Fletcher Construction Australia Limited v Lines MacFarlane & Marshall Pty Ltd [2002] VSCA 189

Court of Appeal (Vic)|2002-11-29|Before: CHARLES, BUCHANAN and CHERNOV, JJ.A.

Appeal and new trial - Contract for architectural services - Percentage of work completed - Whether judge's assessment flawed - Nature of assessment - When appellate court may interfere - Judge's reasoning affected by significant error - Process of reasoning not exposed in reasons for decision - New trial ordered.

Courts and judges - Statement of reasons for decision - Scope and adequacy of reasons - Whether restrictions on trial process limit duty to give reasons - Errors and inadequacy in reasons - Discussions of purpose, content and adequacy of reasons for decision.

This appeal concerns a judgment and orders given and made by a judge of the Supreme Court on 13 September 2000 after a trial which occupied some 34 sitting days. The trial was conducted according to a "limited trial" procedure which confined the time available to the parties to cross-examine witnesses and to make opening and closing submissions. The parties had agreed to pre-determined starting and finishing dates and to present evidence in chief and in reply essentially through witness statements.

The appellant ("Fletcher") is a major building contractor which, in 1996, was awarded the contract to design and construct the Men's Metropolitan Prison at Laverton which became known as the Port Phillip Prison ("the MMP"). The respondent to this appeal, Lines MacFarlane & Marshall Pty. Ltd. ("LMM") provides architectural services. LMM entered into an agreement with Fletcher on 24 May 1996 ("the Consultancy Agreement") pursuant to which Fletcher subcontracted to LMM the task of designing the MMP for a lump sum fee of $1.6m together with an allowance of $100,000 for the final commissioning phase of the works. It was a term of the agreement that LMM would be paid according to the value of the services it had completed from time to time.

In the latter part of 1996 a dispute erupted between the parties as to the extent of the work completed by LMM under the Consultancy Agreement and as to its entitlement to fees. On 9 September 1996 LMM rendered an account to Fletcher in the sum of $207,000 in respect of Stage 3 works. Fletcher paid only $62,900 of the account and, in the result, LMM stopped all work on the project on 16 November 1996. LMM's case at trial was that 95 per cent of architectural services work that it had to provide under the Consultancy Agreement had been completed when it stopped work. Fletcher, on the other hand, claimed that when LMM stopped work, a substantial amount of architectural work was still required to be completed by it and much of the work that was done by LMM was defective. LMM contends that Fletcher's failure to pay the fees due to it amounted to repudiatory conduct on the part of Fletcher which LMM accepted by cessation of work on 16 November 1996, or alternatively, by effectively advising Fletcher of its acceptance during a meeting between the parties on 20 November 1996.

Fletcher maintains that LMM's cessation of work on 16 November amounted to a repudiation by it of the Consultancy Agreement and that it accepted that repudiation by notice served on LMM on 18 December 1996. Fletcher retained another architect, Godfrey Spowers Pty. Ltd. ("Spowers"), to complete the remaining architectural services in respect of the construction of the prison at a cost of a little under $200,000. The construction of the MMP was completed in August 1997.

On 17 November 1996 LMM filed the present proceedings in which it claimed approximately $400,000 from the appellant in unpaid fees under the Consultancy Agreement. On 26 March 1997 Fletcher counterclaimed against LMM for the additional cost of the new architect and for other alleged damages arising out of allegedly incomplete and defective work in the sum of approximately $4.3m.

The hearing of the action was completed on 29 June 2000 and on 9 August 2000 the trial judge pronounced judgment in favour of LMM for $196,950 (together with interest) and dismissed Fletcher's counterclaim. At the same time his Honour gave a brief oral summary of his reasons and provided the parties with what he called his "draft" of written reasons for judgment. He did not, however, hand down his final reasons until some five weeks later, on 13 September 2000. Later, his Honour heard argument on various matters arising out of his judgment and made certain orders, some of which are the subject of appeal. As will be explained more fully later, Fletcher has appealed against his Honour's principal decision and sought leave to appeal against some of his Honour's related orders. LMM has also sought leave to appeal against an order made by his Honour to which reference will be made later and has filed a notice of contention in relation to the principal decision.

Before dealing with the issues that are raised by this appeal, it is necessary to describe more fully the context in which the parties entered into the Consultancy Agreement and the circumstances leading to the dispute. In 1993 the MMP was to be one of the three privately run prisons to be built for the Victorian State Government. The other two were to be the Metropolitan Women's Correctional Centre at Deer Park comprising 250 beds and the Fulham Prison, a medium security rural prison for 600 male prisoners at Sale. The MMP was to be a maximum security prison incorporating remand, hospital, medium security and accommodation facilities together with a psycho-social unit.

According to the trial judge, various consortia were formed to bid for each of the projects. The consortium ("the Fletcher consortium") put together under the aegis of Fletcher consisted of Fletcher itself, LMM and Group 4 Corrections Services Pty. Ltd. ("G4"). Fletcher was to be the builder, G4 was to act as the local operator and manager of the prisons and LMM was to provide the architectural services. His Honour considered that LMM actively sought participation in the consortium as is evidenced, inter alia, by its written proposal to Fletcher in November 1993 in which it set out its experience in relation to the design and documentation of prisons in the following terms:

"LMM have experience in the design and documentation of corrective facilities including quality assurance during construction by having successfully completed the Loddon Regional Prison in Victoria".

In the course of the next month, LMM wrote this to Fletcher:

"LMM through their involvement in the Loddon project has an understanding and an appreciation of prison design criteria as well as the process, having been part of a successful design and construct bid".

His Honour found those statements to be an accurate summary of LMM's experience. But his Honour also considered that LMM did not, by reason of those representations, hold itself out as an expert in maximum security prisons.

Although the Fletcher consortium tendered for the three proposed new prisons, it was only successful in relation to the MMP bid so that, in respect of the unsuccessful tenders, the work done by it and the other members of the Fletcher consortium in preparing the failed briefs went unrewarded. For the purpose of facilitating the bid, the Government established a group called the New Prisons Project ("the NPP") which was to be primarily responsible for overseeing the tendering process in respect of the three proposed prisons and their construction and operation. It was intended that the ultimate contract for the building, maintenance and operation of the prisons would be entered into on behalf of the State by the relevant Minister. For the purposes of the MMP tender, the NPP prepared a brief ("the design brief") for the short listed parties by which it sought tenders for the design, construction, operation and maintenance of the MMP over a 20 year period. The completion of construction was set for mid-1997.

The Fletcher consortium tendered for the MMP contract in late 1995 with a proposal which it revised in early 1996. By the time the Fletcher consortium was nominated as the successful tenderer in April 1996, its members had carried out a significant amount of work in relation to the then anticipated construction of the MMP in the expectation that it would be the successful bidder. Following the acceptance of its tender by the government, the respective members of the Fletcher consortium entered into a number of separate contracts in relation to the design and construction of the MMP. Thus, Fletcher and G4 formed the Australian Corrections Facilities Pty. Ltd. ("ACF") in which each had a 50 per cent shareholding. On 10 July 1996, ACF entered into a contract with the Minister for Corrections for the design, construction, maintenance and operation of the MMP. On the same day Fletcher entered into a contract with ACF to design and construct the MMP. As has already been mentioned, Fletcher and LMM had earlier, on 24 May 1996 entered into the Consultancy Agreement relating to the prison.

This chain of contracts constructed a form of hierarchy through which LMM's drawings were to pass for the purpose of being reviewed. A design review process ("DRP"), which was incorporated into the Consultancy Agreement, as will be explained later in these reasons, contemplated that LMM's drawings would first go to Fletcher for review, suggestion and endorsement, after which they would be further reviewed by G4. After that process and after any consequential amendments were made to the drawings by LMM, they were to be forwarded to the NPP for endorsement. Once endorsed, they were to be passed to Fletcher to be stamped "approved for construction". It was originally envisaged that the approved drawings would be sent to LMM, but, as things turned out, of the 167 LMM drawings which were so approved, only one was returned to LMM. It was part of Fletcher's case that 163 of those drawings were incomplete and contained significant omissions and for that and other defects and omissions in its work, LMM was not entitled to the payment it sought.

It is convenient to mention at this point that the contract pursuant to which Fletcher undertook to build the MMP was a design and construct contract as distinct from a more commonly used lump sum contract. An essential feature of a design and construct contract is that the two parts of the process which are intended to produce the ultimate building, namely, the design of it and its construction, are carried out simultaneously, unlike the position with a typical lump sum contract where the design is usually fully completed before the construction contract is entered into. His Honour explained that, in order to fulfil the time constraints, design work proceeds along with other elements of the project.

It is appropriate to describe at this point the structure of the Consultancy Agreement and its relevant terms. The body of the document contains General Conditions which incorporate three annexed schedules and, by reference, other documents which will be described later. Annexure A describes the scope of service which LMM was to provide. It divides the service into four chronological stages, namely, Stage 1 - the schematic design stage; Stage 2 - the design development stage; Stage 3 - the documentation stage (which is the subject of the present dispute) and Stage 4 - the construction and commissioning stage. So far as is relevant, Annexure A contains the following provision.

"Documentation Stage The Architect shall: (i) prepare all contract documentation including detailed working drawings, schedules and specification as are necessary to fully describe the Works..."

Schedule B specifies the time for completion of the project by way of a bar chart indicating that the entire project was to be completed by August 1997. Schedule C sets out LMM's total fee and the break-up of it. So far as is relevant, it is in the following terms:

"1. Total Lump Sum Fee $1,700,000 Break-up of fee stage * Schematic Design $ 30,000 * Design Development $ 655,000 * Design Documentation $ 915,000 * Construction, Commissioning $ 100,000

The General Conditions contain the following clauses.

"The Services 1.(a) The consultant shall perform the Services relating to the Works. The scope of the Services is set out in Annexure A. (b) In performing the Services, the Consultant shall: * do all things reasonably incidental or necessary to give effect to the Services even if not expressly stated in Annexure A; * comply with all directions and instructions of Fletcher; * exercise the standard of skill, care and diligence to be expected of a professional consultant experienced in the class of work to be executed. ... Payment 3.(a) Fletcher shall pay the consultant the Total Lump Sum Fee ('the Fee') for the Services set out in Annexure C. The Fee is inclusive of all costs, fees and disbursements incurred by the Consultant in carrying out the Services. (b) Fletcher will pay the Consultant the Fee in instalments in accordance with the payment terms set out in Annexure B as the Consultant completes parts of the Services. Each payment will be based on the value of the Services completed by the Consultant and will only be made if: * the Consultant submits the claim in accordance with the payment terms; * the Consultant provides supporting information for the claim required by Fletcher; * The Consultant is not in breach of a term of this Agreement; * separate claims are made for any variations to the Services carried out by the consultant; and * the part of the Services for which the claim is made complies with the Agreement. (c) Each instalment shall be paid by Fletcher in accordance with the payment terms set out in Annexure C, provided the requirements in Clause 3(b) have been met. (d) Any instalment paid by Fletcher shall be deemed to be on account only and shall not imply the Services or any part of the Services are approved by Fletcher. Documentation 4.(a) Fletcher shall provide the Consultant with the Design Brief and a Cost Plan for the works. (b) The Consultant must take account of the contents of the Design Brief and the Cost Plan in performing the Services. The Consultant must immediately notify Fletcher if the Consultant becomes aware of any circumstances that may effect the Cost Plan. ... Design 6.(a) The design work undertaken by the Consultant as part of the Services will conform with the requirements of the Agreement and be fit for the purposes for which it is intended. Work undertaken by the Consultant in relation to the preparation of the Design Brief shall comply with the design intent. (b) All design and documentation prepared by the Consultant will be fully coordinated with all other design and documentation produced in relation to the Works so as to eliminate design conflict, omissions or discrepancies. ... Suspension of the Services 13. Fletcher may by notice in writing at any time to the Consultant suspend or defer the Services. Upon receipt of the notice, the Consultant shall suspend the Services until further written notice from Fletcher. ... Previous offers 16. This Agreement cancels all previous offers and negotiations between Fletcher and the Consultant in relation to the Services. ... Default and Termination 22.(a) If in Fletcher's opinion, the Consultant fails to comply with any requirement in this Agreement or has not proceeded with the Services competently or with reasonable diligence, Fletcher is entitled to end the Agreement by giving written notice to the Consultant. (b) Fletcher may end the Agreement by written notice to the Consultant if the Consultant dies, tries to enter into a composition or arrangement with creditors or any attempt is made to wind the Consultant up, bankrupt the Consultant, make the Consultant insolvent, appoint an administrator or official manager or receiver for any of the Consultant's property or undertaking or an execution is levied against the Consultant. (c) Fletcher may end the Agreement for any reason by written notice to the Consultant. (d) If Fletcher ends this Agreement or takes over any part of the Services for the reasons set out in clauses 22(a) or (b), Fletcher may employ others to carry out any part of the Services at the Consultant's expense. Dispute Resolution 23.(a) If a dispute arises under this Agreement, either party may at any time give written notice to the other requesting that a settlement meeting take place. Nominated representatives of both parties must meet within seven (7) days of the notice and endeavour to resolve the dispute in good faith. (b) If a settlement meeting does not take place or, after seven (7) days of the settlement meeting the dispute remains unresolved, the dissatisfied party is free to pursue its rights under Clause 24. (c) If the dispute remains unresolved after the settlement meeting the Consultant shall continue to perform the services in accordance with the Agreement for a period of not less than 28 days."

