Plaintiff v Defendants [2012] VSC 596 | Case summary

Supreme Court of Victoria|2012-12-07|Before: VICKERY J

CONTRACT - Quantity Surveyor appointed under the contract to determine the cost of construction to complete works - Whether appointment of quantity surveyor satisfied requirement of "independence" under the contract - Independence of the appointed quantity surveyor - Allegation of bias or partiality in respect of an expert determination - Whether quantity surveyor's report invalidated for bias or lack of impartiality - Actual bias made out - Whether quantity surveyor's report complied with the contract - Failure of contractual mechanism - Principle in Campbell v Bent [1879] VicLawRp 168; (1879) 5 VLR (L) 337 applied.

SALE OF LAND - Contract for sale of land - Health care building and aged care building under Building Code of Australia - Construction of aged care facility work on property sold not complete - Quantity surveyor appointed under the contract to determine the cost of construction to complete works - Whether appointment of quantity surveyor satisfied requirement of "independence" under the contract - Independence of the appointed quantity surveyor - Allegation of bias or partiality in respect of an expert determination - Whether quantity surveyor's report invalidated for bias or lack of impartiality - Actual bias made out - Whether quantity surveyor's report complied with the contract - Failure of contractual mechanism - Principle in Campbell v Bent [1879] VicLawRp 168; (1879) 5 VLR (L) 337 applied.

1 This proceeding arises from a contractual mechanism to facilitate an adjustment to the purchase price of a contact for the sale of land. The mechanism was put in place by the parties and was necessary to accommodate the cost of the construction of an uncompleted development on the land, namely an aged care facility.

2 The plaintiff, 500 Burwood Highway Pty Ltd ("500 Burwood"), was the owner of a property located at 502-514 Burwood Highway, Vermont South (the "Property") and the developer of a residential aged care facility with some 110 beds (the "Facility"), and eight independent living units ("Living Units"),which together comprised the development (the "Development"), on the Property.

3 The first defendant, Australian Unity Limited ("AU") was the purchaser under the contract of sale dated 16 May 2007 (the "Contract of Sale" or the "Contract") and on 3 August 2007, nominated the second defendant, Australian Unity Nominees ("AU Nominees") as a nominee purchaser under the contract.[1]

4 The purchase price of the Contract, entered into between 500 Burwood as the vendor and AU as the purchaser, was $35 million. The Development was under construction and partially completed when the parties entered into the Contract.

5 In essence, the Contract of Sale provided for the purchaser to appoint an "independent" quantity surveyor to assess the cost of the works required to complete the development. The cost so determined was to be deducted from the agreed purchase price at settlement.

6 Issues have arisen in relation to the quantity surveyor appointed under the contract namely:

(a) whether the quantity surveyor was "independent" (as that term was used in the contract);

(b) whether the quantity surveyor was actually biased; and

7 On 8 July 2003, the City of Whitehorse issued a planning permit to 500 Burwood in respect of the Development.

8 500 Burwood entered into a building contract with Redland Building Co. Pty Ltd ("Redland") for the construction of the Facility and the Living Units.

9 The architect for the Development was Mark Allison of Axiom Architects Pty Ltd ("Axiom").

10 The relevant building surveyor for the Development was Mr Hank Van Ravenstein.

11 The lessee of the Development was proposed to be Whitecross Community Care Group Pty Ltd ("Whitecross").

12 The Facility comprised a Victorian-style mansion (also known as "Condominium 1"), which was to accommodate 110 beds, a dining hall and other amenities. This has three storeys and a fourth level, comprised of roof and storage space requiring only periodic maintenance access.

13 The Development also included, as part of Stage 1, the eight Living Units, which were separate from the Facility comprising Condominium 1.

14 500 Burwood originally conceived of the Development as a Class 9A building for the purposes of the Building Code of Australia (the "BCA"), and the building permits for the first three stages of the Development were issued on this basis. Following discussions with Whitecross Community Care Group Pty Ltd, the proposed tenant of the Facility pursuant to a lease with 500 Burwood, the BCA classification of the Facility was changed from 9A to 9C. The difference between those classifications is explained below.

