Eko Investments Pty Limited v Austruc Constructions Limited & Ors; The Owners Strata Plan No. 64970 v Austruc Constructions Limited & Ors

CATCHWORDS : [REFEREES/REFERENCES] - Whether explanation from referee required in respect of matters omitted from report - Whether matter should be remitted to referee for further consideration and report - Whether matter should be remitted to provide a party an opportunity to be heard - Nature of discretion to require explanation and/or remit matter to referee

LEGISLATION CITED : Uniform Civil Procedure Rules 2005

Eko Investments Pty Limited v Austruc Constructions Limited & Ors; The Owners Strata Plan No. 64970 v Austruc Constructions Limited & Ors (2009) NSWSC 208 CASES CITED : Banabelle Electrical Pty Ltd v New South Wales [2005] NSWSC 714 Ryde City Council v Tourtouras [2007] NSWCA 218

Eko Investments Pty Limited Austruc Constructions Limited PARTIES : Cyril Smith & Associates Pty Limited Slater Lomas Pty Limited The Owners Strata Plan No. 64970 Traditional Windows Pty Limited

FILE NUMBER(S) : SC 55047 of 2003; 55048 of 2005

G Sirtes SC (Owners Corporation) I D Faulkner SC (CSA) COUNSEL : M Galvin (EKO) M G Rudge SC/M S White (Austruc) I G Roberts (Slater Lomas) S J Walsh (Traditional Windows)

David Le Page (Owners Corporation) Kennedys (CSA) SOLICITORS : Stacks/Forster (EKO) Doyles Construction Lawyers (Austruc) DLA Phillips Fox (Slater Lomas) James Tuite & Associates (Traditional Windows)

• 11 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY & CONSTRUCTION LIST

55047 OF 2003 EKO INVESTMENTS PTY LIMITED v AUSTRUC CONSTRUCTIONS LIMITED & ORS; 55048 OF 2005 THE OWNERS STRATA PLAN NO. 64970 v AUSTRUC CONSTRUCTIONS LIMITED & ORS (No. 2) JUDGMENT 1 The present applications arise out of my judgment in this matter delivered on 31 March 2009; Eko Investments Pty Limited v Austruc Constructions Limited & Ors; The Owners Strata Plan No. 64970 v Austruc Constructions Limited & Ors (2009) NSWSC 208 (the Judgment) which should be read in conjunction with these reasons. 2 The applications are for orders under Part 20.24 of the Uniform Civil Procedure Rules 2005 (the Rules) in respect of the Referee's Report that was made under Part 20.23 of the Rules, to require an explanation by way of report from the Referee (Part 20.24(1)(b)) and/or to remit the matter to the Referee for further consideration of part of the matter referred to him for further report (Part 20.24(1)(c)). The Court has a wide discretion in this regard in respect of any matter of fact or law, or both, however in exercising this discretion it is very important to keep in mind that the system of referring matters to referees is to be utilised to achieve the overriding purpose of the Rules of the just, quick and cheap resolution of the dispute between the parties. 3 The first application is by Austruc for the following order:

The matter be remitted to the Referee to provide a further report to the Court explaining the basis of his finding that CSA was responsible for design negligence in relation to the external protection system of the building giving rise to CSA being responsible for 75% of the damages suffered by the Owners Corporation. 4 CSA resists this application. The second application is by the Corporation for an order that the "contents claim" be remitted to the Referee for consideration and further report. CSA resists this application. 5 The order sought by Austruc is a combination of the powers referred to in Part 20.24(1)(b) and Part 20.24(1)(c) of the Rules. An order requiring a further explanation from the Referee does not remit the whole or part of the matter to the Referee but requires the Referee to provide an explanation in relation to an aspect of the report, without hearing from the parties. An order remitting the matter to the Referee for further consideration and further report may involve further hearing of evidence and/or submissions to enable the Referee to provide a further report. It seems to me that Austruc's application is for the Referee to provide an explanation without any further hearing.