Before dealing with the circumstances leading to the dispute which is the subject of this litigation, it is appropriate to identify the principal persons who were involved in those events. Gavin Patrick Grahame ("Grahame") was the Project Manager of the MMP development and a senior employee of Fletcher. Gary Marshall ("Marshall") was the principal of LMM and was the person who represented his organisation in its dealings with Fletcher. Frank Kendall ("Kendall") was employed by Fletcher as a construction manager at the MMP project. Denis Scheele ("Scheele"), an architect, was an employee of Fletcher and, as will be explained later, although he did not give evidence, he did provide information to Grahame as to the state of completeness of LMM's design work which Grahame passed on to the Project Committee on 10 September 1996. Peter James Bowe ("Bowe") was an architect who was employed by G4. He made an assessment of the state of completeness of LMM's work in September 1996 to which reference will be made later.

Bearing in mind the parameters of the dispute, it is unnecessary to detail here the services performed by LMM under the Consultancy Agreement and the payments that were made to it prior to 1 July 1996. For present purposes, it is sufficient to say that by that date, LMM had completed all or nearly all the Stage 1 and Stage 2 work that was required of it and, save for approximately $85,000, it was paid all the amounts that it had claimed from Fletcher in relation to its work. On 1 July 1996, it rendered account No.6430 for $614,286 for the Stage 3 work that it had carried out during April, May and June 1996. It also claimed the unpaid amount of $85,000 remaining from the earlier stages. Thus, in round terms, LMM claimed in early July 1996 that $700,000 was due to it under the Consultancy Agreement. Fletcher, however, disputed LMM's entitlement to the full amount of that claim notwithstanding that, as his Honour found, Grahame conceded that, at that stage, Fletcher had not made any formal assessment as to the state of completion of LMM's drawings. His Honour said: "... without sound foundation and merely because he 'thought' so, ... Grahame contested the propriety of LMM's claim as to the amount of work done." As a result, by a facsimile sent to Fletcher on 22 July 1996 LMM claimed that it was in dispute with Fletcher under the Consultancy Agreement in relation to its claimed fees. His Honour said that between 22 and 26 July Marshall and Grahame met to discuss the outstanding accounts. Marshall told Grahame that if LMM was not paid its invoices, it would stop work. Grahame says that he took this to be LMM's final ultimatum. As a result of this meeting, he sent LMM a letter of 26 July which stated:

"For the purposes of progress assessment, the documentation fee (Stage 3) of $915,000 had been proportioned 85 per cent for drawing and 15 per cent for schedules and specifications. Furthermore, documentation completed to review standard shall be regarded as 75 per cent complete."

On about 26 July 1996, Fletcher paid LMM $502,638. On 1 August 1996 Fletcher paid LMM a further sum of $200,000. Thus, as at August 1996, there was little or no money outstanding to LMM under the Consultancy Agreement. According to Fletcher, there were, however, numerous discussions about outstanding design issues.

In early September 1996 Marshall of LMM went overseas, having signed off on a significant number of drawings prior to his departure. On 9 September 1996 LMM rendered account No. 6436 which, it is common ground, was incorrectly dated 9 August 1996, for $270,000.[1] A large part of that claim related to Stage 3 work. Taking into consideration the LMM invoices relating to Stage 3, LMM was contending that it had completed over 95 per cent of the Stage 3 work. It is the September claim for $270,000 that triggered the dispute between the parties that resulted in their making their respective claim and counterclaim in the proceeding. Whereas, as we have said, LMM claimed that its Stage 3 work was substantially completed in September 1996, Fletcher contended that the extent of the completion of that work was substantially less than that claimed by LMM. Later, it asserted that much of the work was defective.

The minutes of the Project Committee[2] show that at its meeting of 10 September 1996 Grahame reported that "the design component (of the project) is approximately 95 per cent complete with the majority of the detailed design documentation being submitted to NPP for endorsement. The exception being finishes, schedules, landscaping and compound fencing." His Honour concluded that Grahame must have been satisfied that LMM's design work was approximately 95 per cent complete as at 10 September 1996. His Honour noted that, in his report to the Project Committee and to Fletcher's financiers (made on the same day) Grahame's reference to work that was "yet to be completed" was a reference to work that was largely outside LMM's control.

On 23 September 1996 Bowe, an architect, completed a two-day assessment of the value of the LMM work and reported to Grahame that the Stage 3 work was 73 per cent complete. As we will mention in more detail later, his Honour dismissed Bowe's assessment on the basis, inter alia, that Bowe, being Kendall's brother-in-law, was not independent, was unqualified to make the assessment and knew that the exercise was performed for the purpose of challenging the value of the work that LMM claimed to have performed in relation to Stage 3. Be that as it may, Grahame wrote on Bowe's report a message to Scheele to the effect that LMM should be told (in response to its claim) that its documentation was assessed only at 73 per cent complete and to request LMM to rectify "immediately shortfalls in the documents". In compliance with Grahame's request, Scheele wrote to LMM on that day enclosing the Bowe assessment and advising LMM that its design documents were assessed at 73 per cent complete and that, on that basis, the amount due to it was $52,950. Scheele also asked LMM to respond to the assessment and "to rectify shortfall in documents immediately and confirm completion program." Beyond saying that, it seems that Fletcher did not provide to LMM any more specific written complaint concerning its work.

On 7 October 1996 LMM sent a facsimile to Fletcher disputing the Bowe assessment and claimed that its drawings were, at worst, 95 per cent complete and it sought a meeting with Fletcher to discuss its claim. On the following day LMM threatened Fletcher with a notice of dispute alleging that Fletcher was in default as it had failed to pay the amount due to it.

On 8 October 1996 Grahame requested Kendall to review the Bowe assessment. His Honour considered that this was no more than an attempt to justify the refusal by Fletcher to pay LMM's account.

On 17 October 1996 Fletcher paid LMM $62,950 in relation to invoice No.6436 leaving a balance outstanding at $207,050.

On 16 October 1996 a meeting was held between Grahame, Kendall and Marshall to discuss the issue of completeness of the design stage and the moneys that were claimed by LMM as being due to it. Marshall later said that he regarded this meeting as a "settlement meeting" for the purpose of clause 23(a) of the Consultancy Agreement, although Grahame claimed he was then unaware that the meeting was supposed to have been of that character. Fletcher's case was that the meeting was not a settlement meeting although it claims that Marshall treated it as such for the purpose of triggering the commencement of the 28 day period referred to in clause 23(c) after which LMM could stop work in conformity with the Consultancy Agreement. Be that as it may, the meeting did not resolve any relevant issue between the parties.

Following the meeting of 16 October 1996 Kendall performed a further assessment of the completeness of design by LMM to that date and, on the basis of that assessment, on 21 October, 1996, Grahame wrote to LMM summarising Fletcher's then position in relation to the dispute between the parties. As will become apparent later, that was an important letter and its relevant parts are set out below:

"Following on from the discussions held in our office on Wednesday 16 October 1996, I again confirm that reductions made to your last progress claim are not motivated by any ulterior reason, rather it is a fair and reasonable attempt to assess completeness of the architectural design. There is no question that you and your teams efforts to date in meeting a difficult construction schedule are testimony to your commitment to this project. I am convinced the frustration I see between yourself and the Fletcher design team has been brought about by poor communication between the parties. It has become obvious to me, having involved myself over the past week, that areas of great concern to the Fletcher design team may not have been properly communicated to your office. In assessing your claim they have attempted to identify those elements of the design that are either incomplete or need more attention. You [sic] reaction to this at Wednesday's meeting suggested to me that this may been [sic] the first time you were made aware of the issues. This concerns me. It is therefore a matter of importance that both Fletcher and LMM work at improving the lines of communication. This is a design and construct project and to say, merely because construction has started, that the design component is finished is not correct. The issues currently at hand are clearly design issues."

In the letter Fletcher promised that it would pay LMM $96,587 "this week" and stated that, in its view, all but $145,463 of the work had been completed by LMM. Notwithstanding this letter, as no payment was forthcoming from Fletcher, Marshall told Grahame that LMM would cease work because of non-payment of fees and would commence proceedings to recover the moneys due to it.

On 23 October 1996 LMM sent a facsimile to Fletcher entitled "Notice of Dispute". In the letter, LMM said that it did not accept Fletcher's proposed reduction of its fees. On the following day, Fletcher made an internal requisition for a cheque in the sum of $96,587 payable to LMM but the cheque, although drawn, was not paid to LMM within the time promised by Fletcher or at all. On 31 October 1996 LMM sent Fletcher a statement in respect of the outstanding invoices which showed that LMM claimed that $207,050 was due to it.

On 8 November 1996 Fletcher sent a letter to LMM in which it said that payments to LMM had been made in accordance with the Consultancy Agreement and sought from LMM confirmation of its commitment to the project. On the same day, LMM sent a facsimile to Fletcher stating that it would resort to legal action against Fletcher.

On 11 November 1996 LMM sent to Fletcher a further invoice No.6440 for $76,525. Of that sum, $45,000 related to Stage 3 work and the balance was essentially concerned with work relating to Stage 4. On 15 November 1996 Fletcher told LMM that it would make no further payments to LMM until LMM affirmed its commitment to its contractual obligations.

On 16 November 1996 LMM ceased all work on the project. To that stage the construction of the prison had progressed broadly in accordance with the Bar chart and a substantial amount of building work had been completed. It was LMM's case that it completed 5 per cent of the Stage 3 work between approximately 21 October and 16 November 1996. Fletcher's position was that a considerable amount of design work remained outstanding, while LMM contended that its work was virtually finished.

On 17 November 1996 LMM filed a writ in this proceeding claiming payment for unpaid fees and apparently, on that day, either served it on Fletcher or made a copy available to it. The statement of claim as originally endorsed on the writ made no allegation of the repudiation of the Consultancy Agreement by Fletcher. In the proceeding as it then stood, LMM claimed that it had completed 95 per cent of the design documentation and therefore was entitled to be paid 95 per cent of $915,000, namely, $869,250. Consequently, it said that a balance of $283,575 (being the unpaid balance of account No.6436, namely, $207,050 and the $45,000 claimed in account No.6440) out of the $869,250, was due to it. Thus, LMM accepted that $585,657 had been paid to it in relation to Stage 3 work.

Attempts were made by the parties to discuss the dispute but to no avail. On 19 November 1996 Fletcher requested LMM to confirm its intention to proceed and complete the work in accordance with the Consultancy Agreement. LMM responded on the same day to the effect that it was not obliged to continue to work because the dispute between the parties had not been resolved. It pointed out that the period of 28 days (under clause 23(c)) had expired since the 16 October meeting and suggested that the relationship of architect and builder and LMM's commitment to proceed could be obtained by Fletcher paying the amounts invoiced plus its legal costs and interest.

On 20 November 1996 a meeting took place between Marshall and Hanich of Fletcher in the course of which Marshall said that LMM did not intend to do any more work because it had not been paid. Hanich had with him the cheque for $96,587 to which reference has been made earlier, but he did not pass it on to Marshall at that meeting or at all.[3]

On 18 December 1996 Fletcher served a notice of termination upon LMM. It was LMM's case at the trial that, by 18 December 1996, it had already accepted Fletcher's repudiation of the Consultancy Agreement and thereby had terminated it. By that date, Fletcher had engaged Spowers to take over the architectural role in relation to the MMP.