15 The Development was constructed pursuant to a design and construct contract ( "D&C contract"), whereby the builder was responsible for producing both the design documentation and undertaking the construction.

16 It was a staged development whereby design documents would be prepared and construction would take place in stages, with building permits being issued for each stage. The result was that when Stage 1 was complete for example, the only documents that would have been produced and available for inspection would be the documents relevant to the Stage 1 building permit, and so on through the various stages until completion. The last stage of the design and construction process involved the issue of the Stage 6V1 building permit, so that a certificate of occupancy could issue.

17 The building permits issued for the various stages of design and construction were issued by Mr Van Ravenstein, the appointed building surveyor.

Essential differences between class 9A and a class 9C buildings under the BCA

18 The BCA classifies buildings and structures according to the purpose for which they are designed, constructed or adapted to be used.[2] The BCA is divided into nine sections (B to J) which relate to particular design features including, fire resistance, access and egress, and energy efficiency. Each section contains specifications detailing how the particular design features must be adapted to comply with classifications within the BCA.

19 Buildings of a public nature are categorised as "Class 9 buildings". A Class 9A building is defined as a "health care building", including those parts of the building set aside as a laboratory. The term health care building is defined as a building "whose occupants or patients undergoing treatment generally require physical assistance to evacuate the building during an emergency and includes a public or private hospital."

20 A Class 9C building is defined as an "aged care building". The term "aged care building" is defined as a building "for residential accommodation of aged persons who, due to varying degrees of incapacity associated with the ageing process, are provided with personal care services and 24 hour staff assistance to evacuate the building during an emergency".

21 In these reasons, the class 9C requirements are referred to as "the 9C classification". The 9C classification was designed to give effect to government policy which made particular provision in the BCA for those buildings that were being used for aged accommodation.

22 The independent consultant appointed under the Contract for BCA 9C compliance was the CH Group, represented by Mr Peter Chenoweth and Mr Paul Bailey.

23 On 1 June 2007, Mr Chenoweth received instructions from Mr Darren Morgan, AU's development manager, to undertake the 9C compliance report. Mr Morgan remained Mr Chenoweth's direct contact with AU. Mr Philip David of AU also maintained contact with Mr Chenoweth in this regard. Mr Bailey of the CH Group had similar contact with Mr Morgan and Mr David of AU.

24 In November 2007, Mr Chenoweth also had contact with AU's solicitor, Ms Wai-Hwoon Low of Russell Kennedy.

25 When the CH Group was engaged by AU on 1 June 2007, it was Mr Chenoweth's understanding was that he was to prepare a 9C compliance report. He did not understand that he had been appointed as the independent consultant under the Contract between AU and 500 Burwood.

26 The genesis of the Contract of Sale was a communication on 21 March 2007, where AU sent to 500 Burwood a formal expression of interest in the acquisition of Stage 1 of the Development. (This followed earlier correspondence between the parties in December 2006.) Mr Joel Freeman of 500 Burwood replied by letter the following day; and on 20 April 2007, James Briant of 500 Burwood replied by letter with further details of the components of Stage 1 of the Development.

27 Mr Briant acted as a liaison between 500 Burwood and AU for the purposes of AU's due diligence exercise. In April 2007, AU requested, and 500 Burwood supplied, information relevant to the due diligence, including a disk containing architectural drawings and other specifications.

28 In early May 2007, drafts of the Contract were exchanged.

29 On 3 May 2007, Ms Low of Russell Kennedy amended the special conditions of the Contract to include, inter alia, mechanics for the settlement of the Contract in a form similar to those which were ultimately contained in Special Condition 14 of the Contract.

30 On 7 May 2007, representatives of AU and 500 Burwood attended at meeting at the offices of Mills Oakley during which the settlement mechanics were discussed.

31 On 16 May 2007, executed counterparts of the Contract were exchanged.

32 In relation to the negotiation and settlement of the Contract, Mills Oakley ("Mills Oakley") acted as solicitors for 500 Burwood, and Russell Kennedy Pty Ltd ("Russell Kennedy") acted for AU and AU Nominees.

