GIGI ENTERTAINMENT PTY LIMITED v SCHMIDT - [2010] NSWSC 906 - NSWSC 2010 case summary — Zoe

NSWNSWSC

GIGI ENTERTAINMENT PTY LIMITED v SCHMIDT

[2010] NSWSC 906

Supreme Court of NSW|2010-08-11|Before: Hall J, Samuels JA

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2010-08-11

Before

Hall J, Samuels JA

Source

Original judgment source is linked above.

Judgment (51 paragraphs)

[1]

CITATION : GIGI ENTERTAINMENT PTY LIMITED v SCHMIDT [2010] NSWSC 906

[2]

(1)That the report of Dr John M Hutcheson, Referee, dated 28 April 2010 be rejected insofar as it expresses an opinion as to the costs of rectifying any of the following items referred to in the Scott Schedule dated 6 May 2008:- (a) item 8; (b) items 32, 34, 49, 120 and 150; (c) items 5, 39, 102, 108 and 109. (2) That the following parts of the Referee's report be rejected:- (a) paragraphs 5(e), 64 to 66, 79(a)(i) and the row labelled "Supervisor for the Plaintiff" in the table behind Tab 3 ("Supervisor for the Plaintiff"); DECISION : (b) paragraphs 5(f), 46 to 48, 79(a)(ii) and the row labelled "Referee - 5.5% Reserve" in the table behind Tab 3 ("reserve for unknowns"); (c) paragraphs 5(c), 58 to 60, 79(a)(iii), item 156 of Tab 2, Item 156 of Tab 3 ("preliminaries"). (d) paragraphs 5(d), 61 to 63, 79(a)(iv), item 158 of Tab 2, item 158 of Tab 3 ("OH&P"). (3) That, subject to order (4) of these order, the Referee's report otherwise be adopted. (4) These orders are without prejudice to the defendant's right to make contentions at trial regarding any question of law arising in the proceedings (including any question relating to the proper construction of any document) whether or not that question was inquired into or reported on by the Referee. (5) That the plaintiff's notice of motion filed on 8 June 2010 be dismissed with costs. (6) That the plaintiff pay the defendant's costs of, and incidental to, the hearing on 11 August 2010. (7) That the costs of the reference before the Referee be reserved.

[12]

Applications in respect of the adoption of the Referee's report 11 In a notice of motion filed on 8 June 2010, the plaintiff moved for an order that the report of the Referee be adopted in whole. It also sought an order for its costs of the motion. In support of the application reliance was placed upon the affidavit of Basil John Macree, solicitor, sworn 7 June 2010. 12 The defendant opposes the adoption in whole of the Referee's report on a number of bases. The defendant has served notice that it proposes to rely upon an application for the partial adoption of the Referee's report. 13 On the hearing of the plaintiff's notice of motion on 11 August 2010, Mr Scott Robertson of counsel on behalf of the defendant sought leave to file a notice of motion in which the following orders were sought:- "1. That, pursuant to Rule 20.24 of the Uniform Civil Procedure Rules (NSW), the report of Dr John M Hutcheson dated 28 April 2010 (' the Referee's Report ) be adopted to the extent indicated in Attachment A. 2. That the Referee's Report otherwise be rejected. 3. That the Plaintiff's notice of motion filed on 8 June 2010 be dismissed with costs. 4. That the plaintiff pay the Defendant's costs of this Notice of Motion as agreed or assessed. 5. That the cost of the reference be reserved. 6. Such further or other orders as this Honourable Court deems fit." 14 Leave was granted to the defendant to file the Notice of Motion in the registry and the motion was treated as before the Court at the hearing on 11 August 2010. 15 On 5 August 2010, the defendant filed a document entitled Defendant's Outline of Submissions with respect to the Plaintiff's Notice of Motion filed on 8 June 2010. 16 The Plaintiff's Outline of Submissions in Reply concerning the adoption of the Referee's report dated 9 August 2010 responds to the Defendant's Outline of Submissions. 17 The written submissions have been supplemented by oral submissions by Mr Scott Robertson, counsel for the defendant and the oral submissions of Mr James Darvall, counsel for the plaintiff.

