Kenoss Contractors Pty Limitd v Allied Constructions Pty Limited

APPLICANT Mr M J Lawler of Counsel Solicitors: Gillespie-Jones & Co Fyshwick ACT (Mr I Gillespie-Jones) LEGAL REPRESENTATIVES: City Agent: Hemphill & Co Solicitors

RESPONDENT Mr R E Dubler of Counsel Solicitors: Corrs Chambers Westgarth (Mr R Regan)

JUDGMENT: - 1 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION

CORAM: HAYLEN J 21 September 2001

Matter No 509 of 2001 KENOSS CONTRACTORS PTY LIMITED v ALLIED CONSTRUCTIONS PTY LIMITED Application under s 106 of the Industrial Relations Act 1996

INTRODUCTION 1 This matter is another application in various interlocutory proceedings taken by the parties.

In this particular application the respondent, by notice of motion filed on 9 February 2001, seeks an order, for relevant purposes, in the following form: … an order pursuant to Section 89 of the Industrial Relations Commission Rules or Part 72 of the Supreme Court Rules (NSW) that the whole proceedings be referred to the Expert appointed pursuant to clauses 46.5 and 46.6 of Part B of the Annexure to the General Conditions of the contract dated 13 December 2000 between the Applicant and the respondent ("sub-contract") or in default as appointed by the Commission to enquire and report back to the Commission.

2 Other aspects of the notice of motion are dealt with by the President Wright J in Kenoss Contractors Pty Limited v Allied Constructions Pty Limitdd (No 2) [2001] NSWIRComm 36. On 9 July the respondent pressed its application for a reference to a referee for inquiry and report.

3 When that matter came on for hearing the parties agreed that there had been a refinement of the issues: the essential point was whether there should be a reference to a referee and if so, of what matters. Essentially the parties were in agreement that the issue of liability should be tried separately to the question of the compensation that may be payable in the event of a finding adverse to the respondent on the issue of liability. Although expressed in slightly different ways the parties were agreed that the issue of liability could be broken into three broad questions: (a) Is the contract within the purview of s 106 of the Industrial Relations Act 1996?; (b) If the answer to question (a) is yes, is the contract an unfair contract within the meaning of s 106 having regard to the matters pleaded in the amended summons?; (c) If the answer to question (b) is yes, should the Commission in Court Session, as a matter of discretion, exercise its powers under s 106 to vary the contract and, if so, how? The parties are further agreed that should the answers to the questions on liability and variation to the contract be resolved in favour of the applicant, then, because of the complexity of the assessment which may have to be undertaken flowing from the variations, they would co-operate at least to the extent of having an expert conduct that potentially complex task and jointly submit the expert's report on quantum to the Court for the making of final orders. THE BACKGROUND 4 For present purposes, the essential surrounding facts giving rise to the application under s 106 of the Act are succinctly set out in the first Kenoss judgment of the President, Wright J (2001) 104 IR 66. In summary, the relevant facts are as follows.

In 1999 the respondent became the head contractor to the New South Wales Department of Public Works and Services in relation to a project for the design and construction of a sewerage scheme in the Moruya area. The nature of the dispute between the parties arises from mistakes and confusion in the tendering process which the applicant maintains must have come to the attention of the respondent. The central problem arose in the following circumstances. The respondent engaged consulting engineers to re-design the sewerage scheme contained in the department's drawings in order to achieve savings in the cost of construction. The applicant was asked by the respondent to tender for a sub-contract for pipe laying and associated works proposed in the consulting engineer's re-design. An initial tender was submitted by the applicant based on this design but the applicant was subsequently requested by the respondent to tender on a reduced scope of works. The respondent and the department entered into a contract for construction of the sewerage scheme at Moruya based on the consulting engineer's re-design. The senior engineer for the applicant involved in the preparation of the tender was overseas when the respondent wrote a number of letters seeking clarification of particular matters and whether they were within the scope of the revised tender. Other representatives of the applicant erroneously indicated that matters were within the ambit of the applicant's tender which were in fact not within its ambit and, the applicant alleges, the respondent must have known this to be the case. Thereafter the respondent submitted a form of sub-contract to the applicant. The sub-contract executed on behalf of the applicant, in the absence of the senior engineer who had been responsible for the initial tender, did not refer to the consulting engineer's re-designed plans and annexed the original departmental plans which were allegedly wider in scope. On the return of the applicant's senior engineer the mistake was discovered and meetings were held with representatives of the respondent. For the applicant it was made clear that it was unable to perform the sub-contract for the sub-contracted price. A meeting held between representatives of the parties agreed that the sub-contract should reflect the re-design rather than the departmental drawings and that variations would be submitted based upon the re-design. Other arrangements were said to be arrived at which ameliorated the mistake made by the applicant in its tender for the sub-contract.

5 In the course of the work, however, the respondent is said to have varied or amended the construction drawings involving the applicant in substantial additional work but with the respondent refusing to recognise any variations and refusing to grant an extension of time for any of them. Tension grew between the parties until a stage was reached where the respondent required the applicant to perform strictly in accordance with the sub-contract. Further tensions arose when the respondent is alleged to have requested a suspension of part of the works but treated the applicant as being the requesting party under the provisions of the sub-contract. When the work was permitted to be performed it was found that the area had become badly contaminated for reasons outside the applicant's control and no provision had been made in the tender or sub-contract for the work to be performed in contaminated ground. After an exchange of correspondence the respondent withdrew this part of the work from the applicant and arranged for it to be carried out by another sub-contractor. 6 A further area of alleged unfairness is the claim made by the respondent for liquidated damages under the sub-contract in the sum of $367,000 for which the applicant submits it is entitled to extensions of time arising out of the variations, the direction to cease part of the work and the contamination incident. The respondent has also made "negative variations" based on the fact that the applicant performed less than the work contained in the sub-contract while the applicant says that this merely reflects the respondent's acknowledgement of the mistaken basis of the executed sub-contract tendered for in the circumstances outlined above.