33 Given that the Development was incomplete at the time of the sale, the parties agreed to an adjustment to the purchase price to accommodate the works which remained to be done. The task of assessing the cost to complete and the consequent adjustment of the purchase price was assigned by the parties to an independent quantity surveyor. The quantity surveyor was to be appointed by the purchaser, AU, who agreed to be bound by the assessment produced.

34 The mechanism which provided for the adjustment was incorporated in two special conditions in the Contract of Sale: Clause 14.1 and Clause 14.5. They were in the following terms:

14.1 Date of Payment of Balance

The Purchaser shall pay to the Vendor or the Vendor's Solicitors the Balance of the Price on either:

(A) the latest of the following dates:

(a) 1 July 2007; and

(b) 14 days after the Vendor has provided the Purchaser with copies of the Occupancy Permits in respect of the Residential Ages Care Facility and the Independent Living Units and

(c) 14 days after the Vendor has provided the Purchaser with the following certificates which are to be issues by the Vendor's Licensed Building Surveyor:

(A) certificates of practical completion in respect of all contracts associated with the construction and design of the Residential Aged Care Facility and the Independent Living Units; and

(B) confirmation that in respect of the Residential Aged Care Facility and the Independent Living Units, the relevant provisions of the Building Code of Australia have been complied with;

(d) 14 days after the Vendor has provided the Purchaser with a certificate of final inspection issued by the Vendor's Licensed Building Surveyor for the Stage 1 infrastructure; and

(e) 14 days after the Vendor has provided the Purchaser with a certificate by the Independent Consultant that the Residential Aged Care Facility is a building which complies with the Class 9C classification requirements of the Building Code of Australia; and

(f) 14 days after the building notices referred to in the vendor's statement have been withdrawn by the party or authority who issued the notices.

or

(B) in the event that Special Condition 14.5 applies, 15 November 2007.

14.5 Completion Works

(a) If the permits and certificates described in Special Condition 14.1 ("Certificates") have not been issued and provided by the Vendor to the purchaser by 1 November 2007, then:

(i) the Purchaser may not refuse or delay settlement on this basis, but shall be entitled to appoint, at the reasonable cost and expense of the Vendor, an independent quantity surveyor ("Quantity Surveyor") to assess the cost of carrying out the works necessary to cause the Certificates to be issues and provided to the Purchaser ("Completion Cost"); and

(ii) the Purchaser may provide the Vendor with a copy of the Quantity Surveyor's assessment of the Completion Cost; and

(iii) The Purchaser may be entitled to settle this Contract by paying the Vendor the balance of the Price less:

(A) the Completion Cost; and

(B) all costs and expenses of the Purchaser specifically incurred in connection with this Special Condition including costs payable to consultants and advisers, as reasonably certified by the Purchaser.

(b) If Special Condition 14.5(a) applies, the Price is deemed reduced by the amount of the Completion Cost.

35 The Independent Consultant, referred to in Clause 14.1, was defined in the Contract at Clause 1.1 as follows:

1.1 Definitions

Independent Consultant means CH Group Pty Ltd ACN 080 730 169 or any alternate or substitute building inspector or consultant agreed to by the Vendor and the Purchaser in writing for the purposes of Special Condition 14.1.

36 As there was no alternate or substitute building inspector or consultant agreed upon, CH Group Pty Ltd ("CH Group") remained the Independent Consultant at all relevant times.

37 Special condition 14.1 of the Contract defined the certificates and permits which were required to be provided by 500 Burwood to AU Nominees at settlement of the Contract.

38 The term "Certificates" was defined in the Contract and referred specifically to the certificates and permits identified in sub-paragraphs (b) to (e) of Special Condition 14.1. No additional certificate or permit was required or was required to be provided for the purposes of settlement of the Contract pursuant to Special Condition 14. The "Certificates" which were required defined and delineated the role of the independent quantity surveyor appointed under the Contract: it was the cost of carrying out the works necessary to cause the Certificates to be issued and provided to AU Nominees which was to be assessed by the appointed person.

