Morrison v Moss

RELEVANT PRINCIPLES

1. The Court's task under r 20.24 is, of course, to exercise its discretion judicially. It must be exercised having regard to the object and purpose of the rules giving rise to the referral procedure: Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 per Gleeson CJ at [563].
2. In Chocolate Factory Apartments Pty Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784, McDougall J set out a list of principles, distilled from his Honour's consideration of case-law, which has received a significant measure of endorsement at intermediate appellate level [2] and which I respectfully adopt in this case. Those principles (with reference to the predecessor to r 20.24) are: (1) An application under Pt 72 r 13 is not an appeal either by way of hearing de novo or by way of rehearing. (2) The discretion to adopt, vary or reject the report is to be exercised in a manner consistent with both the object and purpose of the rules and the wider setting in which they take their place. Subject to this, and to what is said in the next two sub-paragraphs, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised. (3) The purpose of Pt 72 is to provide, where the interests of justice so require, a form of partial resolution of disputes alternative to orthodox litigation, that purpose would be frustrated if the reference were to be treated as some kind of warm up for the real contest. (4) In so far as the subject matter of dissatisfaction with a report is a question of law, or the application of legal standards to established facts, a proper exercise of discretion requires the judge to consider and determine that matter afresh. (5) Where a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the Court would have a disposition towards acceptance of the report, for to do otherwise would be to negate both the purpose and the facility of referring complex technical issues to independent experts for enquiry and report. (6) If the referee's report reveals some error of principle, absence or excessive jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding, that would ordinarily be a reason for rejection. In this context, patent misapprehension of the evidence refers to a lack of understanding of the evidence as distinct from the according to particular aspects of it different weight; and perversity or manifest unreasonableness mean a conclusion that no reasonable tribunal of fact could have reached. The test denoted by these phrases is more stringent than "unsafe and unsatisfactory". (7) Generally, the referee's findings of fact should not be re-agitated in the Court. The Court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he or she did, particularly where the disputed questions are in a technical area in which the referee enjoys an appropriate expertise. Thus, the Court will not ordinarily interfere with findings of fact by a referee where the referee has based his or her findings upon a choice between conflicting evidence. (8) The purpose of Pt 72 would be frustrated if the Court were required to reconsider disputed questions of fact in circumstances where it is conceded that there was material on which the conclusions could be based. (9) The Court is entitled to consider the futility and cost of re-litigating an issue determined by the referee where the parties have had ample opportunity to place before the referee such evidence and submissions as they desire. (10) Even if it were shown that the Court might have reached a different conclusion in some respect from that of the referee, it would not be (in the absence of any of the matters referred to in sub-paragraph (6) above) a proper exercise of the discretion conferred by Pt 72 r 13 to allow matters agitated before the referee to be re-explored so as to lead to qualification or rejection of the report. (11) Referees should give reasons for their opinion so as to enable the parties, the Court and the disinterested observer to know that the conclusion is not arbitrary, or influenced by improper considerations; but that it is the result of a process of logic and the application of a considered mind to the factual circumstances proved. The reasoning process must be sufficiently disclosed so that the Court can be satisfied that the conclusions are based upon such an intellectual exercise. (12) The right to be heard does not involve the right to be heard twice. (13) A question as to whether there was evidence on which the referee, without manifest unreasonableness, could have come to the decision to which he or she did come is not raised "by a mere suggestion of factual error such that, if it were made by a trial judge, an appeal judge would correct it". The real question is far more limited: "to the situation where it is seriously and reasonably contended that the referee has reached a decision which no reasonable tribunal of fact could have reached; that is, a decision that any reasonable referee would have known was against the evidence and weight of evidence". (14) Where, although the referee's reasons on their face appear adequate, the party challenging the report contends that they are not adequate because there was very significant evidence against the referee's findings with which the referee did not at all deal, examination of the evidence may be undertaken to show that the reasons were in fact inadequate because they omitted any reference to significant evidence. (15) Where the court decides that the reasons are flawed, either on their face or because they have been shown not to deal with important matters, the court has a choice. It may decline to adopt the report. Or it may itself look at the detail of the evidence to decide whether or not the expense of further proceedings before the referee (which would be the consequence of non-adoption) is justified.
3. I note that these observations are not rules - as McDougall J himself later indicated (in BestCare Foods v Origin Energy [2012] NSWSC 574 at [18]) they were simply relevant helpful guidelines. In Bellevarde, the Court of Appeal noted (at [47]) that adoption has to be considered in light of the nature of the issues and circumstances of the case.
4. I would also observe the emphasis that was given by the Court of Appeal in Bellevarde (at [55]-[56]) to the case management imperative in the referral procedure that "parties express their cases clearly and without equivocation, ambiguity or opacity. If a party complains about how a referee has dealt with the issues on the reference, it may be difficult to persuade a judge that a referee has not dealt with an issue, or not dealt with it adequately, if that issue had not been placed before the referee with the requisite clarity".