7 For present purposes this description is sufficient to indicate the nature of the case brought under s 106 of the Act and against which the respondent presses its motion for a reference out of the three identified matters involved in the issue of liability. THE APPLICATION FOR A REFERENCE 8 In order to obtain a reference out to a referee the respondent points to the joint application of r 89 of the Industrial Relations Commission Rules and Pt 72 of the SC Rules.

Rule 89 comes within Pt 13 entitled "General Procedure" and, in particular, r 89(5), under the heading "Supplementary Practice before Commission", provides as follows: "Where: (a) There is no relevant provision; and (b) There is no established practice, procedure or usage; (c) There is no Rule, order, direction or Practice Direction in force, the practice, procedure or usage for the time being of the Supreme Court or, in the case of appeals, the practice, procedure or usage for the time being of the Court of Appeal or the Court of Criminal Appeal, as may be appropriate, is, as far as practicable, to regulate the practice, procedure or usage of the Tribunal " 9 It is common ground between the parties that under the Act there is no relevant statutory or other provision relating to reference out nor is there any established practice, procedure or usage or other rule or order covering the subject matter of the appointment of a referee. The respondent, therefore, relies upon the operation of Pt 72 of the SC Rules.

10 Part 72 of the S C Rules is entitled, "Reference by the court to referee" and in r 2(1) provides: The Court may, in any proceedings in the Court, subject to this rule, at any stage of the proceedings, on application by a party or of its own motion, make orders for reference to a referee appointed by the Court for enquiry and report by the referee on the whole of the proceedings or any question or questions arising in the proceedings.

11 Under Pt 72 r 5 where the court makes an order under r 2, it may, at any time and from time to time authorise the referee to enquire into and report upon any facts relevant to the enquiry and report on the matter referred, direct the referee to make a further or supplemental report or enquiry and report and give such instructions as the court thinks fit relating to the enquiry or report. Under r 8 the court may give directions with respect to the conduct of the proceedings under the reference and under r 11 the referee shall, unless the court otherwise orders, make a report to the court on the matter referred to the referee stating the referee's opinion on the matter and the reasons for the opinion.

12 An important provision is r 13 dealing with the powers of the court in relation to a referee's report. Rule 13 provides: "(1) Where a report is made, the Court may, of its own motion, after notice to the parties, or on application by any party, on a matter of fact or law or both -

(a) adopt, vary or reject the report in whole or in part; (b) require an explanation by way of report from the referee; (c) on any ground, remit for further consideration by the referee the whole or any part of the matter referred for a further report; (d) decide any matter on the evidence taken before the referee, with or without additional evidence, and shall give such judgment or make such orders as the Court thinks fit".

THE SUBMISSIONS 13 In its written submissions the respondent addressed the suitability of the issues for reference out using the provisions of O 72 SC Rules. It was submitted for the respondent that the technical and industry specific issues arising in the case would be assisted by the involvement of an expert providing a report as a referee. The respondent points out that the applicant attacks the contract as being unfair to the extent that it gives precedence to the departmental drawings over the consultant's design. The respondent states that this can only be determined after an appreciation is gained of the drawings - that requires an interpretation of the drawings. That issue also requires an appreciation of the sub-contract bearing in mind the respondent's contention that the consultant's design and the department's drawings are not necessarily inconsistent. The respondent describes these matters as being "…all typically technical and construction matters appropriately looked at by a person familiar with building plans, construction disputes and building contracts." The respondent says the same in relation to the construction contract and its associated drawings and submits: "A Judge of the Industrial Commission may have presumed industrial expertise, not necessarily expertise in building and engineering drawings and the like."

14 The respondent also submits that the applicant's attack on certain clauses in the construction contract involving liquidated damages as being unfair makes it appropriate for the Court to have the benefit of an opinion from an expert and experienced in dealing with such construction contracts and clauses because they are commonly used. It is suggested that this is the most appropriate way for the Court to be informed about the fairness or unfairness of such provisions.

15 The same considerations apply, according to the respondent's submissions, to the assessment of how and in what manner the contract ought to be varied should the requisite unfairness be established. The variation of the sub-contract in relation to liquidated damages and alternative dispute resolution clauses is said to be likely to have wide ranging repercussions for building and construction contracts in New South Wales generally and therefore the opinion of an expert in the operation of construction contracts in New South Wales could only benefit the Court in reaching its final determination. The submission is then made that the issue of "fairness" is not wholly a legal issue but is one which is a mixed question of fact and law. A reference out to an industry expert would have the benefit of findings of primary fact and an opinion from that industry expert as to whether relief ought to be granted pursuant to the wide powers given to the Court under s 106 of the Act.

16 In oral submissions counsel for the respondent identified seven issues which could be distilled from the pleadings which demonstrated the suitability of the issues for reference out in accordance with the procedure under Pt 72 of the SC Rules.

17 The first issue was said to be: what is the scope of the works of the sub-contract? In order to deal with the applicant's claims for "extras" there had to be a consideration of the construction drawings compared with the design drawings. If the construction drawings travelled beyond what was termed the "preliminary stage" there may be a claim for extras depending upon whether or not there is more or less work performed. These were said to be "complex issues" involving considerations of whether or not the preliminary designs show something that is usual. The question of the scope of work also involves consideration of the allegedly different scope tendered for by the applicant which, in part, leads to the claim of unfairness. This issue also involves consideration of the extent to which it is unfair to keep the applicant to the scope of works executed and if there is some unfairness in the sub-contract, to what extent the sub-contract ought to be varied to alleviate the unfairness.