39 The certificates and permits which were included in the definition of "Certificates" in special condition 14.1 of the Contract were as follows:

(a) Occupancy permit (14.1(b)): this permit may be issued when all relevant works have been completed and the building is suitable for occupation. In relation to the Development, Mr Van Ravenstein, in his capacity as the Licensed Building Surveyor, was authorised to issue this permit.

(b) Certificate of practical completion (14.1(c)(A)): practical completion commonly refers to work which is complete subject to the rectification of any defective work required by the builder.

(c) Confirmation that the Facility and Living Units comply with the relevant provisions of the BCA (14.1(c)(B)): the Licensed Building Surveyor, Mr Van Ravenstein, was responsible for providing this confirmation under the Contract.

(d) Certificate of final inspection (14.1(d)): this certificate is issued after the issue of a certificate of practical completion, after the expiration of the defects liability period (specified in special condition 18.4 of the Contract).

(e) Certificate of 9C classification compliance (14.1(e)): refers CH Group, as the named "Independent Consultant" (or any alternate or substitute building inspector or consultant agreed to by the Vendor and the Purchaser in writing for the purposes of Special Condition 14.1) certifying that the Facility met the 9C classification.

40 None of the certificates described in Special Condition 14.1 were issued and provided by the vendor 500 Burwood to the Purchaser AU by 1 November 2007. As a result, two things happened under the Contract:

(a) the mechanism of the adjustment of the sale price contemplated by Special Condition 14.5 commenced operation; and

(b) Pursuant to Clause 14.1, by reason that Special Condition 14.5 applied, the settlement date was to be 15 November 2007.

Appointment of the Quantity Surveyor and Assessment

41 AU appointed Mr Timothy Hogg ("Mr Hogg") of Donald Cant Watts Corke Pty Ltd ("DCWC") as the quantity surveyor (the "quantity surveyor") to undertake the assessment required by Special Condition 14.5 of the Contract of Sale.

42 Mr Hogg has been a quantity surveyor for approximately 24 years and is a fellow of the Institute of quantity surveyors. He commenced working with DCWC in July 1999 as an executive director and continued in that capacity until 10 September 2010. In October 2010, Mr Hogg was appointed Project Director of Grocon. Since July 2011 he has been a director of a property and construction advisory company specialising in quantity surveying and project management called North Projects Pty Ltd. He employs 11 quantity surveyors. I am satisfied that Mr Hogg was a competent and experienced quantity surveyor.

43 Mr Hogg delivered his report on the cost to complete the Development on 14 November 2012 (the "DCWC Assessment Report"). Mr Hogg assessed the completion costs of the works at $2,862,704.

44 The settlement conference was arranged for 15 November 2007 at the offices of Mills Oakley, solicitors for the vendor, 500 Burwood. Mr Joel Freeman, a director of 500 Burwood, attended the settlement and was presented with a copy of the DCWC Report. Russell Kennedy, solicitors for the purchaser, also attended and sought to effect settlement by payment of the purchase price which had been reduced by $2,862,704 on the basis of Mr Hogg's DCWC Assessment Report. The amount of $28,637,296 (exclusive of GST) was tendered as the balance of the purchase price.

45 Mr Freeman was of the view that the cost to complete the Development as reflected in the DCWC Assessment Report was excessive. He was in possession of a report of another quantity surveyor from Napier & Blakeley (the "Napier & Blakeley Report") dated 9 November 2007. The Napier & Blakeley Report had been prepared for the financier, Suncorp Metway, for the purposes of a finance draw down. This disclosed a net cost to complete the works estimated to be $522,917 (exclusive of GST). Mr Freeman was also concerned as to the independence of Mr Hogg in acting as the appointed quantity surveyor.

46 Accordingly, settlement of the sale did not take place on 15 November 2007.

47 In further negotiations the parties agreed that the settlement date for the sale of the Property would be 3 December 2007, on the basis that the AU would pay to the 500 Burwood the sum of $28,654,148.47 (GST exclusive). This sum was arrived at after deduction of the sum of $2,862,704, representing the DCWC assessment of completion cost and on the basis that 500 Burwood reserved their rights at and after settlement to pursue recovery of the amount retained in respect of alleged completion cost pursuant to Special Condition 14.5(a) of the Contract.