Design Negligence 6 Austruc accepted on this application that the reasoning of the Referee did not support the conclusion reached by him that the Corporation was vulnerable in respect of the design negligence of CSA in respect of the façade. The Judgment included the following:

60 The factual question addressed by the Referee was whether the Corporation was vulnerable. The Referee concluded that the Corporation was unable to protect itself from the consequence of CSA's negligent design because the statutory warranties would not be available in respect of negligent design. However implicit in the Referee's reasoning is the conclusion that if it was poor workmanship, that is a failure by CSA to administer the contract properly in checking on the builder's work to ensure that the building work complied with the design as produced by CSA, the statutory warranties would be available and the Corporation would be able to protect itself against CSA's conduct in that regard.

61 Austruc took issue with the way in which CSA characterised the Referee's findings and submitted that the Referee concluded that CSA had significantly neglected to design a building that was watertight. It submitted that although CSA acknowledged the Referee's conclusion that it had breached its duty to design a Building that was watertight, it sought to play down the significance of the breach. Austruc submitted that the following parts of the Report establish that the Referee concluded that CSA was negligent in failing to design a building that was watertight: 18. … Part of the solution found was to design and later construct the building using non-load-bearing perimeter walls consisting of panels, each panel being made of a single skin of "Hebel" brand autoclaved aerated concrete (AAC) blocks, each panel being bordered on each side by a reinforced concrete column, and at its top by reinforced concrete slab. …

19. This is a system used from time to time, but if the façade of a building so designed is to be watertight, it is critical both that the façade is designed in a way that is adequate overall, and that the construction work is carried out carefully. …

86. … as between Austruc and CSA, I consider that CSA was more at fault than was Austruc, for although the problem was compounded by the poor workmanship of Austruc or its sub-contractor, making the building watertight was essentially a question going to the design of the building, in the sense that the building needed to be watertight, but CSA appears to have neither recognised the importance of the topic, nor have given Austruc any relevant instructions beyond the reference to the handbook. …

101. The evidence, particularly of Dr Jacob and Messrs Karsai and Moisidis, shows that a high rise building with a single skin façade, such as the building in question, located where it is, should be designed so that its windows have subsills. Assuming a relevant duty of care on the part of CSA, it was in breach of that duty in respect of the lack of subsills for the windows other than the kitchen windows.

102. … Good design practice requires that drip grooves should have been provided for, on the soffits of the slabs above and immediately outside the windows, so that water did not run along the undersides of the slabs, up against and then down the face of the windows. Mr Smith acknowledged that he did not consider the matter at the design stage.

110. …I assess the responsibility for the damages relating to the windows as between Austruc and CSA at 80% CSA and 20% Austruc even if the windows had been perfectly installed, they would have leaked.

62 Paragraphs 18 records the background to the change in design to accommodate the owner's desire to save costs. Paragraph 19 is a very general statement with which there can be no issue. Paragraph 86 is once again in very general terms with some circularity, in particular the statement that: … making the building watertight was essentially a question going to the design of the building, in the sense that the building needed to be watertight …

63 The latter part of the passage in paragraph 86 is also in very general terms. It records the Referee's conclusion that CSA did not recognize "the importance of the topic", meaning, I infer, that CSA did not recognize the importance of having a watertight building. It is not possible to identify the evidence upon which the Referee based this conclusion. Mr Smith's evidence grounded a criticism of CSA not administering the contract appropriately - in failing to identify that the controls joints had been rendered over but that does not seem to me to support the criticism levelled at CSA that it did not recognize the importance of having a watertight building. That paragraph also records the Referee's conclusion that CSA did not give Austruc any relevant instructions beyond the reference to the Handbook. The sentence immediately after this conclusion, upon which Austruc did not rely is the following: In addition, I accept the submission that if CSA had drawn attention to the error in rendering over the joints, at the time or soon after the error was made, the problem could have been readily solved.

64 Paragraph 86 contains general statements about lack of recognition of the need to make the Building watertight, without any specificity as to what part, if any, of the design of the Building was faulty. The other parts of the Report referring to the rejection of the minority expert opinion that the Building "leaked by design" supports the conclusion that it was not the design, but rather the failure to follow the design that caused the breach of the watertight barrier. This conclusion excludes the problems with the lack of sub-sills in the windows, which was a design fault, which CSA has accepted in this application. That is the matter that is referred to in paragraphs 101, 102 and 110. 65. The Referee expressed himself in general terms of CSA's failure to design a waterproof building. However on analysis of his reasoning, I am satisfied that his conclusion was that the design was appropriate and was able to be waterproofed. The problem was the failure to follow the design and specification both in respect of the positioning of some of the control joints and in respect of the rendering over the control joints. The Corporation was therefore protected by the statutory warranties in respect of the façade, however this protection was not available to the Corporation in respect of the negligent design and specification for the windows.