18 The second issue is said to be the way in which the contract was performed "post construction drawings". The applicant claims that the construction drawings were varied from time to time. The respondent says that cl 40 of the contract deals with variations and provides standard conditions. The applicant seeks to have this clause deleted and replaced by a provision whereby it would be paid reasonable value for the variations. The respondent submits that the issues which arise are whether or not variations according to contract cl 40 have in fact occurred and whether it would be unfair to apply cl 40.

19 The third issue concerns what has been described as negative variations. Clause 40.1 of the main contract permitted a reduction or omission of any part of the works. The applicant claims that the South Head Road line part of the works was initially suspended by the respondent and then, when made available to the applicant, was in a contaminated state which was not within the contemplation of its tender. The respondent ultimately withdrew this work from the applicant and engaged another sub-contractor. The claim is that, in the circumstances, to permit a negative variation under the contract was unfair and the applicant seeks the deletion of the clause permitting negative variation and the substitution of another provision whereby the applicant can be properly compensated. The respondent says this issue involves an understanding of the South Head Road line works and the circumstances in which a direction was given that the work be given to another sub-contractor. It also involves consideration of how there was a suspension of work and the manner in which the issue of contamination arose and extensions of time and applications for variation made by the applicant.

20 The fourth issue is said to be similar to the third but involves what is described as "back charges". This issue involves rectification work undertaken from time to time because of poor workmanship (or for similar reasons) where the contract enables the head contractor to charge for the costs of the rectification against the sub-contractor. In the amended summons the applicant alleges that the respondent unfairly made back charges for the restoration of services not marked on the drawings and for other matters totalling over $62,000. The respondent says that this issue requires the consideration of the factual matters surrounding the back charges, the nature of the contractual terms permitting back charges and whether or not such charges are unfair and what variation to the contract should be inserted as a matter of fairness.

21 The fifth issue relates to liquidated damages. The essence of this issue is that the respondent has claimed liquidated damages in the sum of $367,000 from the applicant in circumstances where the applicant claims that it was not given access to the site for a period, that the respondent failed to follow the construction programme set out in the sub-contract and altered the programme of works, thus increasing the time for the completion of the works. The applicant says that if proper and reasonable extensions of time had been recognised or granted by the respondent then the works would have been completed within the contract period as extended. For the purposes of determining the actual liability for liquidated damages the respondent says the issues that arise are the factual context in which the work was extended and the nature of the variation sought and whether the clauses of the contract allowing for liquidated damages are in the circumstances fair or should be varied. These clauses are said by the respondent to be "general conditions", however, the applicant wishes to avoid the effect of the clauses by seeking to have them removed from the contract. The applicant supports its position on the basis that the respondent had been granted extensions of time by the principal and had not been required to pay any or any significant liquidated damages for delays in completion and therefore, as a matter of fairness, neither should the applicant have to pay liquidated damages in relation to these matters. The respondent says another matter that arises in relation to this issue is whether it is fair, as they would submit, that the sub-contractor's liquidated damages rise or fall independently of what may occur between the head contractor and principal. 22 The sixth issue concerns "day work" which is covered by cl 41 of the sub-contract. Broadly, this clause allows certain types of variations or the direction of quantities greater than allowed in earlier clause, to be carried out as day work, which is then charged by the sub-contractor on something close to a cost basis plus overheads and profits in an amount nominated in the sub-contract: here that amount is 10 per cent. The applicant claims that this amount should be 22.5 per cent, the amount allowed to the respondent in the head contract. The respondent says that for the purposes of the hearing on liability, besides the factual background, there may be evidence as to the applicant's understanding as to how the day work part of the contract would operate quite apart from the terms of the sub-contract. The issue then would be whether the clause in the sub-contract was unfair and, if so, should it be varied and in what way?

23 The seventh issue concerns the dispute resolution clause. The applicant claims that the clause is unfair and seeks to have it deleted. The respondent says the issue that arises for consideration may involve the comparative bargaining strength of the parties in the context of what is an industry wide provision.

24 The respondent identifies a possible eighth issue which it describes as a type of quantum meruit claim, namely that the applicant has been paid too little for the work performed under the sub-contract. The respondent says this requires an analysis of the work that has been done, its value in the workplace and whether it would be unfair to hold the applicant to its construction contract in the light of what it has actually expended. For its part the applicant accepted that, while the fact of a loss on the job may be demonstrated, that loss was "… not the point of this particular application".

25 The applicant opposes the reference out of the entire issue of liability including the question of whether or not the arrangements are unfair within the meaning of s 106 of the Act. Put briefly, the applicant's position is that a reference out of the entire question of liability including the issues of whether or not there is unfairness within the meaning of s 106 of the Act, is an impermissible delegation of the Court's jurisdiction and powers. On the approach of the applicant the matter is simple: the applicant has contracted to build design A when in fact the invitation to tender and the tender were in relation to a cheaper design B. This essential issue is not technical in nature and should not occupy a significant amount of court time although it is accepted that consideration of the contract and the hearing of evidence related to the matters in issue may require up to two weeks' of hearing time. The applicant does see, however, merit in the issue of quantification being either referred to a referee or otherwise by co-operative action of the parties submitted to an expert to deal with the tedious quantification flowing from the variations made (if any) as a result of the decision on the issue of liability. This suggestion does not necessarily rely on a formal reference out but suggests a process to alleviate the consequential task arising from variations made to the contract which are required to be made in order to quantify the money order to be made.