[16]

(1) Item 8 - Procedure fairness re Referee's fact No 10 - Painting 33 This item raises the question as to the Referee's use of a report by Asset Constructions Australia Pty Limited ("Asset Constructions") commissioned by the plaintiff, (the "Asset Constructions Report"). 34 The statement of claim (paragraph 10) stated that, by letter dated 14 April 2008 from B J Macree & Co, the plaintiff sought from Asset Constructions advice as to the cost of rectification to the Tattersall Hotel in accordance with a report referred to as "the Tyrell's Report". 35 The statement of claim also records that this led to a demand by the plaintiff by letter dated 30 June 2008 accompanied by a copy of the Asset Constructions Report. 36 In the written submissions for the defendant (paragraph 20) on the hearing of the above application, it was contended that the plaintiff made a deliberate decision not to rely on the Asset Constructions Report for the purposes of the reference to Dr Hutcheson. It was said that this was confirmed in an email both to the defendant and to the referee. In this respect, reference was made to the report at Tab 23. 37 Accordingly, it was submitted:- "21. Relying on the Plaintiff's indication that it did not rely on the Asset Constructions Report, the Defendant did not make any submission with respect to that report but expressly ' reserve(d) the right to make submissions later if the Plaintiff decides to rely on the Asset Constructions Report '." 38 Reference was made in the latter submissions to the report at Tab 16, [14]. The submissions continued:- "22. Despite this, the Referee relied on the Asset Constructions Report in deciding that the Plaintiff's expert's estimate with respect to Item 8 should be preferred to the Defendant's expert's estimate. Prior to doing so, the referee gave no indication that he intended to rely on that report in providing his Report." 39 It was ultimately argued for the defendant that there was a clear breach of the rules of procedural fairness such that the Court must reject the report insofar as it purported to deal with Item 8. Reliance was placed in this respect upon the judgment in Xuereb v Viola (1989) 18 NSWLR 453 at 472D. 40 The plaintiff's expert provided an estimated cost of $188,000 in respect of this item. The defendant's expert estimated loss at $8,475. 41 The estimate calculated by the plaintiff's expert involved a labour calculation totalling $160,000. 42 The Referee expressed his opinion "I prefer the PEs (plaintiff's expert) $188,000". The Referee set out nine points or reasons in support of his opinion. 43 Mr Robertson on behalf of the defendant, contended that the defendant was not accorded procedural fairness in relation to the Referee's decision on this item as that decision was (without notice) expressly based on a report which was not relied upon by either party. 44 Mr Robertson, in support of his contentions, relied upon the following:-

[24]

• In the circumstances, there was a clear breach of the rules of procedural fairness and, in reliance upon dicta of Cole J in Xuereb (supra), the Court must reject the report, insofar as it deals with Item 8. 49 In response, Mr Darvall for the plaintiff contended that an examination of the Referee's report, in particular, paragraph 69, indicated that the report of Asset Constructions had not been utilised by the Referee in formulating his report. 50 In the Plaintiff's Outline of Submissions in Reply, it was contended:- "34. A Referee is not obliged to conduct a reference in a manner as similar as possible to the conduct of court proceedings. While a Referee should ensure the parties receive natural justice, including in the sense that they be given the opportunity to place before the Referee submissions of facts and law, what may be required by natural justice will vary with the particular circumstances. 35. The Defendant was provided an opportunity to be heard on the subject of painting. The Referee notes the Defendant's submissions at para.67(b)-(d) and then sets out his reasons, including the subject paragraph in sub-paragraphs (a)-(l) at pages 32-33. In the circumstances, the Defendant's submission should be rejected, but further even on the face of the words, the Referee's reliance, if any, on the Asset Constructions Report was to corroborate the decision he had already made." 51 Mr Darvall drew attention to the nature of the Asset Constructions Report, a copy of which is behind Tab 23 in Exhibit A2. 52 It is, in my opinion, clear that, in the circumstances in which the solicitors for the plaintiff unequivocally stated there would be no reliance placed upon the Asset Constructions Report, taken in conjunction with the fact that the Referee did, in fact, have regard to and referred to the report when dealing with Item 8, without notice or opportunity to the defendant make submissions in relation to it, there was a clear breach of the requirements of procedural fairness, the defendant not been given such notice or opportunity. 53 In circumstances where the matter in issue concerns the quantum of any allowance made in respect of Item 8, the defendant was clearly entitled to be heard in relation to any matter to be taken into account in the assessment of that item. The estimate of $290,000 made by Asset Constructions was completely inconsistent with the defendant's expert's assessment and, at least prima facie, was seen by the Referee as providing a useful "check" against the plaintiff's expert assessment before finally accepting the latter assessment. In those circumstances, the breach of procedural fairness related directly to a matter of central importance on the assessment of quantum in respect of Item 8. 54 In circumstances in which the defendant has established a clear breach of procedural fairness requirements, Mr Darvall properly accepted that there was an onus (whether or not called an evidentiary onus) upon him to establish that any breach of procedural fairness established by the defendant had no effect. Alternatively, even if the defendant had been made aware of the Referee's intended use of the Asset Constructions Report, it was for the plaintiff to establish that the use of the Asset Constructions Report would have made no difference to the Referee's assessment of Item 8. 55 It is, in my opinion, clear from the terms of paragraph 69(f) of the report that the Referee did use the Asset Constructions Report at least , either as a form of "corroboration" or as a "check" on assessment relied upon by the plaintiff. The Referee's statements indicates that the Asset Constructions Report established a relevant matter, namely, "the market" which the latter report is said to represent. There was no statement by the Referee that he, in fact, did not have any regard to the report or that he found it to be of no use to the assessment. The Referee's statement about the Asset Constructions Report indicates the contrary, namely, that he considered that it was of value and was instructive for the purpose of the assessment exercise required of him. In those circumstances, I am of the opinion that the use of the report of Asset Constructions meant that the defendant was deprived of a fair hearing in accordance with the principles to which I have referred above. 56 In those circumstances, the defendant having been deprived of the opportunity of being heard, the Referee's conclusion or opinion in relation to Item 8 is vitiated and ought not be adopted for the purpose of the proceedings.