48 The offer to settle on 3 December 2007 was referred to in a letter dated 26 November 2007 from 500 Burwood's then solicitors, Mills Oakley, to the AU's solicitors, Russell Kennedy. This letter relevantly stated:

Settlement is to be held today at 3.00pm at Esperon, Level 20, 585 Bourke Street, Melbourne.

At and following settlement our client reserves its rights in all respects in relation to:

(a) the appointment by your client of Donald Cant Watts Corke Pty Ltd ('DCWC') as the Quantity Surveyor under special condition 14.5(a)(i) of the Contract of Sale;

(b) the assessment by DCWC of the cost of carrying out the works necessary to cause the Certificates to be issued and provided to the Purchaser purportedly made in accordance with special condition 14.5(a)(i) of the Contract of Sale;

(c) the amount deducted from the Balance of the Contract Price by the Purchaser at settlement purportedly in accordance with special condition 14.5(a)(ii) of the Contract of Sale;

(d) all loss and damage suffered by the Vendor as a result of the shortfall in the Contract Price referred to in paragraph (d) above;

(e) any shortfall in GST payable in respect of the supply to the Purchaser under the Contract of Sale (including any penalties and interest payable);

(f) penalty interest under the Contract of Sale; and

(g) all its rights under the Contract of Sale and at law generally.

49 AU's acceptance of the settlement terms is set out in a letter from Russell Kennedy to Mills Oakley dated 30 November 2007, which relevantly stated:

Our client agrees to settle the contract dated 16 May 2007 ("Contract") on the terms of the Contract and in accordance with the attached statement of adjustments. Our client further acknowledges that your client intends to reserve its rights in relation to the matters listed in paragraphs (a) and (c) of your letter. (We note that there is no paragraph (b) in your letter).

50 Settlement of the Contract was effected on this basis on 3 December 2007.

51 However, at the settlement, AU not only deducted from the purchase price the sum of $2,862,704 (GST exclusive), but the further sum of $75,000 in lieu of a Bank Guarantee to secure performance of the vendor's obligations pursuant to the defects liability provisions of the Contract as set out in Clause 18. As settlement took place on 3 December 2007, the 6 month defects liability period was to expire on 3 June 2008. 500 Burwood, says that at no time prior to the expiration of the defects liability period did it receive any notice from AU in accordance with Clause 18.3 asserting the existence of defects or other faults which it was required to rectify during the defects liability period. AU however says that it was entitled to deduct the sum of $75,000 and says further that a sum of $91,666.66 was owing by 500 Burwood in respect of a lease security.

52 Whether the assessment of Mr Hogg and DCWC as to completion cost as reflected in the DCWC Assessment Report should be set aside as not binding on the parties raises several principal issues for determination namely:

(a) whether Mr Hogg and DCWC were relevantly "independent" as the quantity surveyor appointed by AU within the meaning of Special Condition 14.5 of the Contract;

(c) whether the DCWC Assessment Report complied with the requirements of the assessment exercise contemplated by Special Condition 14.5 of the Contract.

53 On the first day of trial counsel for AU advised that in August 2012, AU informed 500 Burwood that they would not be pressing the misleading and deceptive conduct claim at trial following enquiries into 500 Burwood's financial position. Accordingly, the only paragraphs of the counterclaim agitated at trial involved the security deposit provided by Whitecross.

54 By letters dated 13 June 2008 and 19 June 2008 from 500 Burwood's solicitors to AU's solicitors, 500 Burwood demanded the release of the sum of $75,000 retained in lieu of the Bank Guarantee which related to the defects liability period. AU failed to release the sum of $75,000 retained in lieu of the Bank Guarantee, and continues to refuse to release the sum.

55 This, together with a claim from AU that 500 Burwood failed to provide a lease security in the sum of $91,666.66, forms the substance of the counterclaim.