During the balance of December 1996 and in January 1997 Spowers familiarised itself with the relevant documentation and events. In March 1997, Spowers and Fletcher entered into an agreement in which Spowers agreed to complete the architectural services in respect of the MMP. The agreement provided that Spowers would be paid $193,000 for the Stage 3 design and documentation phase of the architectural work which was to have been completed by LMM (and approximately $326,000 for the construction and commissioning phase of the work). Spowers worked on the project for Fletcher from December 1996 through to September 1997 and was paid a total of $544,696. The construction of the prison was completed in September 1997.

It was Fletcher's case at trial that since LMM had completed only approximately 57 per cent of the Stage 3 work by the time it stopped work, it was not entitled to be paid the sum claimed. Fletcher contended that the vast bulk of the LMM drawings was incomplete and that LMM had failed to produce 50 drawings which it should have produced in order to fulfil its obligations under the Consultancy Agreement. Because of LMM's breach in that regard, said Fletcher, it suffered substantial damage in the sum of approximately $4.3m, and counterclaimed that sum. At the trial, LMM called 23 witnesses in support of its claim and in the defence of Fletcher's counterclaim. Fletcher called eight witnesses. Both sides called their officers and expert witnesses. As we have said, the trial lasted 34 sitting days. The hearing concluded on 29 June 2000. On 9 August 2000, his Honour pronounced judgment for LMM in the sum of $196,950 and dismissed Fletcher's counterclaim. We will deal later with his Honour's reasons for decision and with matters arising from them, but for the moment, it should be mentioned that his Honour's conclusion that LMM was entitled to be paid $196,950 under the Consultancy Agreement was based on his assessment that, as at 16 November 1996, when LMM ceased all work on the project, it had completed 93 per cent of the work required of it in relation to Stage 3. In coming to that conclusion and in deciding to dismiss Fletcher's counterclaim, his Honour effectively accepted the whole of the relevant evidence given by LMM's witnesses and rejected essentially the whole of the relevant evidence of witnesses called by Fletcher.

It is necessary to say something briefly about the circumstances in which judgment was pronounced by his Honour, the orders that were made by him and the parties' respective challenges to his Honour's decisions. These matters are set out more fully in Fletcher Constructions Australia Ltd. v. Lines MacFarlane & Marshall Pty. Ltd.[4] ("Fletcher No.1"), which was decided in circumstances which will become apparent later. Immediately after his Honour pronounced judgment in the case on 9 August 2000, he gave a brief oral summary of his reasons for decision and provided the parties with what he called his "draft" written reasons for judgment. He did not, however, hand down his final reasons until some five weeks later, on 13 September 2000. Before his Honour published his final reasons, however, Fletcher had served its notice of appeal on LMM on 22 August 2000 (the judgment having been authenticated on 15 August 2000). On the following day, Fletcher paid LMM the judgment sum in exchange for a guarantee from Marshall that the amount would be repaid should the appeal be successful. LMM, by summons dated 25 August 2000 then sought, unsuccessfully, to strike out Fletcher's notice of appeal. On 13 September 2000, shortly after his Honour delivered his "settled" reasons, he heard and rejected LMM's application to amend the judgment sum to $220,742 pursuant to the slip rule. It was argued for LMM that the judgment sum claimed at trial (and awarded by his Honour) was the product of an error in the calculation of the relevant sum by its counsel. On 14 November 2000, after hearing argument, his Honour made the following orders:

(a) Fletcher pay LMM's costs of its claim and counterclaim on an indemnity basis.

(b) Fletcher also pay the costs of Marshall at the rate of $110 per hour for "investigating and instructing [LMM's] solicitors with respect to the proceeding from 1 September 1999".

(c) There be a stay of the taxation and execution of the costs order, conditional upon Fletcher undertaking to pay interest on any amount of costs ordered to be paid by it in the event that the appeal is unsuccessful. (This part of the order was subsequently varied by this Court on 11 December 2000, but it is not necessary to elaborate on this change.)

Fletcher has appealed against his Honour's judgment and has sought leave to appeal against the costs orders. LMM has also sought leave to appeal against his Honour's dismissal of its slip rule application and has filed a Notice of Contention.

In its (third) Amended Notice of Appeal of 91 pages Fletcher challenges nearly every adverse finding made by his Honour. There are 12 grounds of appeal but each is subdivided into a large number of sub-grounds. Ground 1 alleges, in effect, that the judgment is a nullity or should be set aside because his Honour wrongfully failed to deliver reasons contemporaneously with pronouncing judgment and because his Honour's "settled" reasons bore no relevant relationship to his draft reasons which meant that he failed to give reasons for his decision. This ground was heard separately last year and was determined in Fletcher (No.1) against Fletcher.

On 23 November 2001 this Court conducted interlocutory hearings which dealt with various matters pertaining to the balance of the appeal and the parties' respective applications for leave to appeal against the orders to which reference has already been made. The Court ordered, inter alia, that the issues raised by Fletcher's notice of appeal be heard and determined first. It adjourned the parties' respective applications for leave to appeal and ordered that they be heard on a date to be determined, but after the determination of Fletcher's appeal. On 12 March 2002, the Court fixed 29 May 2002 as the date for the commencement of the hearing of the appeal on the basis that its duration would not exceed 12 sitting days. The Court also set a timetable in accordance with which the parties were required to file relevant documentation, including outlines of submissions and books of critical documents. The parties have complied with the directions and, in the end, have delivered sixteen volumes of appeal books (printed on both sides of each page) three lever arch folders of written submissions and twelve lever arch folders of authorities as well as other material, including books of critical documents and a book of reduced plans. The parties' full and helpful submissions have resulted in the time taken to hear this appeal being considerably shorter than it would otherwise have been having regard to the issues raised by the grounds of appeal, the notice of contention and the considerable volume of documentation contained in the appeal books.

During the interlocutory hearings the parties submitted that, if this Court were to set aside his Honour's judgment, it should dispose of the proceeding by considering for itself the issues between the parties and make relevant findings in relation to them. We were unable to determine this submission during the interlocutory hearings because we were not sufficiently seized of the issues between the parties or of the material which they claimed supported their respective cases. Once we had read the relevant documents, however, it became relatively clear that there would be significant difficulty in this Court attempting to decide the case if the judgment below was set aside. This is primarily because the resolution of significant areas of dispute between the parties depends on findings of credibility and reliability of witnesses. Realistically, it would not have been possible for this Court to resolve these highly contentious issues between the parties without seeing and hearing witnesses. The parties, in the end, reached a like conclusion and, did not press us to hear and determine the action if we decided that the judgment below should be set aside.

Ground 2 - The finding that LMM's work was 93 per cent complete

We now turn to consider the grounds of appeal and the respective arguments in relation to them. We shall first deal with ground 2 which attacks his Honour's finding that LMM should succeed in its claim for moneys due under the Consultancy Agreement on the basis that it had completed, as at 16 November 1996, 93 per cent of the Stage 3 work. This was one of the principal issues argued in the appeal. After summarising what his Honour considered to be the gist of the relevant evidence of the witnesses, his Honour said this:

"As at 16 November 1996, the date of cessation of LMM's works, I have the following calculations as to the state of completeness of the works for Stage 3 - the design documentation stage. Mr Marshall - initially 99% but now 95%; Mr Quigley - 94-96%; Mr Bailey - 91-95%; Mr Sheele - 95% (although Mr Sheele was not called, this was the figure indicated in the exhibits); Mr Grahame - 95%; Mr Brickell - 85-87.5%; Mr Bowe - 78%; Mr Kendall - 80%; and, Mr Codd - 57%. As I have already observed, Mr Codd's evidence must be rejected. This stance can be tested against the proposition that, according to Mr Codd, LMM had only done two-thirds of the work that Mr Grahame himself says it had done (that is, 57% complete compared to Mr Grahame's 95%). In my view, the lowest reliable percentage produced by a witness of credit and of relative independence, is that of Mr Brickell at 87.5%. And the highest, is that of Mr Quigley at 96%. Doing the best that I can, but only after a careful assessment of the thousands of pages of documentation and an evaluation of the witnesses, I have come to the view that I can conservatively and reliably conclude that 93% of Stage 3 - the design documentation stage was complete as at 16 November 1996. That is architectural services having a value of $850,950. In assessing what is due under the CA, the sums of $685,000 should be added for stages 1 and 2 - the schematic and design development stages, together with the additional variations and extra work in the sum of $31,800. That brings the total of $1,567,750. The amount actually paid by FCA, namely $1,370,800, must be deducted from this sum. Therefore, the balance due to LMM is $196,950."

Before dealing with Fletcher's attack on his Honour`s various findings leading to his conclusion that LMM had completed 93 per cent of the design and documentation stage, it is desirable to set out briefly the evidence of the relevant witnesses and his Honour's assessment of it. It was common ground that LMM had completed 167 drawings which were reviewed pursuant to the DRP and which were stamped "approved for construction"[5] We note that it was also common ground that only one of those drawings was returned to LMM.

It is now necessary to summarise his Honour's analysis of the relevant witnesses which preceded the judge's conclusion that LMM had completed 93 per cent of its work.

Marshall said in his evidence that because only one drawing out of the 167 that were approved for construction was returned to LMM, he assumed that all the drawings were accepted by Fletcher (and by G4 and the NPP) as having been fully completed. He said that it was only in late October 1996 that Fletcher raised the allegation that there were deficiencies in the drawings. His Honour accepted Marshall's evidence as to the extent to which he reviewed the drawings for the purpose of assessing the level of completeness of the Stage 3 work. Marshall said that he reviewed each of the 167 drawings for the purpose of determining, in percentage terms, the extent of their completeness. He also said that he had assessed the number of man hours taken to complete each drawing. In carrying out these assessments, said Marshall, he had regard to the information contained in the running sheets and bar chart which recorded the progress of the work carried out by LMM during the relevant period. According to his Honour, Marshall said that he had cross-checked his estimate of the percentage level of completeness of the drawings with his estimate of man hours taken to complete it before arriving at a final view as to the percentage of the work completed in respect of the relevant drawings. His Honour said that, having completed the assessment, Marshall then applied the assessed percentage to the Stage 3 work in order to determine its level of completeness. His Honour noted that, initially, Marshall assessed the degree of completeness of the 167 drawings at 99 per cent, but after review of the documentation not long before the trial, he reduced that assessment to 95 per cent.

Peter Quigley ("Quigley") was called by LMM to provide an independent assessment of the state of completeness of the Stage 3 work at the relevant date. Quigley is an architect, with considerable experience in architectural work relating to institutional and government projects, but he had no experience in prison design and documentation. He assessed LMM's Stage 3 work to have been complete at the relevant time to the extent of 94-96 per cent. He said:

"The documents are of good standard and would compare favourably with other documents in comparable projects used for [design and construction] contract. I have not seen anything which suggests that [Spowers] produced any significant additional documentation which would justify the suggestion that LMM's documents were only 75 per cent or 57 per cent complete at the time it ceased its works on the project".

His Honour was obviously impressed with Quigley as a witness and with the documents that he prepared in support of his assessments. The judge accepted the thrust of his reasoning and his conclusion as to the level of completeness of the Stage 3 work and noted that Quigley described his estimate as "a conservative" one.

Importantly, his Honour rejected Fletcher's contention that Quigley's lack of expertise in connection with prisons prevented him from giving worthwhile evidence. The judge considered that Quigley had expertise in relation to large public institutional buildings and large projects generally and that he was familiar with design and construction contracts. In essence, the judge considered that Quigley was well-qualified to give expert opinion evidence on the issues. His Honour said that he was impressed with Quigley's statement that: "The general standard of the LMM drawings is well in excess of that required for a design and construct project and contained a level of detail which would have been suitable for lump sum tender contracts". One of the matters taken into account by Quigley in coming to his ultimate assessment of the level of completeness of LMM's work was the work done by Spowers, which he used to estimate the time that would have been required to complete the drawings had the contract remained with LMM. This estimate was used by him to check his original estimate as to the amount of work that LMM had actually completed.