[25]

(2) The alleged failure of the Referee to express an opinion regarding quantum in respect of Items 32, 34, 49, 120 and 150 57 The fundamental submission on behalf of the defendant was that, in respect of Items 32, 34, 49, 120 and 150, the Referee has not in fact considered the actual cost of repair to each of those items, but has simply indicated a "preference" to a stated cost of repair. 58 It was submitted that the clearest example was Item 120. 59 In his written submissions, Mr Darvall contended that, in respect of the five items in question, the Referee provided what was required of him "… a maximum or cap on expenses …": Plaintiff's Outline of Submissions in Reply, paragraph 38. 60 In relation to each of these items, the Referee expressed his opinion in terms of a "preference" as to the cost of repair. In this respect, it is important to observe that the order by which the referral was made to the Referee required him to "determine", inter alia, the quantum of the liability referred to in paragraph (a) of the consent referral order. This does not, as the plaintiff submitted, involve fixing a maximum or a cap on expenses. 61 In context, the word "determine" means, in accordance with the ordinary dictionary meaning of the word, to "settle or decide (a dispute, controversy, etc …) as a judge or arbiter …": Shorter Oxford English Dictionary - in this case, the amount or quantum of damages. 62 Similarly, in the case of a referee appointed under the provisions of the UCPR, it is necessary for a referee to examine the issues and merits and material bearing upon the same in order to resolve the matter or matters in controversy. In other words, other than in special circumstances, the task of determining disputed issues involves more than a mere selection or "preference" of one competing expert assessment over another, unless, of course, the selection or "preference" is made following an examination and analysis of the relevant material bearing upon the assessment of liability or loss and the basis for the determination is identified in the Referee's report. The issue of "reasons" for a determination is dealt with below.

[26]