56 During the course of the hearing, topics for final address were progressively settled by the Court in conjunction with the parties. Final addresses were directed to be delivered in two parts, namely:

(a) a written draft judgment, in which each party was called upon to submit its best case on the findings of fact and law in relation to the outstanding issues; and

(b) an optional component, which was to include any further submissions by way of a supplement to each party's draft judgment.

57 Commendably, the parties collaborated in this exercise and produced a single document where uncontested matters of fact and law were set out, and the submissions of each party in relation to the matters in contention were also clearly identified. The document has been of considerable assistance to the Court in the formulation and timely delivery of these reasons in what is a factually dense and intricate case.

58 I have found that provision of a draft judgment in aid of the delivery of final addresses is particularly useful in cases which present a multitude of issues to be determined, or which are factually and technically complex. In the written draft judgment the parties are required to address, in seriatim, the topics previously identified in the settled list of issues. This ensures that the parties meet each other directly in the submissions advanced and deal with the issues which remain live at the conclusion of the trial. The procedure, in my view, also imposes a discipline on the parties to put forward their best cases on each issue in a written form which in turn focuses on the real issues in dispute, appropriately drawn with due care, thought and precision, rather than blurring the final submission with rhetorical commentary which is of little assistance in the ultimate determination of the case. The procedure also serves to engage the Court in a manner which ensures that all of the key issues are addressed in its final judgment, thereby reducing the prospect of appealable error on such matters. The procedure, as it has in this matter, may contribute to the preparation and delivery of the Court's judgment in a timely manner, thereby utilising the resources of the Court to good effect, mindful of the demands upon it imposed by other litigants. The procedure does not compromise procedural fairness. The parties were not inhibited from addressing in the Court in the traditional way through the delivery of supplementary submissions, whether orally or in writing. The procedure goes some way to advancing the overarching purpose reflected in s 7(1) of the Civil Procedure Act 2010 (Vic).

59 500 Burwood's arguments on the issues in contention are summarised below.

60 On the question of the "Independence" of the quantity surveyor appointed under the Contract, 500 Burwood advanced the following principal contentions.

61 Special Condition 14.5 of the Contract requires the completion cost, as that term is defined in the clause, be assessed by an "independent" quantity surveyor. AU appointed DCWC pursuant to Special Condition 14.5 of the Contract. However, it was submitted that DCWC was not capable of appointment under Special Condition 14.5 as an "independent" quantity surveyor because of its prior involvement in the Development on behalf of both 500 Burwood and AU.

62 It was submitted by 500 Burwood, in order to give effect to the intentions of the parties, the express inclusion of the word "independent" in Special Condition 14.5 of the Contract qualifies the role of the "Quantity Surveyor" and cannot be ignored. Having regard to the parties' deliberate inclusion of the criterion of independence, and considering the importance of the quantity surveyor's task,, in order to be meaningful in the context of the present Contract, the requirement of independence in Special Condition 14.5 should be construed to mean that the appointed quantity surveyor has had no prior involvement in the Development. Because Mr Hogg and DCWC were not relevantly "independent" within the meaning of Special Condition 14.5 of the Contract, the assessment contained in the DCWC Assessment Report should be set aside.

63 It was common ground that unless actual bias is made out, and subject to any qualification provided for in the relevant contract, there is no basis to set aside the assessment of a contractually appointed expert on the grounds of an apprehension of bias or apparent partiality. Here the Contract did not provide otherwise.

64 500 Burwood submitted that the Court ought to find on the facts that Mr Hogg was biased in favour of AU in the preparation of his assessment report. In support of this assertion, 500 Burwood argued that Mr Hogg failed to conduct himself impartially in the course of carrying out the assessment and Mr Hogg's lack of impartiality actually infected the DCWC Assessment Report such that it ought to be set aside.

65 It was further submitted that even if DCWC was capable of being appointed as an independent quantity surveyor, its assessment of the completion cost, in any event, was not carried out impartially.

66 500 Burwood relied in particular on an exchange of instructions and correspondence between AU and DCWC on 13 and 14 November 2007, that culminated in the DCWC Assessment Report. It was submitted this demonstrated that the Report could not be considered the product of an impartial assessment.