Ralph Edward Bailey ("Bailey"), who had considerable experience in the design and documentation of correctional facilities, including maximum security prisons, was called by LMM. He did not give evidence during his examination-in-chief about the level of completeness of the LMM work in relation to Stage 3. He was, however, cross-examined about the matter and during an overnight adjournment he re-examined all the relevant LMM drawings and, on the following day, said that he estimated that LMM had completed 90 to 95 per cent of the work, although doubt has been raised as to whether he effectively said that this range was to be taken out of 100 or out of 130. In the light of that, it is perhaps not surprising that Fletcher attacked the reliability of Bailey's estimate. His Honour, however, rejected that attack and concluded that Bailey had established that LMM's work was "91 to 95 per cent complete", although the judge noted that Bailey's evidence on this issue was "less forceful" than that of Marshall. As we have mentioned, this was one of the bases on which his Honour concluded that 93 per cent of the Stage 3 work was completed by LMM when it stopped work on the project. Edward Thomas Codd ("Codd"), who was called by Fletcher, estimated the level of completeness of the LMM work at 57 per cent. In his reasons, his Honour noted that, when Codd's estimate was put to Bailey, he responded: "I've never heard of that figure, I am shocked".

Bailey said in his evidence that, in his opinion, given the very limited time frames, the drawings prepared by LMM were adequate for the purposes of a design and construct contract for the development of the MMP. He said that the drawings "did not fall short of a standard which I regard would be usual to expect from an experienced architect in general practice or for an architect who practised in the field of public institutional architecture." He said that, had LMM continued in a normal way on this design and construct contract it was open to it to provide any necessary supplemental information as the need arose. He also said:

"If the standard to be applied to the drawings prepared by LMM for the NPP as at 16 November 1996 was that of an architect experienced in the design of prisons including maximum security prisons, I would regard those drawings as meeting that standard in the context of a [design and construct] contract".

His Honour concluded that he was satisfied that when Bailey gave his evidence as to the state of completion of LMM work he was referring "to Stage 3 - the document design stage and to no other. Consequently, I am able to give credence to this estimate."

We have already mentioned that, on 10 September 1996, Grahame effectively reported to the Project Committee that the design component of the project was approximately 95 per cent complete. It is apparent from the evidence that Grahame obtained that figure from Fletcher's architect, Scheele. Although Scheele was not called to give evidence at the trial, his Honour took that estimate into account in reaching the conclusion that the work was 93 per cent complete.

Although Grahame did not personally carry out any assessment of the level of work completed by LMM, he had, as we have just mentioned, told the Project Committee that approximately 95 per cent of the LMM design work was completed. His Honour seems to have treated this statement by Grahame as an admission by Fletcher that, as at 10 September 1996, the total design work was complete to the extent of approximately 95 per cent.

It is convenient to note here his Honour's findings on the assessment made by Bowe and Kendall as to the level of completeness of the LMM work to which reference has been made earlier. As we have already noted, his Honour rejected Bowe's assessment, and he did so for a number of reasons. First, his Honour said, in effect, that since Bowe was Kendall's brother-in-law, he was not independent. Secondly, the judge said that Bowe was not competent to do the assessment since he had no experience in that area and performed his task only by reference to the documents that were given to him by Fletcher and further, he was given only two days to do the work, the inference being that his Honour considered that he could not have performed the work properly within that time. His Honour concluded that the Bowe report was a "construct organised by Mr. Grahame". His Honour also did not regard Kendall's assessment as a credible estimate of the level of completeness of the LMM work. The judge considered that the request by Grahame that Kendall, the cost planner, review the Bowe assessment and estimate the level of completeness of the architect's work was "an elaboration of the attempt to justify the refusal to pay ... in circumstances of Mr. Grahame knowing he faced a threat of cessation of work and that there had been a request for a meeting to resolve the issue within the week." Thus, the judge considered that the Kendall report was prepared for a "purpose", namely, to justify Fletcher's refusal to meet the invoices claimed. His Honour said that Kendall knew that his report was meant to bolster the earlier report of his brother-in-law, Bowe, and that Grahame wanted it to challenge LMM's claim. Further, his Honour was of the view that the report was based upon an incorrect assumption as to the "project value".

His Honour was critical of Grahame's role in Fletcher's failure to pay LMM the amounts claimed and said, in effect, that his motive for commissioning the Bowe and Kendall assessments was to find a basis for not paying LMM. As far back as July 1996, which was not long after he came to be associated with the project, Grahame formed the view that the fee claimed by LMM on 1 July by way of account No.6434 for $700,000 "must have been in excess of the work completed by LMM as at the date of the invoice because by 1 July 1996 LMM had claimed $1.3m of a $1.6m contract." According to his Honour that attitude was "the real genesis of the dispute". The judge also rejected much of Grahame's evidence as to the extent of the work that LMM had completed by 16 November 1996. His Honour considered that Grahame's claim that there was a "never ending flow of unresolved design issues" and that LMM was "out of its depth" was a "post factum reconstruction and confabulation in order to justify the notice of termination delivered by [Fletcher] in December".

His Honour also did not accept Grahame's rejection of Quigley's claim that design and construct contracts generally require drawings of less detail than those required for pre-prepared lump sum tender contracts. The judge accepted Quigley's evidence as to the standards required of design and construct contracts. Similarly, his Honour did not accept Grahame's characterisation of the role of the architect in respect of this project. Grahame had claimed that it was the architect's responsibility "to lead the development of the design and co-ordinate it where necessary rather than simply leave it to the builder as happened in this case". The judge said that he had no doubt that Twinn of G4 and later Grahame of Fletcher were the guiding forces in the design and construction of the MMP and that they would not have tolerated LMM leading the development of the design and supervising the coordination. His Honour considered that Grahame's view of the role of the architect in this project revealed "a lack of appreciation on his part of the reality of the scene at the MMP."

Michael John Brickell ("Brickell") was a director of Spowers and had considerable experience in, inter alia, the design and building of prisons. He gave evidence on behalf of Fletcher as to the adequacy of LMM's architectural services under the Consultancy Agreement. Relevantly for present purposes, he was asked to provide an opinion as to the extent to which LMM had completed the architectural services required of it under the Consultancy Agreement. His evidence was that he estimated that the proportion of the Stage 3 services that was completed by LMM under the Consultancy Agreement as at 21 October 1996 was 75 per cent, and as at 18 December 1996, 80 per cent. There were two findings that his Honour made in relation to Brickell which are of significance for reasons which will become apparent later. First, when his Honour summarised the evidence of the various witnesses on this subject in the manner to which we have referred, he ascribed to Brickell the opinion that LMM had completed 85 to 87.5 per cent of the Stage 3 work. Secondly, his Honour considered that "the amount his firm charged to complete Stage 3 [was] not much different from that which LMM says was outstanding at the time". The judge noted that Brickell's evidence conflicted with that of Codd and that he, the judge, "much preferred the evidence of Brickell".

Codd, who had considerable experience in prison design and documentation, was the principal independent witness called by Fletcher and gave extensive evidence on the question of the extent to which LMM had completed its work. He accepted for the purposes of his analysis that the Consultancy Agreement required LMM to provide design and documentation work that fell within the scope of the services described in Annexure A. He considered that the extent of the scope of work was to be gauged by reference to the type of building that was to be designed and constructed, namely, a prison with high security facilities which was to be operated in the manner described earlier.

Codd examined 166 out of the 167 LMM drawings that were subject to the DRP for the purpose of determining the extent to which they were complete having regard to the requirements of the Consultancy Agreement. He concluded that 163 of the drawings were not complete and that, had LMM completed its work under the Consultancy Agreement, it would have produced another 50 drawings. Codd also found that the relevant drawings contained over 1,700 omissions or other inadequacies.

His ultimate conclusion was that, as at 16 November 1996, LMM had completed only 57 per cent of the Stage 3 work. His Honour, however, found that Codd was an unpersuasive witness, notwithstanding that he had given his evidence "directly and without equivocation". The judge effectively rejected Codd's evidence and, thus, his conclusion as to the extent to which the work was completed by LMM. His Honour explained the basis on which he rejected Codd in the following way. He first noted that Codd was not "on site" and that he was retained by Fletcher after the event in order to provide expert evidence in support of its case. The steps in His Honour's reasoning were these:

(a) "Firstly" Codd's evidence was "prepared for a purpose and did not arise from an independent request". His Honour enlarged on this view a little later, effectively saying that, by reason of this, Codd was not an independent expert witness but was partisan in favour of Fletcher. His Honour considered that Codd's evidence was prepared "solely for the purpose of litigation." We take his Honour to mean that, in his view, Codd prepared and gave his evidence with the aim of promoting Fletcher's case rather than giving evidence as an independent expert.

(b) Codd's conclusion as to the level of completeness of the LMM work was "some 30 to 40 per cent less than that calculated by all the other experts". More importantly, his Honour said, it is "significantly less than the figure arrived at by the those engineers and architects who were on site at the time". (The only people who were "on site at the time", i.e., prior to 16 November 1996, and who gave evidence at the trial, were Grahame and Bowe. Scheele was also "on site" but, as we have said, he did not give evidence.)

(c) The MMP was under construction "then" (namely, when LMM was providing its drawings) and ultimately met budget requirements and was delivered to the government "a few months after LMM quit".

(d) His Honour then tested Codd's assessment against what Spowers actually did to complete the project. The judge said that Spowers prepared six drawings, "almost mostly from LMM's work and that only two were of relative novelty".

(e) Spowers completed the drawings for Stage 3 for "about the same sum as LMM considers it would have been owed for work yet to be done by it".

(f) The "architect on site" (presumably, the judge was referring to Scheele) considered that 95 per cent of the LMM work was completed as at 10 September 1996 and Spowers, which took over from LMM, through Brickell said it was "85 per cent or more" complete.

(g) Codd's analysis appeared to be quantitative rather than qualitative. Mr. Martin for Fletcher submitted in the course of the hearing before us that his Honour erred in that conclusion. Counsel contended that Codd's assessment was qualitative rather than quantitative.

(h) His Honour considered that Codd exaggerated the standard of security that was required for the MMP and this led him into error in assessing whether LMM had performed sufficiently the work required of it by the Consultancy Agreement. The judge said, in effect, that Codd set standards which were unreal and were not required by the NPP for the design of the MMP. His Honour summarised this view by saying that the standards "which his analysis demands would produce an impenetrable, escape proof fortress. This was not the objective of the NPP and certainly not of Fletcher, which was building to a budget. In that regard, his Honour referred to what Codd said "should be one of the criteria in achieving maximum performance with regard to the prime function of the NPP." His Honour quoted the following statement by Codd:

`Primary concerns focus on security issues. This means that every part of the design from master planning to the smallest detail needs to take account of the fact that attempted escape will show up any weakness in security. To keep an inmate removed from the community for the period of incarceration is the primary task of the facility.'

That analysis, said his Honour, was not aligned with the NPP, which referred to prisoner dignity and rehabilitation. His Honour said:

"This case does not concern matters of penal philosophy, but Mr. Codd's remarks reveal the position from which Codd moved. He implanted on the architect obligations which were simply not in the brief. Therefore, his basic premises were wrong and everything built upon them became flawed."

(i) Other than Codd, no other witness complained about the standard of LMM's work. In any event, his Honour said, "construction work proceeded based on the design documentation stage and ultimately continued into Stage 4 - the commissioning stage".

His Honour also dismissed as "absurd" Codd's claim that 50 drawings should have been, but were not, completed by LMM. It seems that the basis of this conclusion was that "the MMP was built and commissioned on the basis of 167 LMM drawings and six extra ones, only two of which were new and were prepared by [Spowers]. The MMP has been functioning for more than three years as designed and built. To suggest that almost a quarter of the drawings necessary to have achieved this were omitted, is simply not credible."

Whether it was correct to reject Codd's evidence

Codd was Fletcher's principal witness on this important issue, and the judge rejected outright the whole of his evidence. During the course of the argument in this appeal, Mr. Vickery, for LMM, accepted that if his Honour erred in rejecting Codd's evidence, and in particular, his conclusion that LMM's work was only complete to the extent of 57 per cent, then his Honour's assessment that the work was 93 per cent complete as at 16 November 1996, could not stand. In our view, with all respect, his Honour made a number of errors in arriving at his decision to reject the whole of Codd's evidence. It will be necessary to examine the nature and the character of the errors to determine if they went to the basis of his Honour's rejection of Codd and thus vitiated his decision in that regard.

First his Honour made a fundamental error in concluding that Codd's evidence was based on a false premise, namely, that the design and documentation of the MMP had to reflect a level of security that was not called for by the contract documentation. Secondly, his Honour erred in finding that Codd "implanted on the architect obligations which were simply not in the brief and were not required by the Consultancy Agreement". There were, as we have already mentioned, other reasons for which his Honour dismissed Codd's evidence, but it is plain that a major reason for his Honour's total rejection of Codd was that he took the view that Codd made his assessment on a false premise relating to the security that was required for the MMP.