The referee's qualifications

1. These were placed before the Court prior to Mr Madden's appointment but were set out again at length in Annexure 'A' to the Madden Report. The curriculum vitae set out a long list of project works, including notably, residential dwellings, as a quantity surveyor.

The referee's methodology

1. The referee took the list of defective works (set out at [463(i)] of the Earlier Reasons) and provided his own estimate of rectification costs. This was based upon unit and wage rates from the 2020 (38th edition) of Rawlinsons Australian Construction Handbook where that source was applicable and otherwise, through his own experience on projects referred to in his curriculum vitae. He also utilised quantities through the provided construction drawings using a form ('Cost X') of measuring software deployed by quantity surveyors. He also used photos taken in the reports.
2. The referee took into account the reports that had been prepared by the building consultants and quantity surveyors for the parties up to the trial (which are itemised at Section 3.0 of the Madden Report).

The referee's conclusions

1. The Madden Report was divided into 3 main headings: 1. Trade Costs (Section 6.0); 2. On Costs (Section 7.0); and 3. Total Defects Costs (Section 8.0).

Trade Costs

1. As to the trade costs, in Annexure C to the Madden Report, the referee provided a detailed Trade Cost Breakdown for the relevant items. This was the total costs incurred in rectifying the defects by individual sub-contractors and suppliers engaged by the contractor. Here the referee included within the hourly rates, allowances for protection of existing finishes and relocation of furniture where that was necessary.
2. It is unnecessary to summarise, much less reproduce the content of that breakdown for all of the items. It suffices to say that in respect to each defective item of work, the referee patently purported to deploy the aforesaid methodology.
3. By far the most significant item under this section was item 8.05A. The rectification costs for that item accounted for approximately 72% of the total trade costs, which the referee found was in the sum of $178,421.39. The costs of each other item of defective work were relatively modest.

'On Costs'

1. The referee defined these as the additional costs incurred on top of the trade costs. There were several components to these costs. First, there was design and professional fees that would necessarily be incurred in the necessary progression from preparing documentation, to scoping the works, to completing each of the works for each type of service provider (engineer, architect and quantity surveyor), all co-ordinated by a project manager. This component was assessed at $13,500. As will be indicated, the Builders partially object to this item.
2. A second component was the margin for the contractor to cover the costs of offsite overheads, profit and risk. The referee chose a level of 15% in this regard, which he considered as applicable to all trade costs and preliminaries. That number aligned with the percentage suggested in one of the Master Builders Association Design and Construct contracts.
3. A third component was for contractor's 'preliminaries'. A contractor was needed to co-ordinate the works and would typically charge a percentage of the total net trade costs. It is usually calculated by reference to the percentage provided in the builder's tender. The referee chose a percentage of 15% for this component. That yielded an allowance for this component of $26,763 (excl. GST). The Builders partly challenged this component.
4. The fourth component was contingency for contract risks, such as the prospect of unforeseen items discovered upon opening the works; a lack of full identification of the scope of works and latent conditions. The referee chose a percentage for contingency of 10%, being the midpoint of what he identified as the industry accepted contingency range (5-15%).
5. Total 'On-Costs' were quantified in the sum of $95,987.