26 In summary, the applicant says that this is a case where the way in which the sub-contract came into existence and the way in which it was performed results in substantial unfairness. As such it is not like an ordinary building case although there might be issues that would arise in the ordinary building case such as how much extra rock had to be excavated because lines were moved into the hill under the construction arrangement.

27 The applicant also opposes the reference out of the entire question of liability because of the danger that the Court could be reduced to a mere rubber stamp of the report unless some substantial error was demonstrated during the process of consideration arising from the motion for adoption of the referee's report under Pt 72. Another concern was that, because of the peculiar role of the Commission with its unique powers conferred by s 106 of the Act, there was a substantial risk of a full re-hearing or part re-hearing resulting from dissatisfaction with the referee's report. As the applicant saw it, a referee would be required to be skilled in the building work under consideration and skilled in the application of legal principle but more importantly well acquainted with the exercise of the jurisdiction under s 106 of the Act. There really was no person who combined all these skills and thus the saving in both time and cost was likely to be illusory. The applicant also says that the nature of the jurisdiction exercised under s 106 of the Act is such that the Court needs to hear the evidence for itself, make judgments about the witnesses who give the evidence and make judgments about the relative fairness of the arrangements between the parties. These essential features of the exercise of the jurisdiction are removed when a referee is appointed and the Court merely receives the distillation of the issues as seen by somebody else who says those issues might or might not be dealt with under s 106 of the Act.

28 Further, the applicant submits that, on a consideration of the issues relied upon by the respondent in support of a reference out, it is demonstrated that many of the major issues are issues of fact. There would be a very "small, marginal, secondary role" for technical and expert evidence on the liability aspect of the case. As presently advised, the applicant proposes to call only one expert witness in relation to the contamination issue although there would be experienced engineers who would give evidence about the circumstances in which the sub-contract was tendered for. Such witnesses would be central players in the discussions and as such would not be called or regarded as independent expert witnesses.

29 The parties each filed affidavits giving various estimates of the hearing time involved in dealing with issues going to liability under s 106 of the Act. The respondent's affidavit emphasised an estimated saving in Court time by having these issues referred out. The applicant's affidavits contested the accuracy of those assessments.

30 It appears from the nature of the affidavit evidence and the submissions, both oral and written, that both sides accept the likelihood that expert evidence will be called in relation to the matters in dispute. The nature of the affidavit material filed by the parties comes down to conflicting opinions expressed by experienced practitioners. In my view there is no basis for preferring the respondent's evidence over that of the applicant but it appears to be common ground that something in the order of two or more weeks would be required for the hearing. The respondent's preference is that there be a January hearing of the reference because that is a notoriously quiet time in the industry and it is likely that people will be more available. There were suggestions that some of the nominated referees would not be available until later next year and I was able to confirm that if a hearing in the order of two or more weeks was required then such a hearing in the Court could not be accommodated before approximately April or May of 2002. The various estimates of hearing time and the availability of referees as opposed to the availability of the Court do not persuade me that a reference out would necessarily be more cost effective or would lead to the matters in dispute being dealt with in a more timely manner.

DISPUTING THE REPORT UNDER PT 72 OF THE SUPREME COURT RULES

31 The freedom of the Court to depart from the referee's report under a Pt 72 reference became an important issue in the submissions of the parties. That issue has been considered by the Court of Appeal in Super Pty Ltd v SJP Formwork (Aust) Pty Ltd [(1992) 29 NSWLR 549]. In the judgment of Gleeson CJ his Honour laid down the applicable principles in the following way: I am unable to accept, either as an absolute rule, or as a prima facie rule subject to defined or definable exceptions, that a party who is dissatisfied with a referee's report is entitled as of right to require the judge acting under Pt 72, r 13, to reconsider and determine afresh all issues, whether of fact or law, which that party desires to contest before the judge.

My reasons are as follows: 1. Such a conclusion finds no support in the language of Pt 72 and is inconsistent with the discretionary powers conferred by Pt 72, r 13. 2. The history of the rule tends against such an approach. The present rules replaced provisions dealing with decisions of arbitrators and referees to whom matters were referred by order of the court. Those decisions were given the effect of a verdict of a jury. The provisions were interpreted by the High Court as meaning that such decisions could be reviewed for error of law, perversity or manifest unreasonableness. There was no general right of review on appeal by way of re-hearing. The modern rules are expressed in language which provides wider discretionary flexibility, but it would be a radical departure from the history of the rules to treat them as giving a dissatisfied party an automatic right to a hearing de novo. … 4. It would be inconsistent with the object and purposes of the rules, and potentially productive of delay, expense, and hardship, that the practical effect of appointing a referee should be simply to add an extra level to the hierarchy of decision-makers in a given case. 5. That consequence would also be inconsistent with the modern trend towards encouragement of alternative dispute resolution, as reflected, for example in the provisions of the Commercial Arbitration Act 1984; see the discussion by Sheller JA of developments in relation to minimising judicial intervention in commercial arbitration in Promerade Investments Pty Ltd v State of New South Wales (1992) 26 NSWLR 203. What is involved in an application under Pt 72, r 13 is not an appeal, whether by way of a hearing de novo or a more limited re-hearing. This is consistent with the right of the referee to conduct the reference as the referee thinks fit and unconstrained by the rules of evidence. Rather, the judge, in reviewing the report and deciding whether to adopt, vary or reject it, has a judicial discretion to exercise in a manner that is consistent both with the object and purpose of the rules and with the wider setting in which they take their place. That wider setting is a system for the administration of justice according to law. In so far as the subject matter of dissatisfaction with a referee's report is a question of law, or the application of legal standards to established facts, then a proper exercise of discretion would require a judge to consider and determine that matter afresh. That was decided by this Court in Homebush Abattoir Corporation v Bermria Pty Ltd (1991) 22 NSWLR 605; see also, Cape v Maidment (1991) 98 ACTR 1 at 4. That conclusion is entirely consistent with the history of the rules and the reasoning of the High Court in Buckley which, although the case related to different provisions is also instructive as to the present provisions. Subject to what has just been said, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised: cf Nicholls v Stamer [1980] VR 479 at 495 per Brooking J. The nature of the complaints made about the report, the type of litigation involved, and the length and complexity of the proceedings before the referee, may all be relevant considerations. The purpose of Pt 72 is to provide, where the interests of justice so dictate, a form of partial resolution of dispute s alternative to orthodox litigation, and it would frustrate that purpose to allow the reference to be treated as some kind of warm-up for the real contest. On the other hand, if the referee's report reveals some error of principle, some absence or excess of jurisdiction, or some patent misapprehension of the evidence, that would ordinarily be a reason for rejecting it: cf Jordan v McKenzie (1987) 26 CPC (2d) 193. So also would perversity or manifest unreasonableness in fact-finding [at 562 - 564].