67 500 Burwood submitted the evidence recording that exchange demonstrates that, for the purposes of the DCWC Assessment Report, Mr Hogg treated AU as his client. It is submitted he did this in circumstances where he was anxious to ensure that he took into account all of the cost estimates provided to him by AU; took into account AU's statements and explanations regarding the lack of documentation and participated in conferences with AU and its consultants to the exclusion , and did not consider it to be either appropriate or important to ask for comment from representatives of 500 Burwood in relation to any matter, and did not consult with 500 Burwood at all during the assessment process.

68 Mr Hogg gave evidence that he considered AU to be his client for the purposes of the DCWC assessment. The provision of successive drafts of the DCWC Assessment Report by Mr Hogg to AU, and his subsequent adoption of the comments of Mr Morgan of AU, and in contrast Mr Hogg not engaging in the same, or any, form of consultation with 500 Burwood, demonstrates more than merely a lack of procedural fairness in his assessment process. While 500 Burwood conceded this would be insufficient to invalidate the DCWC Assessment Report, it was submitted that the report should be set aside on the ground of actual bias.

Assessment Not in Accordance with the Contract

69 In addition to the bias argument, 500 Burwood also submitted that the quantity surveyor appointed pursuant to the terms of the contract failed to undertake his contractual task in the preparation of the assessment report.

70 In support of this assertion, 500 Burwood submitted that DCWC's assessment of costs, as reflected in the Report dated 14 November 2007, was not within the scope of "Completion Cost" as defined in Special Condition 14.5.

71 500 Burwood submitted the CH Group report of 9 November 2007, (the "Update Report") which is to be read with the CH Group Report of 29 June 2007 (the "29 June Report"), and was incorporated into the Assessment Report and costed by Mr Hogg, assessed the availability of Project documentation and not compliance with the 9C classification. It also identified categories of documentation where 9C compliance could not be assessed because the documentation necessary to enable the assessment to be undertaken had not been provided (Table 4.1); items being "suggested Modifications for Consideration" (Table 4.2) where no certain definition of the necessary compliance works could be provided; and items which were the subject of "possible solutions for consideration" (Table 4.3).

72 Without clear instructions of the actual works necessary to be done to achieve 9C compliance, Mr Hogg was left with insufficient information to carry out his assessment pursuant to the Contract and, to the extent that he purported to cost the exercise reflected in the CH Group report's, he was measuring the wrong thing.

73 In essence, Mr Hogg was assessing the cost of the provision of compliant documentation and the various alternatives put forward by the CH Group in the event that documentation was not available. Although this was clearly connected with 9C compliance, it was not what was called for by Special Condition 14.5 of the Contract.

74 The case of 500 Burwood can be summarised as follows:

(a) The task which the CH Group performed, when completing its 29 June Report and the Update Report, was in the nature of an assessment of compliance documentation.

(b) The CH Group was not assessing, and did not purport to assess, compliance with the 9C classification, despite that being the task assigned to the CH Group as Independent Consultant under the Contract.

(c) The DCWC Assessment Report adopted and "costed" the findings recorded in the CH Group's Update Report. Because the Update Report was not an assessment of 9C classification compliance, the DCWC Assessment Report was not an assessment in accordance with special condition 14.5, namely an assessment of the cost of the CH Group certifying to 500 Burwood the cost of achieving that compliance.

(d) It is not to the point that certain documentation may or may not have been lacking. The CH Group was obliged to assess the extent to which the Facility complied with the 9C classification. It did not do so. Instead, the CH Group compared the documentation available to it against the requirements of class 9C of the BCA. It recorded in 29 June Report and its Update Report where documentation said to be relevant to achieving that compliance was unavailable.

(e) It is not to the point that the CH Group was the nominated "Independent Consultant" appointed under the Contract to certify compliance with the 9C classification. That did not justify DCWC relying on whatever the CH Group produced. The DCWC Assessment Report had to be an assessment of the cost of the CH Group certifying 9C classification compliance. Since the CH Group Update Report was not an assessment of 9C classification compliance, the DCWC Assessment Report could not adopt it and still be found to comply with special condition 14.5 of the Contract.

