise any arguments in respect of this item of its claim, which was adequately identified, analysed and reasoned in the Referee's report between paragraphs 164 to 173. The defendant/cross-claimant did not direct any oral submissions to this element of its claim: T142.1. The Referee's conclusions were open to him on the evidence before him. No error has been shown in respect of Item 15.

Scott Schedule Item 16 - Penrith - Rectification of allegedly defective/non-compliant fire safety works

1. The Referee did not accept the defendant/cross-claimant's claim of $120,000 for rectification of allegedly defective non-compliant fire safety work based on a Penrith City Council Safety Order. This item of claim represents the largest component of the cross-claim.
2. The Referee dealt with the details of those claims between paragraphs 173 and 212 of his report. Notably, the Referee observed, at paragraph 174 of his report, that key documents, comprising a copy set of sub-contract drawings and the sub-contract specification for the Penrith sub-contract, were not included in the evidence which was presented to him.
3. Notwithstanding that significant omission, the Referee undertook a review of the affidavit evidence to identify a series of six documents copied between pages 1054 and 1087 of the Court Book.
4. Included within that material was email correspondence from a Mr Phil Craig, a representative of another contractor, Absolute Fire Safety, which stated that firm was "not licensed to undertake any passive [fire protection] works other than fire doors": Court Book, page 1062.
5. This is a matter of some significance and weight, where the defendant/cross-claimant had engaged Mr Craig's firm after Penrith City Council had issued a directive, on 26 November 2020, requiring that the defendant/cross-claimant engage a passive fire protection specialist: Court Book, page 1054.
6. The Referee's analysis of those documents led to his commentary which is summarised as follows: 1. The email evidence of Mr Craig within the Court Book was essentially opinion evidence which was relied upon by the defendant/cross-claimant on fire safety issues, but this was of limited assistance where Mr Craig's qualifications were unknown. This represented a significant lacuna in the evidence which led the Referee to conclude that Mr Craig's email observations did not assist in resolving the issue raised in Item 16 of the Scott Schedule: Paragraph 176 of the report; 2. The absence of other explanatory evidence from Mr Craig, or other specifically qualified expert evidence, was a significant omission which did not assist the process of resolving Item 16 in terms of reliably identifying claimable defects: Paragraphs 176 to 182 of the report; 3. The Referee's criticism of the state of the evidence as cited in the preceding sub-paragraphs is of particular significance where the email material generated by Mr Craig was, on its face, not intended to attribute the cause of any defects to any particular person or party: Paragraph 183 of the report; 4. The following critical commentary raised by the Referee in relation to Mr Craig's evidence effectively disposes of the issues raised by Item 16 of the Scott Schedule, namely: "182 The purpose of the Phil Craig Email was to identify compliance issues in respect of an annual certification of the building. Some of the items referred to by Mr Craig most likely relate to work carried out by Conditionex as part of its scope of work under the Penrith Subcontract. Some of the items referred to probably do not relate to Conditionex's work. There are shortcomings inherent in taking the Phil Craig Email prepared for one purpose, i.e. the annual inspection and trying to apply it for a different purpose. That different purpose being to work out whether or not Conditionex complied with the Penrith Subcontract. The observations in the email do not adequately identify many of the items inspected such as to be able to identify that they are in fact defects, or that they are Conditionex's defects. The observations also do not provide any assistance in quantifying defects. 183 The Phil Craig Email is not directed to attributing the cause to anyone. That is something which Nationwide attempts to do in these proceedings and, without further particularised evidence, that cannot be done. For the Phil Craig Email to have much utility for this Referee's Report further evidence and explanations, such as expert evidence, would be necessary." 1. Significantly, there were no challenges to a series of critical assessments of the evidence as recorded by the Referee in the following paragraphs of his report: 1. At paragraph 184, he made the critical point that AFSS Mechanical and Damper Assessments were of limited reliability as opinion evidence because the necessary qualifications and the underlying facts were not established; 2. At paragraph 185, he recorded that, as he read the evidence, it appeared there was a 7 month delay between the issue of the Penrith City Fire Safety Order and the subsequent inspections for the relevant assessments. This plainly cast doubt upon the utility of the material relied upon by the defendant/cross-claimant; 3. At paragraph 190, he recorded doubts as to the standing or credentials of the contractors referred to in relation to fire safety matters; 4. At paragraph 193, he recorded the fact that no-one gave explanatory oral evidence on the particular fire safety matters that were being considered; 5. At paragraph 195, he recorded the fact that there was doubt cast over significant aspects of the Compact Air Mechanical Report; 6. At paragraph 196, he identified the absence of relevant sub-contract drawings and other specifications in relation to the Penrith project, where it was also noted that there were multiple non-differentiated issues, and where the qualifications and experience of the contractor relied upon had not been established; 7. At paragraph 199, he recorded that there were unknown factors such as whether the opinion giving contractor had access to relevant drawings and specifications, and where the instructions given to that contractor were not clearly apparent for review; 8. At paragraph 200, he noted that estimates provided by Compact Air were only broad, unparticularised estimates which did not identify the scope of the work and they gave no indication as to how the estimates were made. He further noted that no explanation had been provided as to why the Compact Air estimate varied from approximately $98,000 on 16 July 2021, up to $120,000 on 30 July 2022; 9. At paragraph 204, he cited the directive of the Penrith Fire Safety Officer to the effect that "some upgrade works be undertaken to your building to make it safe", where it was not specifically stated that such work needed to be done to make it safe. There is an important and unexplained distinction here and the defendant/cross-claimant did not discharge the relevant onus of proof on that matter; 10. At paragraph 207, he observed that there was no evidence that the subject works relating to Item 16 on the Scott Schedule had actually been carried out, and that associated costs or losses had thereby been incurred; 11. At paragraph 208, he noted that there was no evidence that the Penrith Fire Safety order had been satisfied, either by the defendant/cross-claimant, or by any other entity.
7. The above list of critical propositions extracted from the Referee's report, which were not the subject of challenge, are indicative of significant flaws in the evidence in support of the defendant's cross-claim. That list is not intended to be exhaustive.
8. All of those identified observations, criticisms and findings by the Referee were open to him on the limited evidence that was before him.
9. In the defendant/cross-claimant's written submissions on Item 16 of the Scott Schedule (at paragraphs 24 to 25), it was submitted that the Referee's findings ought to be rejected as, it was argued, his conclusions concerning this item were arrived at by ignoring or failing to give proper weight to the evidence adduced by the defendant/cross-claimant, with the result that "the evidence relied upon by the Referee was not reasonably capable of supporting the specified finding in the Referee's report".
10. In my view, a fair reading of the Referee's report in the context of a consideration of the evidence in terms of the onus of proof indicates that submission should not be accepted, as the Referee's evaluation of the evidence was reasonable and his findings were supportable on the approach that was taken.
11. The written submission cited above was explored in the defendant/cross-claimant's oral submissions (at T142.2 - T146.36), but no error has been shown in respect of the Referee's determination of Item 16.