(a) Item 120 63 In relation to Item 120, Mr Robertson observed that the Referee expressed the opinion that "the bar has value of an undermined quantum (emphasis added)". And stated:- "If the Defendant lessee is liable, I prefer the PEs' PS of $30,000 which will be quantified by a detailed scope of work based on what is the extent of the Defendant lessee's ability." (emphasis added) 64 It was contended for the defendant that this part of the report should not be adopted by the Court as an opinion as to the cost of repairing Item 120. It was submitted in this respect that it was evident that the Referee did not turn his mind to the question of the assessment or determination of the cost of repairing Item 120, but instead simply adopted the plaintiff's experts' proposed provisional sum pending a proper evaluation as to the cost of repairing Item 120. 65 The Referee recorded five matters in support of his opinion as follows:- "(1) Until a detailed scope of work is prepared, the PEs' use of a PE is the valid method used in the construction industry. (2) The critical element is the list of defects present at the beginning of the lease and which are identified by the Court as being the Defendant lessee's liability to rectify. (3) Tax depreciation is an accounting entry and does not record the sale value of the bar but more importantly does not record the value of the bar to the operation of the hotel. (4) In valuation practice, consideration should be given to the value of the bar to carry out a function as well as the loss while there was not bar etc. (5) Hence, the bar has value of an undetermined quantum." 66 The Referee's report recorded in relation to Item 120 the comment by the plaintiff's expert "… subject to further investigation, allow provisional sum of $30,000 to replace bar". 67 At paragraph 70(a) of the Referee's report, a number of items are listed (including Item 120) which are referred to as losses designated "as provisional sums". 68 In paragraph 70(b) it is noted, "the Defendant's Expert makes objection to the use of PSs". 69 In the Summary of the Builders' Joint Scott Schedule, behind Tab 3 of Exhibit A1, the Referee noted:- "3. The Provisional Sums (PS) need to be converted to a firm loss/cost after a more detailed inspection by the experts to produce a scope of work for costing." 70 Mr Robertson's submission was that this part of the report (Defendant's Outline of Submissions, paragraph 27):- "… should not be adopted by the Court as an opinion as to the cost of repairing Item 120. It is clear from the quoted section of the Report that the Referee did not turn his mind to the question of the cost of repairing Item 120. Instead, he simply adopted the Plaintiff's Experts' proposed provisional sum pending a proper valuation as to the cost of repairing Item 120. " 71 I consider that this submission is well-founded. 72 On an issue arising under the terms of the order of referral, namely, "the quantum of such liability", the Referee was required to make a determination of "quantum", namely, the amount of money payable in damages. The opinion expressed by the Referee in relation to Item 120 was not a determination of an amount of money in damages but was a provisional and qualified assessment and, as such, was not within the terms of sub-paragraph (b) of the order for referral. 73 It is not, as Mr Robertson submitted, a question as to whether or not there is a standard practice in formulating estimates to provide for a provisional sum where there has been a grouping of defects. The provisional sum purportedly provided for by the Referee was not of a kind or nature contemplated by sub-paragraph (b) of the order. This is clear from the terms of the report (Tab 3, p.8) wherein it was stated:- "… The Provisional Sums (PS) need to be converted a firm loss/cost after a more detailed inspection by the experts to produce a scope of work for costing." 74 An opinion expressed in those terms by the Referee, not being a determination of an amount of money payable in damages, is, accordingly, not one contemplated by the terms of the order and, accordingly, should not be adopted by the Court for the purpose of the proceedings.

[31]

(3) Failure by the Referee to give reasons with respect to Items 5, 39, 102, 108 and 109 83 Rule 20.23(1)(b) of the UCPR requires a Referee to set out his or her reasons for the opinions expressed in a Referee's report. 84 In this respect, it was acknowledged in the defendant's submissions that the obligation does not require a referee to make express findings on each and every matter contended for by a party. However, the obligation, it was contended, does, as a minimum, require a referee to identify the fundamental reasons leading to a stated conclusion. In this respect, reliance was placed on Xuereb (supra) at 469C per Cole J. 85 In the present proceedings, it was contended that the Referee failed to provide any reasons at all for supporting one valuation or estimate by the experts over another in the case of Items 5, 39, 102, 108 and 109. 86 By way of general observation, in relation to particular items, one, at least, can envisage that a close examination by a referee could possibly lead to one of three or, perhaps, four results. The first would be that the Referee has assessed the item in line with the plaintiff's expert. The second is that he or she assesses an item in line with a defendant's expert's quantification or estimate. The third is that the Referee determines an intermediate figure. A fourth possibility in a particular case may be that there is not enough information to make any assessment at all in relation to particular items. 87 The Referee, in relation to certain items in this case, appears to have proceeded on the assumption that the choice was either between the plaintiff's expert's assessment or the defendant's assessment. There is no explanation as to why some intermediate assessment would not have been appropriate in relation to particular items. As earlier stated, the Referee's obligation under the terms of the order of referral was to "determine", inter alia, the issues of "quantum". 88 It is necessary to examine the approach taken by the Referee in relation to each of the above items. 89 It was contended for the defendant that the Referee's reasoning on quantum was expressed in relation to the relevant items in terms similar to that adopted in relation to Item 5, that item being taken as an example. In relation to that matter, the Referee stated:- "6. If the lessee is liable, the DE considers a loss of $350 is applicable. 7. I prefer the PEs' loss of $3,404." 90 The same lack of reasoning, it was contended by Mr Robertson, infected Items 39, 102, 108 and 109. 91 Accordingly, the contention made on behalf of the defendant was that the report should not be adopted in relation to those items.