Total Defects Costs

1. These were the combination of the trade costs ($178,421) and the 'On Costs' ($95,987). With GST added on, the total defects costs were $301,849.

SUBMISSIONS

1. I interpreted the substantive order within the Builders' application as amounting to a submission that the Madden Report should generally be adopted subject to: 1. the Court rejecting the allowance made in item 7.4; and 2. the Court rejecting the allowance for professional fees of architect and engineer in item 7.2.
2. Mrs Moss confirmed that interpretation in the hearing. That being so, I propose to allow for adoption of the Madden Report subject to the two grounds of objection taken by the Builders. I will refer to general reasons for adoption of the report later.

The Builders' objections

1. Item 7.4 deals with 'Contractor's Preliminaries'. The referee said that the rectification works would need to be coordinated and managed by a contractor responsible for a range of things, which were listed by bullet point. The referee gave an estimate of contractor's preliminaries in the sum of $26,763 (excl. GST). Mrs Moss submitted that it was erroneous for the referee, in the second last bullet point in item 7.4.1 to refer to 'meetings with residents, the body corporate and consultants'. This was because the Owner's residence was a standalone house and was not even in the immediate or proximate vicinity of strata complexes. That being so, there was no occasion for meetings with residents, the body corporate and consultants. I note that in paragraph 1.4 of the report, the referee had indicated that he had not inspected the Owner's site, but relied upon the materials supplied to him pursuant to the referral. In other words, unless the matter was referred to him in the materials supplied, the referee was not in a position to determine whether in fact, any rectification works were likely to impinge upon any nearby strata complexes.
2. Mrs Moss raised no issue as to the propriety of the referee making general allowance for contractor's preliminaries. Nor did she take issue with the correctness of the other items listed by bullet point. Nor did she attempt to identify the extent to which, if at all, the total for contractor's preliminaries might be reduced if the Court accepted that there was no need for meetings with residents, the body corporate and consultants.
3. In the short time that he had to address the Builders' motion, Counsel for the Owner did not dispute the factual correctness of the contentions that the Owner's house is not a strata complex or that there were no other strata complexes in the vicinity of the site. Counsel reminded me that the joint expert prepared for the trial by the respective experts for the builders and Owner accepted that in rectification works there were certain preliminaries. Counsel accepted that the reference in the second last bullet point in item 7.4.1 to 'body corporate' was inapposite in the circumstances. He submitted that the content of the bullet point, as a whole was something of a generic term and that the referee was entitled to form a view that during the course of the rectification works, it was foreseeable that 'neighbours' (in a broad sense) may need to be spoken to and/or consultants engaged.
4. As to the second objection, Mrs Moss submitted that no allowance should be made for professional fees at least to the extent that those fees recognise some allowance for the fees of an architect or engineer. Engineering plans were already in existence. Mrs Moss submitted that there was no suggestion of any changes to those plans.
5. In response, Counsel for the Owner said that the referee's opinion as to what was needed to effectuate the works, including the roles of professionals such as an architect or engineer, was based upon the materials supplied and the exercise of his professional judgment. He submitted that the Builders were seeking, in effect, to re-agitate factual matters that were the properly the province of the referral and that in the absence of demonstrable error, the Court should not effectively intervene.