The Chief Justice also accepted the approach of Giles J expressed in his Honour's unreported judgment of 19 May 1992 in SJP Formwork (Aust) Pty Ltd v LEDA Constructions Pty Ltd: For my own part, in the circumstances of this case I do not think that the referee's findings of fact should be generally re-agitated in the Court. As a broad proposition, depending upon the circumstances of each case, the Court will not reconsider the disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusion he did, particularly where disputed questions are in a technical area where the referee enjoys an appropriate expertise. In taking this approach Giles J was influenced by statements of two other members of the court ( Rolfe J and Cole J) that the purpose of referees reporting to the court on disputed questions of fact would be rendered futile if the court was to reconsider the disputed questions of fact in circumstances where it was conceded that there is factual material sufficient to enable the referee to reach the findings they did.

32 Both parties relied on the recent judgment of Hunter J in Walter Constructions v Walker Corporation ([2001] NSWSC 283 - 20 April 2001). In that case his Honour was faced with an objection to the adoption of the report of a referee where the report was described as a closely reasoned, referenced, detailed analysis of a mass of evidentiary material and comprising two volumes running into 694 pages. His Honour noted that the referee was appointed for his legal expertise and considerable experience in litigation of the kind there under consideration. His Honour accepted that primarily the principles applicable were those set out in the judgment of Gleeson CJ in Super Pty Ltd v SJP Formwork but noted that the difficulty lay in the application of the principles. At par 16, reference was made to the separate judgment of Mahoney JA in Super Pty Ltd , dealing with the nature of the court's discretion in relation to the disputed findings of the referee: What is required by the obligation to allow a party, for example, to be heard in support of or in opposition to a proposed course under Pt 72 must be determined according to the nature of the issue and the circumstances of the case. In determining what is so required, the court is, in my opinion, entitled to take into account the extent to which the parties' case has been presented to and dealt with by the referee. The extent to which, for example, matters dealt with in detail before the referee should be permitted to be dealt with at length before the judge is to be determined by the exercise of a discretionary judgment by the judge. The right to be heard does not involve the right to be heard twice. I am conscious that, in order that the judge may exercise a discretionary judgment of this kind, it may be necessary that the parties have the opportunity to refer to the relevant issues of fact and law and the evidence relevant to them. But the extent to which it is necessary for this to be done depends upon the circumstances of the case and the judgment of the judge. The judge has, I think, a broad discretion and may determine what is necessary to enable him to conclude that he has a sufficient understanding of the matters in question and when the argument has been sufficiently presented.

33 In Walter Construction the arbitrator was confronted by a case of considerable complexity. The transcript occupied some 4,077 pages: in addition, there were 153 witness statements admitted into evidence and some 47 witnesses were called. An affidavit in the proceedings attested to the fact that complex technical issues necessitated numerous and substantial expert reports. Many technical issues were addressed by conclaves and convocations of experts and party representatives. These were held throughout the period of the reference and a large number of the issues were resolved or narrowed by these processes.

34 These cases confirm the approach that, where referees are technical experts inquiring into technical issues, a trial judge will be more relaxed about adopting the report and rejecting applications to re-hear evidence. It may be more difficult to comfortably adopt the report where matters of legal construction and interpretation are involved - unsuccessful parties are more likely to challenge the adoption of the report on grounds of error of fact or error of law.

35 The possibility of an extensive (or any) re-hearing is increased where the reference is required not only to deal with technical matters but is also required to measure the findings against the malleable standard of unfairness. The proposed reference in this case travels well beyond a consideration of certain technical matters arising from the drawings and the terms of the sub-contract.

AN ADDITIONAL ISSUE - DOES PT 72 OF THE SUPREME COURT RULES APPLY?