In our view, the contract does call for the design of the MMP to include security facilities to the standard which Codd said was applicable. The design brief, which is incorporated into the Consultancy Agreement, stipulates the security factor as an essential design requirement. It provides that the LMM design is to provide or include, inter alia -

"(a) a facility which was to operate as part of the Victorian prison system and include: (i) the secure management of and safe custody for remand and sentenced male prisoners;

...

(c) a facility which would contain and supervise prisoners in a safe, secure, humane and just manner (s.2.2.1).

...

(g) a facility which incorporated prison security principles including: (i) an effective balance of static and dynamic security components; (ii) a secure principle perimeter; (iii) secure prisoner accommodation; and (iv) contraband control facilities (s.6.3). (h) a facility which minimised aids to escape by careful design, layout and placement of buildings, walls, structures, services, elements, furniture, fittings and equipment (s.8.1).

...

(r) measures to ensure the whereabouts of all prisoners was known at all times, and that the movement of all prisoners within the prison was controlled at all times (Appendix A.2.3.2)."

In the light of these requirements of the design brief, there was no basis on which his Honour could have properly concluded that Codd, by focussing on the security issues as he did, "implanted on the architect obligations which were simply not in the brief". That Codd had regard to the security requirements of the design brief (as LMM should have done) when considering the content of the prison design, is clear from his evidence, more particularly his principal witness statement of February 2000 and his subsequent witness statement in which he made frequent references to the requirements of the design brief.

It is also clear, in our view, that his Honour wrongly characterised Codd's evidence as effectively requiring a design that would produce "an ideal maximum security prison". Part of the reason for this mistake probably sprang from the judge's selective quoting of Codd's evidence on this issue. As we have already mentioned, his Honour quoted passages from Codd's evidence to show that he considered that the design should produce an impenetrable, escape proof fortress and that his requirements in that regard were not in accordance with the modern prison philosophy which the NPP sought to have reflected in the design of the MMP. His Honour omitted reference to other paragraphs in Codd's evidence, including paragraphs 17 to 20 of his principal witness statement in which he made it plain that he considered that the aim of a prison design called for a balanced approach to security and that he well understood the modern approach to prison management with due recognition to the need to cater for prisoners' rehabilitation. He considered that the architect's task was to create a physical environment for prisoners which met the objectives of the correctional philosophy of the government.

These errors on his Honour's part demonstrated also, with respect, that he did not properly appreciate that elements of the design brief required the prison to be secure (to the extent provided for in the design brief), in turn reflecting a fundamental misunderstanding on his Honour's part of the criteria by which the extent of LMM's services was to be determined and the extent to which those services had been completed.

Next, his Honour wrongly assumed that the work of Spowers, which essentially amounted to carrying out the work that LMM had not completed, consisted of six drawings. The trial judge failed to have regard to any of Spowers' Project Advice Notices ("PAN"), at least 44 of which related to Stage 3 work according to Webster, a witness called by LMM. It was an error to rely on the "six drawings" as a basis for inferentially concluding that most of the LMM work was complete by the time Spowers took over.

We also take the view that Codd's absence from the site was an irrelevant consideration when assessing the standard of the work, particularly when the witnesses whose evidence his Honour accepted, namely, Quigley, Bailey and Marshall, were also not "on site". No explanation was given by his Honour as to why he regarded that factor as relevant to an assessment of Codd's evidence, but not, say, that of Quigley. On the face of his reasons it does appear that his Honour applied different standards in assessing the evidence of competing experts.

Another error in his Honour's reasons for rejecting Codd was the conclusion that Spowers completed the drawings for Stage 3 for "about the same sum as LMM considers it would have been owed for work yet to be done by it" (emphasis added). There was no evidence capable of supporting that conclusion. Brickell's evidence was that Spowers' costs to complete Stage 3 were agreed at $193,223, yet by the time of invoice No.6436 on 9 September 1996 LMM had claimed all but $51,000 of the $915,000 fee and at the time of invoice No. 6440 on 11 November 1996 all but $6,233. Brickell also said that the scope of services for Spowers and under the Consultancy Agreement were similar. In the circumstances, it could not be said that the amount charged by Spowers to complete Stage 3 (just under $200,000) was not much different from what LMM said was the cost to complete the performance of its obligations under the Consultancy Agreement.

As we understood LMM's submissions on this point, it was said that, in making the comparison, his Honour was not referring to the value of the outstanding LMM work, but to the amount which LMM said was outstanding to it, namely, $207,050 plus $45,000. If that were the case, however, there would have been no point in comparing what was owing to LMM under the Consultancy Agreement (for past work) with the amount charged by Spowers to complete the remaining Stage 3 work. The only possible meaningful comparison would be between the value of the work uncompleted by LMM at the time Spowers took over its obligations and the amount charged by Spowers for that uncompleted work. Even that comparison could not be decisive, but if that was the exercise which his Honour sought to perform, then it could not be said, as the judge did, that "the amount charged by Spowers to complete Stage 3 was "not much different from what LMM said was outstanding at the time". Thus, his Honour either made a comparison which could not have been relevant to determining the state of completeness of the LMM work (i.e., between the balance due to LMM under the Consultancy Agreement and the Spowers fees) or made a comparison which was based on a false premise (i.e., the difference between the value of Stage 3 work outstanding as at 16 November 1996 and the Spowers fee which could not be described as "not much different").

Furthermore, his Honour seems to have failed to take into account in determining the worth of Codd's evidence that, as well as assessing the work that was done by LMM, Codd also estimated, for cross-checking purposes, what was the reasonable cost to complete Stage 3. Codd's conclusion that the cost would be in the order of $250,000 meant that on that basis, 72.6 per cent of LMM's work was completed. This estimate is not very different from Brickell's assessment of the completed work, which was also undertaken by reference to work yet to be done. One would expect such an important item of evidence to be at least mentioned by the judge and, if it were to be disregarded, the reasons for doing so should have been stated.

His Honour in our view also erred in assuming that the state of construction was a yardstick in assessing the value of the services said to have been completed by LMM. The LMM work may not have been complete, yet the building may nevertheless have progressed in its construction. It may be that that was because Fletcher "made do" with a particular incomplete drawing or a set of incomplete drawings, or because others completed the work that LMM should have done. Be that as it may, it cannot be said that merely because the construction of the building proceeded, LMM's work was correspondingly complete.

We mention for completeness, although it is probably of no great moment, that his Honour also erred in concluding that the project finished "a few months after LMM quit"; in fact it was completed some nine months later.

The judge's view that Codd's evidence was prepared for a "purpose" was yet another matter treated as relevant to his Honour's decision to reject this witness's evidence. But that observation could apply to every independent witness called in the case. If what his Honour really meant was that Codd was an advocate for Fletcher's cause and was not an independent expert witness, his Honour should, with respect, have said so and explained how he arrived at his conclusion. Merely to make the statement without explanation or substantiation is itself suggestive of error.

Next, his Honour's dismissal of Codd's evidence on the basis that the construction of the building progressed on time, was also erroneous. The fallacy in the reasoning may be demonstrated by looking at 13 of the 50 drawings which are concerned with the pouring of the slab. Codd's view (and that of Bailey) was that LMM should have produced drawings which showed slab fit outs, namely, the location of plumbing and like services and other relevant dimensions. The slabs, however, were poured without the slab fit outs being shown on any of the relevant drawings. It was LMM's case that Annexure A to the Consultancy Agreement which defined the scope of service only required it to document the necessary components for the project. It argued that, since those components - the slab fit outs - were obviously not "necessary" because the slabs were poured without such drawings[6], Codd performed a theoretical exercise without regard to the requirements of the contract and to its administration by Fletcher "on the ground". His Honour effectively accepted that argument and, as we have said, dismissed Codd's claim that these drawings were relevantly "missing".

The work which LMM was required to produce according to Annexure A, however, not only consisted of drawings without which the building could not have been built, but also included drawings that were "necessary to fully describe the Works" (emphasis added). That requirement, we think, obliged LMM to have produced drawings that showed the slab fit outs. Consequently, his Honour erred in his reasoning which led him to dismiss as "absurd" Codd's claim that 50 drawings were missing.

It is apparent from his Honour's reasons that, as we have already mentioned, he accepted all of Quigley's evidence and on that basis rejected Codd. His Honour was obviously entitled to accept one witness in preference to another, but he failed to explain why he did so. Quigley and Codd were critical witnesses and it is clear that Codd had by far the greater experience in prison design. Quigley had none. The importance of this factor, in our view, was that, on the evidence, the design of prisons required a level of detail that would not be required in respect of other public buildings. It seems that Quigley did not take that factor into account in assessing LMM's work. To say, as Quigley did, that detail in the LMM drawing was sufficient because it would have been adequate for a lump sum tender contract, demonstrates his lack of appreciation that prison design required greater detail. In those circumstances, his Honour should have explained, however briefly, why these matters did not operate to prevent him from wholly accepting Quigley and wholly rejecting Codd.

Conclusion as to the judge's rejection of Codd's evidence

The judge had the advantage, of course denied to this Court, of seeing the witnesses and in particular Codd, in the witness box. It has been said many times that in these circumstances the task of an appellant is a difficult one. It is unnecessary to repeat reference to the many High Court decisions to this effect, a number of which were reviewed at some length in Aqua-Max Pty. Ltd. v. M.T. Associates Pty. Ltd.[7]. A Court of Appeal will only be entitled to depart from a finding of fact made by a judge based on an assessment of a witness if the Court is "satisfied that any advantage enjoyed by the trial judge by reason of having seen and heard the witnesses, could not be sufficient to explain or justify the trial judge's conclusion": Watt or Thomas v. Thomas[8].

In Walsh v. Law Society of New South Wales[9] McHugh, Kirby and Callinan, JJ. put the issue in the following way -

"... the appellate court will be bound generally to defer to any conclusions on the question of credibility formed by the court or tribunal from whom the appeal is brought where the latter has seen and heard the witnesses. In particular circumstances, it will be open to an appellate court to reach conclusions contrary to those of the court or tribunal below, notwithstanding a credibility finding. Sometimes it will be authorised to reject those findings where they are `glaringly improbable' or `contrary to compelling inferences' of the case. But the caution required of all appellate courts in such matters has long been recognised and frequently upheld in decisions of this court."

In our view, given that his Honour's reasons for rejecting Codd's evidence were, with all respect, fundamentally flawed, the judge's decision on this question cannot stand. The inevitable consequence of such a conclusion is that his Honour's assessment that the LMM work was 93% complete must also fall. Even if we were wrong in that conclusion, there are, however, other errors made by his Honour to which we refer below which vitiate his Honour's conclusion that LMM had completed 93% of the relevant work.

As we have already indicated, in his summary of the estimates made by relevant witnesses as to the state of completion of the LMM work, the judge said that Brickell estimated that the state of completion was 85-87.5%. Mr Martin argued, correctly in our view, and Mr Vickery for LMM conceded as much, that such a conclusion could not have been founded on Brickell's evidence, which was that the LMM work was, at best, 75-80% complete. In cross-examination Brickell said that his estimate of the state of completeness of the relevant work was closer to 80% than 75%. Given that his Honour also said, in coming to his assessment of 93%, that "the lowest reliable percentage produced by a witness of credit and of reliable independence, is that of [Brickell] at 87.5%", the judge's error in relation to Brickell's evidence destroyed another critical foundation for his 93% conclusion. The error appears to have arisen from the fact that in his closing address, Mr Vickery for LMM submitted that, by analysing Mr Brickell's estimate of 75-80% in a particular manner and taking into account certain other evidence, it was possible to interpret Brickell's evidence as amounting to 85-87.5% completeness. We do not accept Mr Vickery's argument that this was a possible interpretation of Mr Brickell's evidence, but even if it had been accepted by the judge, the fact remains that Brickell did not finally assess LMM's work as between 85 and 87.5% complete. If the judge accepted Mr Vickery's argument, he should, with respect, have said so and explained why, rather than recording in his reasons the erroneous view that Brickell gave that evidence himself.