DETERMINATION

1. In applications of this kind, objections by a party only to parts of a referee's report provide a convenient reference point for determining whether a report should be adopted. I will deal first with those objections.
2. As to the first objection, as I have noted, the Builders have objected to only one out of a series of bullet points describing the responsibilities of the contractor. It was common ground that allowance would be required for contractor's preliminaries. Although the Builders' complaint was not proven by proper evidence, in circumstances where Mrs Moss' contentions were not disputed and no application was brought by the Owner for opportunity to dispute them, I am prepared to grant leave, pursuant to r 20.24(2) of the UCPR, to allow the Builders to raise the matters to support their objection. That being so, I also accept that what is expressed in the second last bullet point is contrary to the evidence that was before the referee. Not only is the reference to body corporate inapposite, as the Owner conceded, but the location of the site was not such as to make it likely that time would be spent meeting with nearby residents or engaging with consultants in relation to the effect of the rectification works on neighbouring or nearby properties. To this extent, I uphold the Builders' objection.
3. However, as indicated, the second last bullet point was one of a number of responsibilities for the contractor. No attempt was made by the Builders to challenge the overall allowance provided for contractor's preliminaries, nor was any attempt made to apportion for that part of the allowance that which the referee attributed to the second last bullet point. On that basis, I do not propose to reject the allowance for contractor's preliminaries for the sum of $26,763 (excl. GST).
4. As to the Builders' second objection, it is to be noted that the actual quantum of professional fees provided for in the Madden Report, from the preparation of tender documentation to the post-construction period, is modest. For architect's fees allowance was made for $2,500 and for an engineer, allowance was $2,000.
5. Whatever be the position as to the currency of engineering plans that had been prepared before the subject works, it was a matter for the referee, deploying his technical expertise, to consider whether, and to what extent, professional assistance will be required to rectify works which the Court had found to be defective. This was an actual or potential contestable factual question open for argument during the referral process. I am not persuaded that there is a basis for the Court intervening on the basis of the matter raised by the Builders.
6. That leaves the general question regarding the adoption of the referee's report. Other than the specific respects identified, the Builders do not oppose the adoption of the Madden Report.
7. I have, as indicated by these reasons, considered the Madden Report against well-established principles for adoption. By its nature, the report does not involve determinations on questions of law. Its nature concerns determination of questions of fact and the methodology deployed by the referee appears thorough and analytical. This prima facie disposes the Court to acceptance of the report. The nature of the issues is purely technical and those issues have been considered by a skilled expert. Certainly, there is no patent indication of an error in principle, misapprehension of the evidence or any perversity in fact finding other than the limited respect identified in item 7.4.1. There is nothing to suggest that his conclusions are arbitrary or affected by improper considerations.
8. I am satisfied that the report should be adopted.

ORDERS

1. Pursuant to r 20.24 of the UCPR and subject to a qualification, the report of David Madden dated 27 March 2020 is adopted. The qualification is that the part of the report contained in the second bullet point in item 7.4.1 of that report is rejected.
2. I direct the plaintiff to bring short minutes of order to give effect to these reasons. This will include orders to dispose of this proceeding having regard to the Earlier Reasons, accommodating the judgments in favour (respectively) of the Builders and the Owner (each inclusive of interest - noting that interest for the Builders will be at the contractual rate) and the operation of the set-off of one against the other. Provision should also be made for the appropriate order for costs of the proceeding and referral within 21 days. In relation to the costs of the parties' respective motions for adoption or partial rejection of the referee's report, my preliminary view is that they should be part of the costs of the referral process more generally. I note, in particular, that the limited success of the Builders in relation to one of its objections did not alter the substantive outcome.
3. This should involve: 1. the plaintiff serving proposed short minutes upon the defendants within 7 days; 2. the defendants indicating objections or additions to the plaintiff's proposed short minutes within a further period of 7 days; and 3. should disagreement persist, the plaintiff is to send to my Associate (by email) the documents in (a) and (b), above, coupled with a short statement of his position, within a period of a further 7 days.
4. Thereafter, absent any contrary indication provided by the Court, I propose to make final orders disposing of the proceeding on the papers.

Endnotes

1. Morrison v Moss & Anor [2019] NSWDC 746 (hereafter 'the Earlier Reasons').
2. Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2008] NSWCA 228 at [46]-[48]; Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 310 ALR 113 at [7]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 April 2020