36 During argument on the notice of motion I raised with both counsel whether Pt 72 of the SC Rules was brought into operation by r 89 of the Industrial Relations Rules: in essence the issue is whether a reference out is a matter of practice and procedure or is a matter of jurisdiction. The distinction was analysed by the High Court in Gosper and Ors v Sawyer & Ors [1984 - 1985] 160 CLR 548. That case involved an application under s 88F of the Industrial Arbitration Act 1940 where orders were sought to avoid or vary provisions of a superannuation fund where the fund was administered by trustees all of whom were ordinarily resident in Victoria. The registrar had ordered that process be served on the trustees in Melbourne. In the service of process outside the State the applicant relied upon the provisions of reg 157 of the Industrial Arbitration (General) Regulations which provided that in the absence of an established practice or rule then the practice for the time being in the Supreme Court in its Equitable jurisdiction would regulate the practice of the Commission. The applicant therefore relied on the provisions of Pt 10 of the SC Rules permitting the service of originating process outside the State in certain circumstances. The High Court held that reg 157 conferred power only to regulate proceedings that were within the jurisdiction of the Commission and did not confer power to enlarge jurisdiction by permitting service outside the jurisdiction. The Court further held that the terms "practice" and "practice and usage" in reg 157 were inadequate and inappropriate to encompass the provisions of civil procedural law that conferred or defined the actual jurisdiction of the relevant court or tribunal. Power to order service outside territorial jurisdiction was a component and a measure of jurisdiction. The question therefore raised is whether a reference out is a matter of practice and procedure or whether it is a matter of jurisdiction.

37 The parties had not come prepared to deal with this issue but during the course of the argument took the opportunity to consider the terms of the judgment of the High Court in Gosper. The respondent maintained its stance that a reference out under Pt 72 of the SC Rules was a matter of practice and procedure and simply dealt with the manner in which an issue or all the issues might be tried. The applicant maintained its approach that the reference out of the entire issue of liability and whether or not there was unfairness under s 106 of the Act was an impermissible delegation, and thus was not open to the Court. On the more general question the applicant was inclined to the view that a reference out was probably not a matter of practice and procedure and therefore r 89 could not operate to bring into play Pt 72 of the SC Rules. This last mentioned view was somewhat tentatively expressed by the applicant having regard to its inability in the available time to give full consideration to the issues. The applicant did point to the provisions of r 187 and r 188 as laying down the procedure for obtaining expert reports and receiving them into evidence. These provisions suggested that there was a rule which covered such reports and thus r 89(5) did not apply. The applicant also relied upon the judgment of the Full Court of the Commission in Court Session in Metrocall Inc v Electronic Tracking Systems Pty Ltd [2000] NSWIRComm 136 (31 August 2000) as authority for the proposition that the specialist nature of the jurisdiction and powers of the Court in s 106 proceedings and the nature of the considerations required to be taken into account, would remove a claim from the scope of power which may be exercised by an arbitrator: a submission to arbitration could not confer on the arbitrator authority to exercise the powers of specialist tribunals, including courts of limited or specialised jurisdiction, which do not have general jurisdiction over all controversies and claims as to an agreement or the breach thereof. The respondent denied that Metrocall was relevant to the present circumstances. It may well be that the applicant approached the motion on the basis that the respondent was seeking an arbitration in accordance with the terms of the sub-contract, however, the respondent made it clear that its application was for a reference to a referee under Pt 72. Such an approach may avoid the decision in Metrocall , but ultimately I must determine the application on the basis put forward by the respondent.

38 The historical origin of arbitrations and references was considered by the High Court in Buckley v Bennell Design and Constructions Pty Ltd [1977 - 1978] 140 CLR 1, especially in the separate judgments of Stephen J and Jacobs J.

In that case there had been a reference under an order of the Supreme Court in accordance with the provisions of s 15 of the Arbitration Act 1902. Section 15 permitted the Court either by consent or without consent to order the proceedings or any question or issue of fact arising in the proceedings to be tried before an arbitrator agreed on by the parties or before a referee appointed by the court for the purpose. Stephen J noted that, in the laws of arbitration, such a reference was described as a species of trial where the decision was the equivalent to a form of judgment or verdict rather than an award. In his Honour's view the Court could use the provisions of s 15 for the better resolution of the particular proceedings by resort to "this special mode of trial which the legislation has made available" (at 15). His Honour then analysed the origins and development of this mode of trial, noting that the Court of Chancery in England had long been accustomed to refer disputed issues of fact for report by a Master or Chief Clerk or for trial at common law before judge and jury or to be awarded upon by experts especially selected for the purpose. The Common Law Procedure Act 1854 permitted the courts of common law, in matters of account, to refer questions to arbitrators or court officers. Some of these provisions were also taken up by New South Wales legislation but not always in the same terms. The first provision for references under orders of court was introduced in New South Wales in 1892 in the Arbitration Act but, as Stephen J noted, the statutory provisions had nothing in common with conventional arbitrations despite the occasional use of the terms "arbitrator" and "award" in legislation. Contemporary texts on the subject were referred to including Halsbury's Laws of England Volume 1 (1907) where it was observed that references pursuant to an order of the court under an arbitration act were entirely different from arbitrations held pursuant to a submission out of court. Analysis of some of the English cases demonstrated the reference to arbitration in some of the cases was not to a reference pursuant to any statutory power conferred by either the Arbitration Act or by the Judicature Act 1873, but rather was a reference to arbitration after the institution of proceedings by consent of the parties. Of this process Stephen J said: The long-established inherent jurisdiction of courts to make such orders, which result in true arbitrations and conclusive awards to which the statutory provisions for reference under orders of the court have no application, is described in some detail in the judgment of my brother Jacobs (at 20.)

These references were much wider than references under the provisions of arbitration acts because they relied on the consent of the parties: the reference could be of matters going well beyond the matters raised in the proceedings before the Court .