66. In those circumstances the Report of the Referee in relation to the findings that the Corporation was "vulnerable" in respect of the façade (excluding the lack of sub-sills in the windows) will not be adopted. So far as the Report relates to the negligent design of the windows an order may be made that the findings of the Referee will be adopted. 7 Austruc submitted that it is not appropriate that the adoption application remain finally determined on the basis that the Referee's factual findings are unclear to the Court. It was submitted that the Court's discretion has not been exhausted by the Judgment, which it was submitted "simply concludes that that part of the Referee's report in its current form dealing with CSA's duty of care will not be adopted". It was further submitted that the Court should take the opportunity to remit to the Referee for explanation, the question of what he actually meant by his several findings of "design negligence" on the part of CSA and to clarify the factual findings he was making about CSA's duty and conduct when attributing the majority of the fault for the external protection system (the façade) defects to CSA. In support of its application Austruc relied upon the approach adopted by McDougall J in Banabelle Electrical Pty Ltd v New South Wales [2005] NSWSC 714 in which his Honour said at 9:

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. 8 Austruc also relied on Ryde City Council v Tourtouras [2007] NSWCA 218. In that case the Court of Appeal (Santow, McColl and Basten JJA) considered an appeal from the trial judge's decision in respect of a referee's report relating to an inspection process by the council of building works at the property, the subject of the litigation. In that case the trial judge provided a different analysis of the effect of the council's negligent inspection in relation to certain of the defective works to the findings of fact and inferences made by the referee in his report. Basten JA, with whom Santow and McColl JJA agreed, said at [30]:

The trial judge did not identify, nor did this passage in his reasons address, some matter which the referee had failed to take into account or some misapprehension of the evidence. The trial judge expressed the view, to the extent that it was relevant, that he was unable to say how long such remedial work might have taken, although the referee had concluded that the progress of the building works would have been only "slightly delayed". Perhaps nothing turns on this, but it indicates an approach on the part of the trial judge which involved the reconsideration of factual matters and disagreement on matters of evaluative judgment. It was common ground between the parties in this Court that the evidence before the referee was not before the trial judge. 9 Basten JA went on to deal with a matter of "greater significance" in which the trial judge sought to draw inferences and treated his discretion as largely unconstrained: [31] - [34]. His Honour then said:

36. The approach adopted by the trial judge in these passages is inconsistent with the need for restraint in reviewing factual findings of a referee. If there had been thought to be some omission from the reasoning of the referee, it might have been appropriate to send the matter back for clarification. However, in the matter now under consideration, no such need for clarification has been revealed. Nor has any relevant misapprehension of the facts by the referee been identified. What has been demonstrated is a misapprehension on the part of the trial judge as to the proper scope of his discretion. 10 Mr Rudge SC, for Austruc, submitted that it is appropriate in the present case to seek clarification from the Referee in circumstances where there is a finding that, although he clearly expressed a conclusion that CSA was negligent in the design of the Building, his reasons do not expose the basis upon which that conclusion was reached. Mr Rudge submitted that if the matter is remitted to the Referee, he might conclude, having read the Judgment, that he was wrong to conclude that CSA was guilty of negligent design; alternatively, having read the Judgment he may be able to clarify the basis upon which he reached his conclusion that CSA was negligent in its design of the Building. 11 Mr Faulkner SC, for CSA, submitted that it is inappropriate to remit the matter to the Referee in circumstances where the Court has found that there is no identification in the Report of any faulty design: [64] of the Judgment. Mr Faulkner submitted that an "embarrassing" situation could arise if the matter were remitted to the Referee and his further report contained matters inconsistent with the Judgment. Mr Faulkner also submitted that Austruc is simply seeking to re-argue its case. Austruc will not be given an opportunity to re-argue its case. Mr Faulkner also submitted that Austruc should not be permitted to seek an order that the Referee provide an explanation because it had not sought such order at the adoption hearing. The fact that there was no application at the time of the adoption hearing does not preclude the making of the application if the dictates of justice warrant it being made.