In coming to the conclusion that LMM had completed 93% of the work, his Honour also had regard to what he considered to be Bailey's estimate that 91 to 95% of the work was finished. Given Bailey's evidence and the circumstances in which it was given, we very much doubt whether his evidence was correctly summarised by his Honour (even if one overlooked that Bailey never said that the range was 91 to 95%). On one view of the evidence, Bailey said that his assessment was 90 to 95% out of 130%. This ambiguity was sufficiently important to require his Honour to explain the basis on which he concluded that Bailey's estimate was 91 to 95%. We consider that the judge's failure to give that explanation amounted to error on his part.

The relevant circumstances and context in which Bailey gave the evidence were these. In his evidence-in-chief, Bailey did not say what was the level to which LMM had completed its Stage 3 work, although in his supplementary witness statement he suggested that LMM had completed 94 to 96% of the relevant work. When the matter was raised with him in cross-examination, he said:

"... those drawings are in excess of 95 per cent, because what is happening to that documentation as this progresses, that same drawing is re-worked and re-worked and re-worked and modified. ... In design and construct, maybe we do 130 per cent documentation because you actually are coming back from that. So if you say is that 90 per cent or 93 or 95 per cent, I'm not going to particularly argue. I think that it's adequate. We're not taking it technically out of 100 per cent."

"I'm now saying having gone through it in detail last night I'm quite confident comparing the spec and the drawings and the details and understanding the import of what I am doing now, I'd like to say, yes I do believe there is 90 to 95 per cent."

In his summary of the calculations made by witnesses of the state of completeness of the LMM work his Honour refers to Scheele as having estimated that 95% of such work was complete, although the judge acknowledged in terms that Scheele had not been called and that "this was the figure indicated in the exhibits". Nevertheless, the implied finding that Scheele made such an assessment is without evidentiary foundation in the sense that there was no evidence before the court of Scheele's assessment of LMM's relevant work. Although it is plain on the evidence that Scheele had advised Grahame in early September 1996 that LMM's total design work was approximately 95% complete, there was no evidence that he (or Grahame) made any assessment in that regard.

His Honour gave no reasons for his 93% assessment. True it is that the judge had earlier summarised some of the evidence relating to this issue and said that he took into account the estimates of expert witnesses as to the state of completeness of the LMM work, having rejected Codd's assessment of 57%. Nevertheless, there is no explanation of the process of reasoning by which his Honour arrived at his figure of 93% and the parties and the appellate court are left to speculate as to how his Honour reached this conclusion. In our view this again constitutes error on his Honour's part. It was a fundamental error even if one assumes that his Honour's assessment was akin to the exercise of a judicial discretion. On the face of his reasons, it is impossible to determine how his Honour arrived at the figure of 93%. He was obliged to explain, however briefly, how he came to that conclusion[10] and he failed to do so. In general the witnesses who gave evidence of the percentage of the work completed by LMM did not simply pluck figures from the air but for the most part formed views as to the obligations imposed upon LMM by the Consultancy Agreement and proceeded to make critical assessments of LMM's work in performing those obligations, from which they drew percentages. The trial judge similarly was required to state his view of the number, and degree of detail in, the plans, specifications and schedules which the contract required LMM to produce and explain how the shortfall in the documents it did produce amounted to no more than 7%.

What might be guessed from the trial judge's shortly stated conclusion set out at paragraph [41] above is that his Honour, having set aside Codd's assessment, picked a figure which he thought represented the average of the remaining witnesses' assessments and then discounted that figure to produce what he called a conservative percentage. If the trial judge did engage in such an exercise, we think it was illegitimate. His Honour was required to assess the degree of completion of the work guided by the view of the expert witnesses, and in the course of that assessment to decide whether to accept or reject the opinions expressed by the witnesses as to the various components of LMM's work. It is, however, no more than a guess that his Honour did arrive at his conclusion in that manner. Similarly, any other explanation of the process in which his Honour engaged must be a guess.

We would add that we do not understand why his Honour was concerned to "conservatively ... conclude that 93% of Stage 3 ... was complete ...". The trial judge's task was to determine the issue of the extent to which LMM completed the design of Stage 3, not to err on one side or the other.

Before completing our consideration of ground 2 we turn to a series of submissions made by Mr Vickery as to the nature of the assessment the trial judge was called upon to make in determining the percentage of LMM's work actually completed by it as at the date on which it ceased work, 16 November 1996. The submission was, in short, that the nature of the exercise inevitably gave rise to the need to undertake an estimate. LMM submitted this was a case where the question of the degree of completeness of the architectural work was incapable of precise quantification and, that being so, an estimate must suffice. It followed, so the submission ran, that in undertaking the assessment the Court was called upon to make an estimate analogous to the exercise of a judicial discretion and as with the task of assigning money sums to intangible claims for damages, a point was reached where judicial reasoning became impossible. Mr Vickery submitted that the trial judge was required to make a finding which was "insusceptible to entirely logical exposition".

The principles applicable to the approach of an appeal court in the review of an award of damages assessed by a judge are well established. For example, in CSR Readymix (Australia) Pty. Ltd. v. Payne[11] Winneke, P. said -

"The principles by which an appellate court will be guided in an appeal of this nature are not in doubt. Where it is alleged on appeal that a judge's assessment of damages is manifestly excessive an appellate court, before it interferes, should be satisfied that the judge has acted on a wrong principle or has misapprehended the facts or, for these or other reasons, can be seen to have made a wholly erroneous estimate of the damages suffered. It is not enough that the appellate court itself might have awarded a different sum: per Lord Wright, Davies v. Powell Duffryn Associated Collieries Ltd.; Miller v. Jennings per Dixon, C.J. and Kitto, J. It is apparent from such statements of principle that a trial judge, in assessing damages, is involved in the exercise of a form of discretionary judgment and, as such, that judgment should stand unless the appeal court is clearly satisfied that the judicial function has not been duly performed ... ". (Citations omitted.)

Mr Vickery also submitted that not every error of fact (if any material error of fact had been made) would result in the vitiation of such an assessment made by the trial judge. For this purpose he relied on Calder v. Boyne Smelters Ltd.[12], where Cooper, J. said -

"Where the trial judge has assessed damages under a particular head of detriment and has applied some wrong principle of law, or has misapprehended the facts, relevant to an assessment under that head, the appellate court will be required to be satisfied that such an error has led to the assessment as a whole being outside the range of a sound discretionary judgment made in accordance with the correct legal principle, or proper appreciation of the facts, before it will intervene. If the original assessment as a total award falls within the range of an award properly assessed the appellate court will not intervene. The appellate court will itself set the maximum and minimum limits of an award applying the correct legal principles or a correct appreciation of the facts under each head. If the original assessment is outside the limits of the range, then the error has vitiated the assessment and the appellate court will set aside the award and make its own assessment ...."

Mr Vickery also called in aid the well-established rule that has been applied in questions of valuation as to the role of an appellate tribunal. The rule was stated in the following way in Federal Commissioner of Taxation v. St. Helen's Farm (ACT) Pty. Ltd.[13] by Mason, J. as follows -

"This Court has consistently applied the rule that on a question of valuation an appellate tribunal is not justified in substituting its own opinion for that of the Court below unless it is satisfied that the Court below acted on a wrong principle of law or that its valuation was entirely erroneous. ... As with the assessment of damages, especially in personal injury cases, the valuation of property by a court has many of the characteristics of a discretionary judgment. Valuation is a matter of estimation, not of precise mathematical calculations. It certainly involves the making of a value judgment in the metaphorical as well as the literal sense."

This rule has been applied in a long line of cases; cf. Commissioner of Succession Duties (South Australia) v. Executor Trustee and Agency Co. of South Australia Ltd.[14]; The Commonwealth v. Reeve[15]; The Commonwealth v. Milledge[16]; Emerald Quarry Industries Pty. Ltd. v. Commissioner of Highways (South Australia)[17]; The Valuer-General v. Fenton Nominees Pty. Ltd.[18].

In submitting that in the present case a point was reached where further reasoning was impossible and the necessity thus arose of making a determination which is unsusceptible to entirely logical exposition, LMM relied on Southgate v. Waterford[19] where Gleeson, C.J., Kirby, P. and Meagher, J.A. said -

"The appellant's second head of argument was that Davidson, D.C.J. did not give reasons as required by law for his determination that the appellant's case was to bear a proportion to the maximum amount recoverable in the ratio of one-sixth. The duty of judicial officers to give reasons for their decisions is not in doubt: ... So far as the determination of the `proportion' which the non-economic loss of the appellant bore to `a most extreme case', it is true that his Honour gave no precise reasons for fixing upon the ratio of one-sixth. He did not explain, for example, why he did not assign a ratio of one quarter or an eighth. But in the familiar task of assigning money sums to the intangible claims for general damages, a point is reached where further reasoning is impossible. It is necessary to make a determination which is insusceptible to entirely logical exposition: ...".

The present case does not, however, fit well into the category either of an assessment of damages or a valuation. The trial judge had before him a large body of evidence, including that of a number of expert witnesses who expressed opinions, on the basis of a considerable body of supporting material, as to the percentage of completeness of LMM's drawings. The case was not one in which further reasoning was impossible or in which the determination of the question involved was insusceptible to entirely logical exposition. The present case was analogous rather to the assessment of a reasonable sum for the purposes of determining a quantum meruit claim in any normal building or contractual dispute, for which it would in most cases be necessary to determine the value of the work completed by the party in question. Assessments by trial judges of quantum meruit claims were overturned on appeal in both Independent Grocers Co-operative Ltd. v. Noble Lowndes Superannuation Consultants Ltd.[20] and The Council of the City of Sydney v. Woodward[21] and in neither case does it appear to have been suggested that the trial judge had exercised a discretion or that the appellant needed to discharge any particular onus before an appellate court could disturb the trial judge's finding. Furthermore, when considering what is a "just sum" for the purposes of an award for unjust enrichment, there is support for the view that the assessment is not a discretionary process. As Mason and Carter say[22] -

"although the Court must arrive at a `just sum', the enquiry in every reasonable remuneration claim is a principled one. Assessment is not a discretionary process. In other words, just as a court is not free to apply `idiosyncratic notions of what is fair and just' when applying unjust enrichment, so also a court is not free to award a discretionary sum in respect of an established unjust enrichment."

It is, however, unnecessary for us to decide in the present case whether the principles relevant to appellate review of discretionary decisions apply in the present case. The principles on which a court will interfere with the exercise of a discretion are well established. In House v. The King[23] they were stated as follows -

"The manner in which an appeal against an exercise of discretion should be determined is governed by established principle. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so."

In CSR Readymix[24], dealing specifically with an assessment of damages, Winneke, P. observed that a court will interfere with an award of damages if satisfied that the trial judge "has acted on a wrong principle, or has misapprehended the facts or, for these or other reasons, can be seen to have made a wholly erroneous estimate of the damages suffered."

Having regard to the views we have already expressed as to the process by which the judge arrived at the figure of 93%, and the errors in his Honour's reasoning, we have no doubt that, whichever test is applied, the 93%assessment cannot stand and must be set aside. For the reasons we have already given we conclude, with respect, that the judge acted on wrong principles and misapprehended the facts. Notwithstanding Calder v. Boyne Smelters Ltd.[25] we doubt that, if the assessment of 93% is within the range of a sound discretionary judgment, it must stand despite identifiable error made by the trial judge in arriving at the assessment. The estimate may be within the correct range, but if identifiable error was made in arriving at it, the estimate itself can only be correct by coincidence. In any event, we do not think that an appellate court, which has not seen or heard the witnesses, could determine the range of a sound discretionary judgment without engaging in illegitimate speculation. Furthermore, the trial judge in his approach to the question effectively eliminated the evidence of the principal witness for the appellant as a matter to be considered in assessing the degree of completion of LMM's work, and in doing so we think he erred. Mr Vickery conceded, as we have said in [60] above, that if his Honour erred in rejecting Codd's evidence, then the assessment of 93% could not stand. We have no doubt this concession was rightly made.

The above errors were of such a character and related to matters that were so critical to his Honour's reasoning that they vitiated his assessment that the relevant work was 93% complete. The errors were significant and were not of a character that could be corrected by an appellate court. His Honour's errors inevitably lead to the conclusion that he made his decision on a series of false premises. The unfortunate consequence of this conclusion is that the appeal must be allowed and the matter sent back for retrial. As the parties both accepted, this Court, without seeing the witnesses and in light of the factual disputes involved, is quite unable to reach any conclusion as to the state of completeness of LMM's work at the relevant time.

The second principal area of dispute between the parties argued in the appeal related to Fletcher's contention that the judge failed to give proper reasons for judgment. We now turn to that issue.