39 In a separate judgment Jacobs J referred to the early decision of Sydney and Suburban Hydraulic Power Co v Mercantile Mutual Insurance Co (1896) 70 NSWLR 323. In that case Darley CJ said: Before the present Arbitration Act it was often felt that the Court ought to have the power of sending cases to arbitration and consequently s.12 was enacted, which enabled the Court, in certain cases, to refer the matter to arbitration. (at 328)

Speaking of the distinction between the procedures Jacobs J stated:

As well as the procedure whereby a submission to arbitration could be made a rule of Court, there was the procedure in all the courts of common law and in Chancery whereby the parties to an action or suit could consent to the questions arising in the action or suit being determined by an arbitrator of their choice. Upon so agreeing, the court would make appropriate orders for arbitration in terms of the party's own agreement or submission. In the case of actions at law a common procedure appears to have been one under which a jury found a pro forma verdict and an order for arbitration of the amount payable was made by consent. The amount of the award could thereafter be entered as the amount payable under the verdict of the jury and judgment could be obtained accordingly. However, an action could be referred at an earlier stage by order of the court and if the terms of the submission were wide enough the arbitrator could by his award direct what verdict and what judgment should be entered in the action. The procedures in equity were analogous. The great difference between a submission under a rule of court independently of any action and a submission of a cause or questions at issue in a cause was that in the first case proceedings for enforcement were by attachment whilst in the second case the award of the arbitrator could be become a judgment of the court and could be enforced as such. This could be either by the award taking the place of the pro forma verdict, or, if no verdict was taken subject to the reference, where the submission was in terms wide enough to empower the arbitrator to direct what verdict or judgment should be entered (at 28 - 29).

40 These judgments in Buckley have now to be considered in the context of s 124 of the Supreme Court Act which, inter alia, empowers rules to be made in relation to a reference out. 41 The Court of Appeal was called upon to consider the validity of Pt 72 of the SC Rules in Qantas Airways Ltd v Dillingham Corporation (125 of 1988 - unreported 25 August 1988) In dealing with the history of s 124 of the Supreme Court Act 1970, Clarke JA referred to the fact that s 124(2) was introduced by the Supreme Court (Commercial Arbitration) Act 1984. Prior to the introduction of the sub-section the Supreme Court Act did not contain any provision enabling the court or a judge to refer all or some of the issues which arose in proceedings in the court to arbitration. The court's only power to refer issues arising in proceedings in the courts was to be found in s.15 of the Arbitration Act 1902. That power ceased on the repeal of the Arbitration Act 1902 by the Commercial Arbitration Act 1984. His Honour went on to note: Consequent upon the repeal of the Arbitration Act 1902 the only possible power in the court to refer issues to arbitration is to be found in the rules passed pursuant to section 124(2). If that section does not empower the rule making body to pass rules enabling referral then there is simply no power of the court to refer issues to arbitration. That would, in my opinion, be an extraordinary situation given that the Commercial Arbitration Act was introduced as part of an Australia wide scheme to provide uniform legislation dealing with commercial arbitration. Nevertheless section 124(2) is in terms which encourages the view that it is concerned solely with procedure. That is, that it empowers the rule making authority to pass rules specifying the procedures to be followed in those cases which are referred to arbitration pursuant to powers granted in other legislation.

The absence of any other legislation authorising the court to refer cases to arbitration completely undermines that interpretation. Accordingly, the alternative construction to the effect that the section authorises the making of rules designating in which cases the court may exercise the power of referral is to be preferred. His Honour ultimately construed s 124(2) as enabling the rule making authority to make rules designating those cases which could be referred to arbitration as well as providing for the appropriate procedure. This decision also supports the view that the origin of the power in Pt 72 is based on the statutory provision of s 124(2). In the absence of some similar statutory provision in the Industrial Relations Act there is no room for the application of the provisions of Pt 72 of the SC Rules as a matter of practice and procedure pursuant to r 89.

42 In Astor Properties Pty Ltd v L'union des Assurance De Paris (1989) 17 NSWLR 483, Cole J dealt with the history preceding the introduction of Pt 72 of the SC Rules (at 486 C, et seq). His Honour observed that after the Common Law Procedure Act 1854 (UK), there were two concepts: a reference to a referee for a report back to the court on a question arising in a cause; the court then considered whether it would, in whole or in part, adopt the report; the power to refer was conferred irrespective of the consent of the parties; alternatively, with the consent of the parties on a question of issue of fact could be tried, and unless set aside, the referee's report constituted the verdict. His Honour then tracks the history through the Supreme Court of Judicature Act 1873 (UK) and the Supreme Court of Judicature Act 1884 (UK), the Arbitration Act 1889 (UK) and how the English provisions became, in various ways, adopted in New South Wales in the Arbitration Act 1902. Again, the powers of arbitration and reference appear to be derived from wholly statutory provisions.

43 The fundamental differences between a reference under Pt 72 SC Rules and arbitration was also dealt with by Clarke JA in Najjar v Haines (1991) 25 NSWLR 224 where his Honour summarised the significant differences as being: (1) The parties agree to arbitrate and they appoint the arbitrator - or at least they set machinery in place for the appointment. There are no court proceedings except where the assistance of the Court is sought in the appointment of the arbitrator. On the other hand a referee is appointed by the Court to inquire into issues which arise in existing court proceedings. There is no occasion to appoint a referee unless proceedings have been instituted in the Court and a judge may appoint a referee whether the parties consent or not. (2) The referee is subject to the supervision of the Court and may, for his or her part, approach the Court for guidance. The arbitrator is in a quite different position and nothing in the Commercial Arbitration Act 1984 could be regarded as assimilating the two, cf s 47 Commercial Arbitration Act 1984 . (3) An arbitrator makes an award, which is, subject to the Commercial Arbitration Act 1984, final and binding and may, with leave of the Court, be enforced as a Court judgment. An appeal from an arbitrator's award may be brought by consent or with the leave of the Court and only on a question of law: s 38 of the Commercial Arbitration Act 1984. The report is neither final or binding although upon adoption it may be the basis of a court judgment. (at 246)

44 There is, of course, difficulty in resorting to inherent powers in relation to a statutory court such as the Industrial Relations Commission in Court Session. It may well be that a consent submission to arbitration may be able to be dealt with by the Court by giving effect to the result of the arbitration in an order of the Court. This aspect need not be decided in this case because there is no consent but a contested application for a reference out under Pt 72 of the SC Rules. However, the difficulties identified in Metrocall would need to be addressed.