12 This is a rather complex situation. The matter took 20 days of hearing time before the Referee and was the subject of more than one Report. There were numerous parties and numerous issues. This is not a situation in which the Referee failed to reach a conclusion or make a finding of negligence. Rather it is a situation in which the Referee reached the conclusion and made a finding of negligence but omitted the basis of that finding from the Report.

13 It is clear that there are a number of references in the Report in which the Referee referred to CSA's failure to design a waterproof building. The conclusion reached in paragraph [65] of the Judgment was "on analysis of" the Referee's "reasoning". The Court did not have before it the relevant statements, affidavits or complete transcript on this aspect of the matter. Its role was limited to the analysis of the Report and some of the evidence to see whether it should be adopted or rejected. If it be the case that there are aspects of the evidence to which the Referee would refer in support of his conclusion, such being before him and not before the Court, then it seems to me appropriate for the Referee to be given the opportunity to provide that additional analysis and/or reasoning. In seeking an explanation from the Referee the Court is requiring clarification of the basis upon which the Referee reached those conclusions without any further hearing of evidence or submissions from the parties. 14 I am satisfied that the more prudent course and that which is consistent with the overriding purpose of the Rules, is to make an order requiring an explanation by way of report from the Referee of the basis of his finding that CSA was negligent in designing the façade of the Building, giving rise to CSA being responsible for 75% of the damages suffered by the Corporation.

Duty Owed by CSA to Austruc 15 There was an issue raised in argument on this application described as Austruc's "fall back submission", in relation to the question of whether CSA owed Austruc a duty of care. The Referee did not deal with this submission, nor did the Judgment. The question is whether, even if the statutory warranties did apply to the defects with regard to the external protection system, the Corporation was nonetheless vulnerable. As the matter is to be remitted to the Referee I will allow that aspect of the matter also to be remitted to the Referee. It will be a matter for the Referee whether he regards it as appropriate or necessary to deal with this matter.

The Contents Claim 16 CSA submitted that the Court should decide this issue on the evidence which has been adduced by the Corporation. That evidence was before the Referee and not before the Court. It was submitted that the Corporation elected to pursue the claim in the manner pleaded and had not sought to amend or fully particularise or re-open its case. It was submitted that the factual premise of the Corporation's pleaded claim was that it had a liability to the individual lot owners. The claim made by CSA is that there was no evidence of this and therefore the claim must fail. CSA also submitted there was no utility in remitting that aspect of the matter to the Referee. 17 I am of the view that it is appropriate in the circumstances of the findings in the Judgment to remit the contents claim to the Referee so that CSA may have an opportunity to address the Referee on the issue that it did not matter whether the individual lot owners had made claims on the Corporation before CSA could be found liable for the contents claim. Mr Faulkner's client wishes to make additional submissions and may even make an application to the Referee to re-open the case in respect of the contents claim. As to whether any such application is allowed is a matter for the Referee. The basis of the remitter of this aspect of the matter is to provide CSA an opportunity to be heard by the Referee.

18.1 In light of the Judgment, the Referee is to provide a further Report explaining the basis upon which his conclusion was reached that CSA was negligent in the design of the façade of the Building giving rise to CSA being responsible for 75% of the damages suffered by the Owners Corporation.

18.2 The matter is remitted to the Referee to provide CSA an opportunity to be heard on the issue that the Corporation is entitled to succeed on its contents claim irrespective of whether claims have been made on it by the individual lot owners and to report further on this matter to the Court.

18.3 If the Referee regards it as appropriate or necessary the Referee is to consider and report on Austruc's "fall back submission" in respect of CSA's alleged duty of care to it.

18.4 These orders may be taken out forthwith. 19 The parties are to provide to the Referee a copy of the Judgment, these reasons and the Orders by no later than 8 May 2009. The parties are to consult with the Referee as to the date on which the Referee will be in a position to comply with these orders and to produce his further reports to the Court so that Short Minutes of Order may be filed with my Associate listing the matter for directions on a date two weeks after the date provided by the Referee. In the meantime the matter is provisionally listed at 9.30 on 3 July 2009, subject to the parties filing Short Minutes of Order with my Associate adjusting that date. **********

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.