18 It is not clear what his Honour meant by this statement. The parties intentions do not represent the terms of the contract. Notwithstanding his Honour's departure from the language of contract, I think it is likely he meant that this is what was required by the contract. If that is correct, the statement is unexceptional.
19 His Honour next added, "necessary adjustments would have to be made thereafter in order to process different types of materials". No further reference is made to this in the judgment and no such term appears in the written agreement. Nor did the respondents allege there was an oral or implied term to that effect. The comment is probably no more than that - a comment made by his Honour as to the actual operation of the system.
20 Next his Honour referred to the fact "the conveyor" was not operating at the time it was installed but that the first respondent rectified it over the weekend and that it was fully operational the following Monday. He concluded:
"Consequently, the plaintiffs didn't breach the agreement and they are entitled to the balance of their purchase price, that is to say $60,000 plus interest."
21 Both parties focus on this finding to advance their respective cases. The appellants contend that having made that finding, they had succeeded on their claim, and it followed, must succeed on the cross claim.
22 The respondents allege the trial judge was confused at this point but that confusion did not vitiate the final result. The confusion appears to have come from his Honour focussing, at this point in his judgment when he was dealing with the appellant's claim, on the question whether the conveyor was working on the Monday after it was installed -which as a matter of fact it was - with the real question at issue - whether the appellants had properly commissioned the plant and equipment sold. That plant and equipment was far more extensive than the conveyor or the conveyor system. It also included the pre-treatment cleaning tank, the drying oven, the powder application unit and the bake oven. The individual component parts when commissioned constituted a "powder coating line" or, to use the words in clause 1(a) (1) of the contract a "conveyorised processing line" which was required to be commissioned and fully operational
23 Having found that the appellants had not breached the contract, his Honour then dealt with the cross-claim quite separately and found that the commissioning or installation was "not carried out in a proper and workmanlike manner". His Honour gave as an example that the "track guide wheels did not match up". The respondents submitted that this finding was tantamount to a finding that there was an implied term of the contract that the installation work would be carried out in a proper and workmanlike manner.
24 His Honour's approach to the claim and cross claim was clearly quite erroneous. There was but one contract between the parties or possibly two on his Honour's finding of a separate contract in relation to the commissioning of the plant. Neither counsel made any reference to or point about the finding of two contracts rather than one. His Honour should have determined the terms of the contract (or contracts) and then determined whether there had been a breach of any term or terms of the contract. If he found breach, he should then have determined whether this breach or breaches caused any loss. However, what his Honour appears to have done is as described by Sheppard AJA during the course of the hearing of the appeal:
"I think [the trial judge] was concerned to ensure that he could give the $60,000 [being the unpaid portion of the contract price] and so he said that in the context of the situation [the appellants] could have the $60,000 but what he wanted to achieve was a situation in which he gave them [that]….but also there was this question of whether the machinery had been properly installed"
25 I agree with Sheppard AJA's observations. I think that sense is properly made of his Honour's judgment by construing it that way. In other words, I believe that his Honour considered that if it was established that the plant had not been installed in a proper and workmanlike manner, the appellants breached the contract and the respondents were entitled to damages for the cost of rectification. However, the breach was not of such a nature as to disentitle the appellants to the purchase price. If this construction of his Honour's judgment is correct, as I think it is, the appellant's claim that it is internally inconsistent is not made out.
26 It is necessary at this point to return to the questions referred to the referee. Before doing so it is appropriate to consider the power of the court to appoint a referee and the function of the court when the referee provides the report.
27 Part 28B provides for the reference of any question of law or fact to a referee: r 2; for the manner in which proceedings may be conducted by and before a referee: rr 4 and 7; for the making of a report: r 10; and for proceedings on the report: r 12. As the appellants challenge the trial judge's adoption of the report it is necessary to refer to the judge's function under rule 12.
28 Rule 12 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 order as the Court thinks fit
(2) Evidence additional to the evidence taken before the referee may not be adduced before the Court except with the leave of the Court."