Fletcher contended under ground 12 that the trial judge failed in his obligation to provide adequate and proper reasons for his judgment and that there was a miscarriage of justice by reason of errors and omissions in the reasons for judgment, the inability to discern the judge's reasons, inconsistencies concerning the cases of Fletcher and LMM, the judge's failure to have due regard for or make proper reference to the grounds of defence, evidence and submissions of Fletcher, the judge's mere reliance on LMM's submissions and evidence, to the exclusion of Fletcher's, and a variety of errors concerning the percentage of completion issue. In order to consider this ground it is convenient first to undertake some analysis of the judicial obligation to provide adequate reasons.

Judge's obligation to provide adequate reasons

It is well settled that a judge has an obligation to provide reasons for judgment: see Pettitt v. Dunkley[26]; Sun Alliance Insurance Ltd. v. Massoud[27]; Beale v. GIO of NSW[28]; and Roy Morgan Research Centre Pty. Ltd. v. Commissioner of State Revenue[29]. The obligation to provide reasons is "a normal not universal" incident of the judicial process: Public Service Board of New South Wales v. Osmond[30]; Sun Alliance[31]; Beale[32] and R. v. Arnold[33]. However, as McHugh, J.A. observed in Soulemezis v. Dudley (Holdings) Pty. Ltd.[34], "when the decision constitutes what is in fact or in substance a final order, the case must be exceptional for a judge not to have a duty to state reasons".[35]

The purposes underlying the judicial obligation

First, a Court of Appeal must be in a position to determine whether the decision of the trial judge contains appealable error. As Meagher, J.A. observed in Beale[36]:

"Perhaps the primary reason for an obligation on courts to provide reasons is the fact that a party seeking an appeal may generally only appeal where the trial judge has made an error of law. The absence of reasons or insufficient reasons may not allow an appeal court to determine whether the trial judge's verdict was or was not based on an error of law or an appealable error."

See also Sun Alliance[37]; Soulemezis[38]. Secondly, an adequate statement of the reasons "provides the foundation for the acceptability of the decision by the parties and the public."[39] As Lord McMillan once said[40] the main object of a reasoned judgment "is not only to do but to seem to do justice". Conversely, a failure to provide sufficient reasons or the provision of reasons which are riddled with error is likely to leave the losing party with a sense of injustice. As Megaw, J. said in In re Poyser and Mills' Arbitration[41] -

"The decision may be perfectly right, but the person against whom it was made was left with the real grievance that he was not told why the decision had been made."

Thirdly, it furthers judicial accountability guarding "against the birth of an unconsidered or impulsive decision".[42] Next, the provision of adequate reasons has an educative function in that it "enables practitioners, legislators and members of the public to ascertain the basis upon which like cases will probably be decided in the future."[43]

The nature and content of the judge's obligation to give reasons

In any case in which reasons are required, the necessary content will depend upon the circumstances of the particular matter. In Beale, Meagher, J. suggested[44] that while reasons need not necessarily be lengthy or elaborate, there were three fundamental elements of a statement of reasons, as follows -

"First, a judge should refer to relevant evidence. There is no need to refer to the relevant evidence in detail, especially in circumstances where it is clear that the evidence has been considered. However, where certain evidence is important or critical to the proper determination of the matter and is not referred to by the trial judge, an appellate court may infer that the trial judge overlooked the evidence or failed to give consideration to it ... Where conflicting evidence of a significant nature is given, the existence of both sets of evidence should be referred to. Secondly, a judge should set out any material findings of fact and any conclusions or ultimate findings of fact reached. ... [W]here findings of fact are not referred to, an appellate court may infer that the trial judge considered that finding to be immaterial. Where one set of evidence is accepted over a conflicting set of significant evidence, the trial judge should set out his findings as to how he comes to accept the one over the other. ... Further, it may not be necessary to make findings on every argument or destroy every submission, particularly where the arguments advanced are numerous and of varying significance ... Thirdly, a judge should provide reasons for making the relevant findings of fact (and conclusions) and reasons in applying the law to the facts found. Those reasons or the process of reasoning should be understandable and preferably logical as well."

In Sun Alliance, Gray, J. identified two criteria for determining the adequacy of reasons saying[45] that the reasons will be inadequate if -

"(a) the Appeal Court is unable to ascertain the reasoning upon which the decision is based; or (b) justice is not seen to have been done."

Later, Gray, J. turned to consider whether justice was seen to have been done, and stated his view that it was not, saying -

"The defendant, having led a weighty body of incriminating evidence was entitled to have the evidence weighed by the Court and, if rejected, the grounds of its rejection expressed in reasoned terms. To have a strong body of evidence put aside without explanation is likely to give rise to a feeling of injustice in the mind of the most reasonable litigant."

The failure of a judge to refer to particular evidence has drawn attention in a number of cases. In Yendall v. Smith Mitchell & Co. Ltd.[46] Sholl, J. said -

"The true principle, I think, must be, not that everything relevant which a magistrate does not refer to is to be taken to have been overlooked, or on the other hand, that it is to be taken to have been considered but that, if something which should have been considered is not referred to, and the nature of the decision suggests some error, which may have been due to the matter not having been considered as it should have been, or if the magistrate's observations indicate, on a comparison of what is said with what he did not say, that the matter in question has not been considered as it should have been, the appellate tribunal may properly draw that inference, and the magistrate will have no cause to complain if it does so."

In Sun Alliance Gray, J. said[47] of the omission in that case that -

"The failure to make a single reference to evidence of such importance to the defendant leads to a strong suspicion that it was overlooked or ignored."

Then in Mifsud v. Campbell[48] Samuels, J.A. said -

"... it is an incident of judicial duty for the judge to consider all the evidence in the case. It is plainly unnecessary for a judge to refer to all the evidence led in the proceedings or to indicate which of it is accepted or rejected. The extent of the duty to record the evidence given and the findings made depend, as the duty to give reasons does, upon the circumstances of the individual case. Accordingly, a failure to refer to some of the evidence does not necessarily, whenever it occurs, indicate that the judge has failed to discharge the duty which rests upon him or her. However, for a judge to ignore evidence critical to an issue in a case and contrary to an assertion of fact made by one party and accepted by the judge ... may promote a sense of grievance in the adversary and create a litigant who is not only `disappointed' but `disturbed' ... it tends to deny both the fact and the appearance of justice having been done."

Fletcher placed particular reliance, in this regard, on the decision of the New South Wales Court of Appeal in NRMA Insurance Ltd. v. Tatt[49], where the Court held that the trial judge's failure to take into account a number of aspects of the evidence also vitiated his findings as to the credit of the witnesses. Samuels, J.A.[50] stated -

"Certainly it cannot be said that the learned judge gave no reasons; but in my judgment he failed to provide those findings and reasons which enable `a proper understanding of the basis upon which the verdict entered has been reached'. That point is to my mind sufficiently taken by grounds of appeal which complain that the judge failed `to give any sufficient or any consideration to', amongst other things, the evidence of Mr Carmody and Mr Dowling and the cause of the fire and `failed to take into account' a number of aspects of the scientific evidence. By recording only one side of the judicial equation he has deprived this Court of the opportunity of assessing the weight to be given to the finding on credit, which might thus be accorded far greater cogency than in the whole of the context it properly deserves. It is, to my mind, impossible for a judge to make a finding on credit in a vacuum, as it were, without relating the witness' evidence, demeanour and particular circumstances to the other material evidence in the case."

Fletcher submitted that this passage was of direct and important application to the present case. It argued that the trial judge, by ignoring Fletcher's submissions and much of its evidence, and paying very close attention to those of LMM, "recorded only one side of the judicial equation". As a consequence, it was not surprising that the judge expressed unfavourable views as to the credit of many Fletcher witnesses, that being the obvious outcome of paying attention only to LMM's submissions in respect of those witnesses. It submitted, therefore, that the judge's findings as to the credit of Fletcher witnesses was vitiated.

In English v. Emery Reimbold & Strick Ltd.[51] the Court of Appeal considered the requirement to give reasons under common law. In the judgment of the Court, dealing with the necessary content of reasons, Lord Phillips of Worth Matravers, M.R. said -

"It follows that, if the appellate process is to work satisfactorily, the judgment must enable the appellate court to understand why the judge reached his decision. This does not mean that every factor which weighed with the judge in his appraisal of the evidence has to be identified and explained. But the issues the resolution of which were vital to the judge's conclusion should be identified and the manner in which he resolved them explained. It is not possible to provide a template for this process. It need not involve a lengthy judgment. It does require the judge to identify and record those matters which were critical to his decision. If the critical decision was one of fact, it may be enough to say that one witness was preferred to another because the one manifestly had a clearer recollection of the material facts or the other gave answers which demonstrated that his recollection could not be relied upon. The first two appeals with which we are concerned involved conflicts of expert evidence. In Flannery's case[52] Henry, L.J. quoted from the judgment of Bingham, L.J. in Eckersley v. Binnie[53] in which he said that `a coherent reasoned opinion expressed by a suitably qualified expert should be the subject of a coherent reasoned rebuttal'. This does not mean that the judgment should contain a passage which suggests that the judge has applied the same, or even a superior, degree of expertise to that displayed by the witness. He should simply provide an explanation as to why he has accepted the evidence of one expert and rejected that of another. It may be that the evidence of one or the other accorded more satisfactorily with facts found by the judge. It may be that the explanation of one was more inherently credible than that of the other. It may simply be that one was better qualified, or manifestly more objective, than the other. Whatever the explanation may be, it should be apparent from the judgment."

Fletcher submitted that in a case of the length and complexity of the present proceeding, the obligation of the judge to give reasons was correlatively increased. His Honour was, it was submitted, under an obligation to give proper consideration to the issues, evidence and the submissions of the parties. As to the last, Fletcher contended that although it had made written closing submissions of some 297 pages in length, the judge had treated those submissions as largely non-existent. By contrast it was apparent from a reading of the reasons that his Honour had made extensive - although unacknowledged - reference to and reliance upon the written closing submissions of LMM. Fletcher submitted that the judge had made some 94 errors of substance in his reasons, in support of the submission that the judge did not discharge the obligation to provide adequate reasons. On appeal the errors which Fletcher continued to press were reduced to 91. We shall turn to these alleged errors shortly.

We attach as an appendix to these reasons annexure 3 to the notice of appeal in which the alleged 94 errors are set out. In what follows, we deal only with those errors which in our view have been both established and are of significance.

Error 1 was conceded by LMM. In our view the error was not entirely inconsequential as LMM submitted, for it suggested a relationship in which LMM was the underdog.

The judge described the procedure for reviewing architectural drawings by Fletcher and G4 and said that upon completion of the process the plans were stamped "approved for construction" and returned to the architect. Warwick, construction manager for Fletcher on the project, gave evidence that he marked plans "approved for construction" only as an internal control process to mark the plans which could be used for construction, and had nothing to do with ultimate approval by Fletcher or by G4. It was common ground that only one plan so marked was actually returned to the architect. LMM contended that an acknowledgment by Grahame that Fletcher was not permitted to build from plans which had not been endorsed by the inter-departmental committee meant that plans marked "approved for construction" had passed through the complete design review process. There seems to us to be no basis for that conclusion, which naturally bore upon his Honour's view that there were no defects or deficiencies in LMM's work.

This was conceded by LMM to be an error. The judge said he was "satisfied that LMM relied upon this endorsement ('approved for construction by FCA') when preparing its invoices ...." That conclusion was in error, for the evidence was that the architect received only one plan so marked. LMM contended that the error is inconsequential. In our view the significance of the error was that it related to the question of the ability of the architect to recover fees for plans which were incomplete or in error and to the ability of the architect to recover for loss due to errors.

This was conceded by LMM to be an error. The judge found that the dispute as to fees erupted in September 1996. There had been an earlier dispute in July 1996 concerning the invoice for $700,000 dated 1 July 1996 which produced a notice of dispute from the architect to Fletcher. The significance of the error was that the judge relied on the cash flow difficulties said to have been experienced by Fletcher in September 1996 as the reason for the dispute as to the fees due to the architect.

This was not conceded to be an error. The judge found that in October 1996, LMM contended that its work was 95% complete. According to its invoices, LMM was complaining that its work was 97% complete. LMM now contends that there was no error because in a letter dated 7 October 1996 it said to Fletcher "our drawings at worst case are 95% complete". Yet LMM was insisting upon payment as if 97% of the work had been completed.