Scott Schedule - "Other relevant issues" raised by defendant/cross-claimant

1. In oral submissions the defendant/cross-claimant sought to sustain a submission that "even though on the face of [the report] the Referee's reasons may appear to be adequate, … a closer examination of the reasoning makes it apparent that [he] has taken an unfairly critical and unreasonably narrow view of the evidence": T142.15.
2. That asserted unreasonableness was explored (at T142.9 - T143.22), and in that context it was accepted that the Referee's evaluation of that evidence was appropriately undertaken in accordance with the principles identified in Chocolate Factory Apartments v Westpoint Finance & Ors [2005] NSWSC 784 at [7], as summarised at paragraph [33] above.
3. On the issue of the reliability of the evidence of Mr Craig, the defendant/cross-claimant sought to sustain an argument to the effect that it can be inferred that Mr Craig had the necessary qualifications to carry out an inspection, the consequential proposition being that his opinion was reliable.
4. In my view, absent specific evidence on that question, no such presumption of regularity arises. It was incumbent on the defendant/cross-claimant to establish that Mr Craig had the required qualifications. The Referee's approach to that question was both conventional and correct: T143.38 - T144.12.
5. The defendant/cross-claimant's general challenges to the Referee's report have been considered and not accepted, as already explained at paragraphs [28] to [32] of these reasons.

Disposition

1. I conclude that the defendant/cross-claimant's challenges to the Referee's report have not been sustained. The Referee's report should be adopted. The defendant's cross-claim must therefore be dismissed. As a consequence, the previously ordered stay in respect of the judgment entered in favour of the plaintiff must be lifted and discharged.

Costs

1. At the hearing on 10 October 2022 the question of costs was reserved. I will hear the parties on the costs issues in due course once they have had the opportunity of considering these reasons.

Orders

1. I make the following orders: 1. Pursuant to rule 20.14 of the Uniform Civil Procedure Rules 2005 (NSW), the report of the Referee, which has been marked Exhibit "B" in the proceedings, is adopted to determine the disputed items of the cross-claim; 2. The defendant's cross-claim, as amended on 17 August 2021, is dismissed; 3. The stay of the judgment in favour of the plaintiff in the sum of $119,224.78, as ordered on 26 May 2022, is lifted forthwith; 4. I will hear the parties on the question of costs once they have had the opportunity of considering these reasons; 5. The Exhibits may be returned; 6. Liberty to apply for further or other orders if required.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 November 2022