29 In Nine Network Pty Ltd v Kennedy Miller Television Pty Ltd (unreported, New South Wales Court of Appeal, 8 June 1994) Gleeson CJ said (at 9-10) of the equivalent rule in the Supreme Court Rules, that the Court is required:
"to consider and determine afresh any material question of law arising out of the referee's report which either party desired to agitate. Subject to that obligation, [the Court has] a discretion as to the extent to which [it will] re-consider, and determine … matters upon which a referee had reached a conclusion and reported."
30 Earlier in Super Pty Ltd v SJP Framework (Aust) Pty Ltd (1992) 29 NSWLR 549, Gleeson CJ had considered the provisions of Pt 72 of the Supreme Court Rules in detail, including its history. He said, at 563-564:
"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 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 disputes 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 Jordon v McKenzie (1987) 26 CPC (2d) 193. So also would perversity or manifest unreasonableness in fact finding."
31 Gleeson CJ also expressly endorsed the statement of Giles CJ Comm Div, who had heard the matter at first instance that:
"As a broad proposition, depending upon the circumstances of each case, 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 where the referee enjoys an appropriate expertise."
32 I have already set out the questions referred to the referee. Those questions have to be understood against the background that the parties had prepared a Scott Schedule in which the alleged defects in the system were specified and the claimed costs of rectification were set out. It is also apparent from the questions asked that the claimed costs were supported by invoices. The first question makes it clear, in my opinion, that the referee was to report as to the cause of the work specified in the Scott Schedule, having regard to the fact the "parts were second hand". The referee was also to report on the reasonableness of the expenses claimed.
33 When the trial judge came to exercise the functions imposed by Rule 12, in the absence of any real assistance from the parties, he reviewed each item in the report. His Honour recorded in his judgment that neither counsel addressed him on any particular item in the report, except of course, the respondents who addressed him on item 5.4. That item related to the dry-off oven. It is clear from his judgement that he distinguished between upgraded work or improvements which the respondents had carried out or wanted to be carried out, for which the appellants were not responsible, and work which was necessary because the plant had not been installed in a proper and workmanlike manner - being a term of the contract on the construction I have put on his Honour's judgment. In my opinion, his Honour performed the function which the appellants allege was incumbent upon him to perform under Part 12.
34 An appeal lies to the Court of Appeal in respect of a judge exercising a power of review under r 12. That appeal is not an appeal by way of rehearing. The nature of the appeal was stated by Gleeson CJ in Nine Network at 11 in the following terms:
"It is not for this Court to review the referee's report … In the exercise of the power of review given by the rules, the judge at first instance may fall into appealable error. If that can be demonstrated to the Court of Appeal, then ordinarily the judgment at first instance will be set aside and consequential relief granted. However, what the Court of Appeal is concerned with is error on the part of the judge. If the judge's decision to adopt (or vary or reject) the referee's report in whole or in part cannot be shown to be based upon a material error on the part of the judge, then there will be no ground for attacking the judgment based on that decision. If, on the other hand, that decision can be shown to be based upon a material error on the part of the judge then a different result will follow. If the point at issue is one of law, it may not be difficult to demonstrate such error. If the judge can be shown to have made an error in the approach taken to the exercise of the discretion conferred by the rules (as was contended unsuccessfully in Super Pty Ltd v SJP Formwork [(1992) 29 NSWLR 549]) then that also may constitute a ground for setting aside the judgment. It may even, in a given case, be possible to demonstrate that the judge's decision to adopt, or vary or reject, the report was based upon an appealable error of fact made by the judge. An example might be a case where the judge embarked upon a consideration of new evidence, or a fresh consideration of evidence that was before the referee, and could be shown to have reached a wrong conclusion. The important point is that it is the judge at first instance who reviews what the referee did; the Court of Appeal, within the limits of the ordinary rules governing appeals, reviews what the judge did.