[42]

(d) Builders' OH& Profits @ 10%." 106 The defendant challenges the Referee's "preference" in respect of each if the items (a), (b), (c) and (d) above. It was submitted that the Court should not adopt the report, insofar as it suggests that such additional items have been assessed by the Referee. I note that Items (a) and (b) were not included in the joint Scott Schedule. 107 Mr Robertson for the defendant contended that, in respect of the items "Supervisor for the plaintiff" and "reserve for unknowns", none of the parties' experts or the parties themselves contended for either or these items. In such circumstances, it was contended (Defendant's Outline of Submissions, paragraph 40):- "… The Referee was not entitled to invent new heads of claim in the absence of affording the parties an opportunity to make submissions and lead evidence regarding whether those heads of claim should be allowed." 108 Mr Darvall, quite properly in the circumstances, did not make any submissions in support of conclusions expressed by the Referee in relation to them. 109 In respect of Items (c) and (d) above, the first, "Preliminaries" (Item 156 in the joint Scott Schedule), was allowed by the Referee at 12.5% ($48,008). The report noted that the defendant's expert had integrated or included preliminaries in the rates adopted by him. The Referee's opinion is expressed in these terms, in respect of Item 156:- "I prefer the PEs' allowance of preliminaries (either wholly or partly) for the reasons given in the text of My Report." 110 In respect of Item (d) above (numbered Item 158 in the joint Scott Schedule), the Referee noted, "Builders' Overheads and Profit 10%". The opinion is expressed in terms:- "I prefer PEs' allowance for OH&P for the reasons given in the text of My Report." 111 In relation to the item "Preliminaries" (numbered Item 156 in the Joint Scott Schedule), it was contended, again, that, as in respect of Items 5, 39, 102, 108 and 109, the Referee's report suffered from a lack of reasons. In this respect, it was contended that whilst the report did provide reasons as to why "preliminaries for the head contractor should be included in the total cost", the report did not provide any reasons as to why the figure of 12.5% was adopted instead of a figure such as 8% or 10%. 112 In the body of the report (paragraph 58(c)), it was stated that, in the conclave, the parties discussed the use of and the quantum of head contractors' preliminaries. It was noted:- "They agreed that if they were to be included, that the rate should be 8 to 12.5% of the total of the sub-contractors' prices." 113 It is clear that there was no agreement that the appropriate allowance in this case was 12.5%, that is, the top of the range figure. Why the Referee elected to adopt that particular percentage figure is not stated in the report. 114 It is clear, in these circumstances, that the opinion of the report adopting 12.5% for preliminaries was an opinion unsupported by reasons. 115 For the reasons I have earlier set out, the report should not be adopted in respect of this item. 116 In relation to the item, "Builders' OH & Profits at 10%", the Referee dealt with that matter in paragraph 61 of his report. He noted there that the plaintiff's experts allowed 10% of the payment by the head contractor for the sub-contractors and preliminaries as overhead and profit. He stated that, in his experience, for renovation work, OH & P frequently was 15% and, at time, as high as 25%. 117 The basis upon which the allowance was made is set out in paragraph 63 of the report entitled "My Preference - 8". In that paragraph, however, the Referee stated his preference for the "Plaintiff's allowance for OH & S", but for reasons for stated in (a), (b), (c) and (d). However, those paragraphs simply identify the tasks that would be required. They did not explain why the Referee preferred the figure of 10%. 118 In the submissions for the defendant in relation to this item, it was observed that the report did not explain why the fact that a head contractor might have to "pay for marketing" or effect "payment for CPB training …" bore on the question as to the quantum of the liability under the repair and maintenance provisions of the relevant lease. 119 I do not consider that the matters set out in the report, including, in particular, paragraph 63 constitute reasons or an explanation for the adoption of the particular percentage figure adopted for builders' overheads and profits. 120 No doubt, the figure would vary according to the nature of the project and the nature and number of the sub-contractors required to undertake specific particular aspects of the work constituting the project. 121 In the circumstances and for reasons earlier stated, on the question of the obligation to provide reasons, the report does not, in relation to this item, satisfy the requisite requirement and tests. 122 I, accordingly, am of the opinion that the report should not be adopted in relation to preliminaries or overhead and profits.