45 It appears to be clear that a Pt 72 reference out is a process which is derived from and owes its authority to the specific jurisdiction conferred by s 124(2) of the Supreme Court Act. Thus, in my view, it is unlikely that Pt 72 encompasses a practice or procedure as those terms are used in r 89 of the Industrial Relations Rules. Because I have been able to determine this application for reference out on its merit, assuming that there is jurisdiction to refer out, it is not necessary to make a final determination on the question of whether or not a reference out is a matter of practice and procedure for the purposes of r 89.

DELIBERATION 46 In Park Rail Development Pty Ltd v R J Pearce Associates Pty Ltd (1987)8 NSWLR 123, Smart J set out the matters to be considered where an application for reference is opposed, stating:

The matters which will generally require consideration include: (a) the suitability of the issues for determination by a referee and the availability of a suitable referee; ( b) the delay before the court can hear and determine the matter and how quickly a suitable referee can do so; (c) the prejudice the parties will suffer by any delay; (d) whether the reference will occasion additional costs of significance or is likely to save costs; (e) the terms of any reference including the issues and whether they should be referred for determination or inquiry or report (at 129 - 130).

I accept that these matters are of relevance in considering the present application for reference.

47 The nature of the matters which were suitable for reference under Pt 72 was also considered by Clarke JA in Najjar v Haines (1991) 25 NSWLR 224: The power is an important one for many reasons. For example it facilitates the determination of complex scientific issues by persons with appropriate scientific knowledge who should, therefore, be able to provide answers to the problems thrown up more conveniently than judges. In addition, in times when there are enormous demands upon the Courts in the State, it provides a means whereby delay problems may be alleviated. (at 245) 48 Earlier in this judgment I have set out in some detail the respondent's description of the seven or eight issues which will be required to be addressed in order to determine the question of liability under s 106 of the Act. Those issues, their nature and the description given of them by the respondent do not persuade me that this is a case where saving of costs to the parties, the saving of the time of the Court and the ability to obtain some early determination of the issues would be achieved.

49 Of the seven or eight issues only two appear to me to raise technical matters where the assistance of an expert would be beneficial. Those matters are, firstly, details of the construction drawings compared with the design drawings, and, secondly, the variations claimed by the applicant to have occurred during the course of construction. The remaining matters may involve some technical issues, however, their nature as described by the respondent does not elevate them to that level of complexity which would benefit from a reference to an expert. All of the issues may well be the subject of expert evidence (some more than others perhaps) but that fact alone does not persuade me that a reference as sought by the respondent should be made by the Court.

50 In the exercise of the jurisdiction under s 106 of the Act the Court has become familiar with the operations of a wide variety of industries including their peculiarities and complexities. The Court is frequently called upon to deal with expert evidence in a wide variety of fields. Rules 187 and 188 provide a mechanism for dealing with expert evidence.

51 Should there be a reference confined to the technical issues with or without consideration of the application of s 106, it appears that the reference would not take place until early next year. The Court is available within the same broad time frame to hear the entirety of the liability issues.

52 There is also the problem created by the distinct possibility that a reference of all the issues under s 106, including findings of fairness and consequential variation, would be challenged in the Court on the motion for adoption of the referee's report. Such a development would simply add another tier of hearings with the associated cost and delay. 53 It is to be noted that, in the judgment of Gleeson CJ in Super Pty Ltd, his Honour said that the purpose of Pt 72 was to provide, where the interests of justice so dictate, a resolution of disputes alternative to orthodox litigation. Section 109 of the Act at least partially addresses that issue and provides an opportunity for the parties to narrow the issues to be contested at trial if it is otherwise unsuccessfully conciliated.

54 The nature of the jurisdiction and powers under s 106 of the Act are of themselves considerations when a request is made to appoint a referee to not only deal with contested issues of fact and potentially complex issues of a technical nature, but also to make rulings as to whether the arrangements or the conduct of parties was unfair and to determine what variations should be made to the contract in order to address that unfairness. This Court and its predecessors over a number of years has built a considerable body of case law and established a well defined jurisprudence in relation to unfair contracts. As was pointed out in Metrocall the novelty of s 106 is not restricted to the powers which may be exercised by the Court: it is the nature of the considerations which must be taken into account rather than merely the extent of the Court's powers. It will often be unusual to be able to nominate a referee who has technical expertise relevant to a complex matter and who also has some recognised expertise in the application of s 106 of the Act. No such persons has been identified or nominated by the respondent in this case.

55 Assuming that there is jurisdiction to make the reference, I am not persuaded that a case has been made for the reference of the liability issues under Pt 72 SC Rules as sought by the respondent. I am unable to discern any feature relating to the issues so far exposed, and what is said about the evidence to be called in relation to them, that makes this an appropriate case for a reference out pursuant to Pt 72 of the SC Rules.

The respondent's motion that the whole of the question of liability under s 106 of the Act be referred to a referee pursuant to Pt 72 SC Rules is dismissed.

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