This was not conceded to be an error. The judge found that by a letter dated 26 July 1996 Fletcher said that LMM's work was 75% complete and that was inconsistent with Codd's estimate of 57%. The figure of 75% was being used by Fletcher to describe the percentage of completion of individual plans, whereas the percentage of 57% was used to describe something quite different, namely, the extent to which LMM had completed the whole of the stage 3 work. The error was presumably a factor in the rejection of Codd's evidence.

LMM accepted that error was involved. His Honour said that "I accept the evidence that LMM probably thought that [Fletcher] was in some sort of financial difficulty at the time". There was no such evidence. The only evidence relating to Fletcher's finances was that Fletcher was funding the project at this point in that less money was coming than was being paid out in respect of this project. There was, however, no evidence that Fletcher was unable to finance that expense or that the architect thought Fletcher was in financial difficulty.

This was not conceded to be an error. The judge found that Fletcher was "temporarily straightened" in respect of this contract. The phrase was however quite inapposite to describe Fletcher's position and the significance of it is that it appears to reflect the judge's view that Fletcher was arguing with the architect about fees because it was unable to pay them.

This was not conceded to be an error. The judge found that Grahame was aware that the meeting of 16 October 1996 was a settlement meeting under clause 23(a) of the consultant's agreement. There was no evidence at all to support such a finding. LMM did not either in correspondence or oral communication state that the meeting was held under clause 23(a) and no basis appeared in the evidence upon which Grahame inferred that the meeting was a settlement meeting.

This error was conceded. The judge found that galvanising may have prevented or hindered the ingress of water under the C-section of the window frame. The evidence was simply that galvanising may have prevented or hindered corrosion after the ingress of moisture. Fletcher's case was that the judge appears to have confused galvanisation with the application of a sealant, and demonstrates that the judge did not properly understand Fletcher's case in so far as it related to the windows.

This was not conceded to be an error. The judge said that "if Mr Twinn did not approve of something, it did not take effect until it was modified and his imprimatur was given". The evidence was that Twinn's approval was required for security measures. The statement made by the judge was much wider, and appeared in a context in which it might be said that Twinn's assumption of responsibility absolved the architect from all responsibility for the design of windows. Twinn's own evidence was to the contrary effect, and he was an LMM witness.

This error was conceded. The judge found that a certificate of occupancy was issued which certified that the design of the prison complied with the Building Regulations and Codes in all respects. The certificate of occupancy did not evidence compliance with the Building Act 1993 or the Building Regulations 1994. LMM contended that the error is of no consequence because there was evidence of building permits which did relate to the compliance of design of the buildings with building laws. The fact remains that the certificate of occupancy gave no support to the view that the design of the prison complied with building regulations or codes and that was the evidence on which the trial judge relied.

This was not conceded to be an error. The judge found that the MMP was delivered to the Department of Justice "on time and on budget a few months after LMM quit". In fact the architect stopped work on 16 November 1996 and the MMP was handed over in August 1997 and Spowers was still performing work in respect of the prison in September and October 1997. The error was made in the context of the trial judge's rejection of Codd's evidence.

This was not conceded to be an error. The judge, dealing with Codd's evidence, said that his estimate could be tested by assessing the work which Spowers did to complete the project. His Honour said that only six drawings were prepared by Sparrow. In so doing his Honour omitted to mention the project advice notices prepared by the new architects. The trial judge apparently found that the new architects did very little work indeed to complete LMM's work on the project. The evidence does not support that conclusion.

This error was conceded. Its significance is discussed in paragraph [67] above.

One of the reasons given by the judge for dismissing Codd's evidence was that "his evidence cannot be matched with any of the foregoing [LMM's] witnesses who were the actual people to work with and from LMM's drawings". In fact the LMM witnesses whose evidence did not match that of Codd were Quigley and Bailey, neither of whom worked with or from LMM's drawings. LMM submitted that the judge was referring to other witnesses who did work on LMM's drawings, but these witnesses gave no evidence of the percentage of work completed.

This error was conceded. The judge said that Webster (an LMM witness) gave evidence as to the corrosion of windows. LMM gave no such evidence, as LMM now concedes, it being put that the error was typographical. The corrosion of windows was an issue of some significance in the trial.

This was not conceded to be an error. The judge found that Twinn and Grahame would not have tolerated direction from the architect and would not have tolerated the architect leading the development of the design and supervising coordination. No such evidence was led. LMM in response have relied on a section from the bid document referring to the operator of the prison playing an integral part in the development of the design. In our view this was insufficient to support the judge's finding.

This error was conceded. In giving reasons for rejecting the evidence of Codd, the judge said that in November 1996 the prison was only "a few months prior to the hand over". His Honour said that Codd's evidence that the documentation was less than two-thirds should be rejected on this basis. In fact the stage 3 documentation was less than two-thirds complete over nine months prior to the hand over.

This error was conceded. The judge said that by 24 May 1996 most of the architectural work in respect of the project had been completed and later in his reasons said that half of the architectural work had been completed by 24 May 1996. Neither of these inconsistent findings is correct. By 24 May 1996 the architect had claimed only 43% of the total fee. Even LMM appeared to concede that its invoices exceeded the proportion of work performed at the time the invoices were rendered and 43% was probably a generous estimate of the percentage of work then completed.

This error was conceded and demonstrates a faulty recollection of the evidence relating to a fact in issue.

This was not conceded to be an error. The judge found that Scheele calculated the state of completeness of the documentation as at 16 November 1996 as 95%. There was no evidence to support this conclusion. The only evidence on which it could have been based was a statement made by Grahame to a project steering committee in September 1996. There was no evidence that the figure Grahame reported resulted from any calculation made by him. Notwithstanding that there was no basis in the evidence upon which the significance of Scheele's remark could be weighed, it influenced the trial judge in making his assessment of the degree to which LMM completed the Stage 3 work.

The judge asserted that Grahame assessed the level of completeness of the architect's work at 16 November 1996 as 95%. A reading of the cross-examination of Grahame shows that he made no such assessment, but simply relayed a figure reported by Scheele to the Project Steering Committee.

This error was conceded. The judge said that Fletcher knew that Marshall was overseas at the time of design meeting No. 20 and "accepted that fact". LMM concedes that Fletcher did not know that Marshall had gone overseas on holiday for a period of 22 days in September 1996.

The judge found that "LMM relies upon an acoustic report which it had commissioned and accepted from Mr Marshall dated 1 July 1996." The report was not made by Marshall but rather by an entity with no connection to him. His Honour went on to "find that [Fletcher] accepted and, in fact, insisted upon assuming responsibility for the preparation of the acoustic report." The evidence was that Fletcher commissioned the report to fill a gap in the work of LMM. LMM neither performed the work nor commissioned it.

This was not conceded to be an error. The judge said that Fletcher waived the obligations of LMM to perform design work in respect of loose and fixed furniture, fitments and equipment and compound fencing, and that Fletcher permitted the work to be done by G4. In fact LMM did undertake some design work in respect of both loose and fixed furniture, fitments and equipment, and Spowers did more work in respect of the design of furniture, fitments and equipment and compound fencing. G4's role was limited to supplying loose furniture, fitments and equipment.

In dealing with items alleged by Fletcher to have been omitted by the architect, the judge said he would only deal with those items raised at trial. Each of these items were in fact raised at trial and Brickell gave evidence as to them. The judge dealt with certain of these items and then said as to the remainder, "the rest of the schedule deals with incomplete matters which were raised by Mr Codd. I have already rejected his evidence." In so doing, the judge treated everything Codd said as of no value and thus ignored the evidence of Brickell, whose evidence the trial judge said he had accepted. His Honour also said of this work that it was "minor". However the evidence of Brickell was that the matters referred to in Errors 53, 54 and 55 were significant omissions.

This was not conceded to be an error. The judge said that Twinn was of the opinion that the architect's work was adequate and appropriate for the project. In fact Twinn was somewhat critical of Marshall, expressing reservations as to his expertise, the speed with which the architect produced plans, and the tendency to wait for others to tell him what to do rather than himself design the project.

The judge said that Twinn, whom he described as "an expert in providing maximum security facilities", expressed opinions which "must be given great weight". His Honour then proceeded to state Twinn's opinion that LMM had discharged its duties and obligations. The statement was far too wide. Twinn disclaimed expertise as an architect: his area of knowledge and experience was limited to security.

This was not conceded to be an error. The judge had said that the MMP did not fall into the category of a building such as the Sydney Opera House of "stunning novelty", although "Mr Codd's evidence suggested that it might". Codd said no such thing. His evidence was that the MMP was not unusual, although he said that a modern prison was "a complex facility, highly specialised and unlike any other building type."

This was not conceded to be or error. The judge said that Hanich, a Fletcher witness, accepted LMM's repudiation of the consultant's agreement on 20 November 1996 by failing to hand over the cheque which was in his pocket. The judge had earlier said that the agreement was at an end because LMM had accepted Fletcher's repudiation of it. The premise in the reasoning is that Hanich of Fletcher accepted LMM's repudiation by failing to do something which was not expected, since LMM had no knowledge of the cheque which Fletcher had drawn and which Hanich had in his possession at that meeting. In the same paragraph of his reasons, his Honour said that Fletcher could have kept the agreement alive by enticing the architect to resume work or by paying the architect, and its failure to do those things "had the effect of accepting LMM's acceptance of FCA's own repudiation of the contract". The question of which party had repudiated the agreement, and whether that repudiation had been accepted, was a critical issue in the trial. LMM did not attempt to support his Honour's reasoning on this issue, instead supporting the conclusion of the trial judge by a reference to other facts in evidence. The relevant passage of his Honour's reasons was in the following terms -

"In my view the situation envisaged by Lord Stein [in Vitol SA v. Norelf Ltd. ([1996] 3 All E.R. 193 at 200-201] occurred here. In truncated terms, LMM said: `If you don't pay me, I won't work'. To which Fletcher responded: `We won't pay you, except `perhaps' on our terms'. LMM then replied: 'Well, we'll stop work'. Following this, Fletcher did not pay. It must be seen to have accepted LMM's cessation of work of the CA, its termination and its unequivocal intention to avoid the contract in the event of non-payment. Mr Hanich's failure to pass the cheque in his pocket on to LMM on 20 November in the full knowledge that LMM had ceased work four days before, constituted conduct amounting to an acceptance of LMM's repudiation of the contract. FCA could have kept the CA alive. It could have enticed LMM to resume work. Indeed, all of the market power resided with FCA. It chose to do none of those things. Those omissions amounted to positive conduct, which had the effect of accepting LMM's acceptance of Fletcher's own repudiation of the contract."

As we have said, LMM did not in this Court attempt to support his Honour's reasoning and we must say, with all respect, that we have no idea what his Honour meant by this paragraph.

This was conceded to be an error. In describing the pleadings the judge said that Fletcher admitted that additional services for the construction phase of the work were performed by LMM and conceded that the amount of $76,525 was payable in respect of those services. There was no evidence that any such admission was made. Further, LMM did not even claim that $76,525 was owing in respect of the construction phase. An account was rendered for that sum, but only $12,800 of the amount of the account was claimed in respect of the construction phase.

These were conceded to be errors. The judge said that Fletcher contended that plant platforms located on the roof and within the roof cavities constituted an occupational health and safety hazard, and that Fletcher contended it would have to relocate the plant platforms. Fletcher in fact made no such allegations. There were no plant platforms located within roof cavities and there were no remedial works performed or proposed which involved the relocation of plant platforms.

This was conceded to be an error. The judge said that the finishes schedule, the landscaping and compound fencing were alleged by LMM not to be part of its architectural services. No such allegation was in fact made by LMM and later the judge himself said that: "The wall, floor and ceiling finishes and signage were not done, but were part of the work for which LMM concedes was not completed."

His Honour said that Fletcher attempted at trial to disavow the evidence of Twinn and summarised Fletcher's closing submission as one contending that Twinn's evidence at one point undermined his central position. In fact, Fletcher relied upon Twinn's evidence and it was a misdescription of Fletcher's final submissions to say that it attempted to disavow his evidence. LMM sought to meet this criticism by saying that some of Twinn's evidence was contrary to Fletcher's position. His Honour appears to have misunderstood Fletcher's submissions.

At a glance

Court

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Before

Source

Judgment (404 paragraphs)

Parties

Legislation Cited (1)

Cited By (1)