(f) Nor is it to the point, so 500 Burwood submitted, that Mr Hogg had only a limited time within which to complete the DCWC Assessment Report. The Contract prescribed a time limit which was agreed to by the parties and which required Mr Hogg, within that time limit, to produce an assessment that complied with the requirements of special condition 14.5. For the reasons given above, the DCWC Assessment Report did not comply with the Contract. The extent to which the time constraints imposed upon Mr Hogg and DCWC may or may not have influenced the way in which the DCWC assessment was prepared, is irrelevant.

75 500 Burwood submitted that had CH Group assessed the extent to which each item of work was or was not compliant with the 9C classification, for instance by adopting the approach suggested by Mr du Chateau in his evidence, involving physical inspection and measurement, Mr Hogg could have assessed the cost of achieving that compliance.

76 However given that the Update Report was not an assessment of compliance with the 9C classification (and did not purport to be other than an assessment of the existence of compliance documentation), it was submitted by 500 Burwood that DCWC's costing of the items in the CH Group report could not amount to an assessment of the cost of achieving certification that the Facility complied with the 9C classification.

77 500 Burwood also noted that Mr Hogg's DCWC Assessment Report contains no explanation of the arithmetic and analytical derivation of the risk-weighting applied to each item (H, M and L) and the cost of the capital works identified (for example, the assessment of the cost of capital works required to replace windows at $300,000, assessed as a medium risk, giving a total cost of $150,000 to be added to the other components of that aspect of the Completion Cost). Mr Hogg acknowledged that nowhere in the DCWC Assessment Report was the basis of his calculations made apparent. 500 Burwood submitted that there was simply no evidence to suggest, as AU contended, that Mr Hogg "sought to err on the side of caution" in using a risk-based assessment.

78 Thus, in essence, 500 Burwood submitted that the DCWC Assessment Report did not comply with the Contract and, on this basis, 500 Burwood is not bound by it. Specifically, 500 Burwood submitted the DCWC Assessment Report did not include an assessment of the total costs to be incurred in order for the CH Group, as the Independent Consultant, to certify that the Facility complied with the 9C classification in accordance with special condition 14.5.

79 It was submitted by 500 Burwood that it was critical to articulate precisely what the Contract required the appointed Quantity Surveyor to do. DCWC was required to assess "Completion Cost". Completion cost was defined in the Contract in Special Condition 14.5 as a function of the cost of doing the necessary work to procure the issue of the Certificates. The term "Certificates", as mentioned above, was defined in special condition 14.1, and referred to the specific certificates and permits there described. The Certificates included the certification by the Independent Consultant (CH Group) that the "Facility" complied with the requirements of class 9C of the BCA.

80 It submitted that, having established what the Contract required of DCWC, the question became whether or not DCWC performed the task required of it. Put another way, did the DCWC Assessment Report comply with the Contract?

81 500 Burwood submitted further that in order to understand the DCWC Assessment Report, it is necessary, first, to understand the nature of the task performed by CH Group as the "Independent Consultant" named in the Contract.

82 In its capacity as "Independent Consultant" under the Contract, the CH Group was responsible for certifying to 500 Burwood that the Facility complied with the requirements of class 9C of the BCA. The CH Group produced an Update Report on this issue. It is common ground that DCWC based its assessment of the cost of certifying that the Facility complied with class 9C of the BCA upon the Update Report.

83 The evidence of Mr Chenoweth and Mr Bailey, both of the CH Group, was that the Update Report did not, and did not purport to, assess whether the Facility complied with the BCA 9C classification. Rather, the Update Report was an assessment to determine the documents that were available and the documents that were missing, in order to undertake such task. Where gaps in the documentation were identified, alternative solutions were suggested to overcome that issue.

84 500 Burwood submitted that as a consequence the Update Report could not provide the basis for an assessment of the cost of the Independent Consultant certifying that the Facility complied with the 9C BCA classification as required by the Contract. Accordingly, when DCWC adopted and "costed" the Update Report, as it did in its DCWC Assessment Report, it was not doing what the Contract required of it. Instead, it was put, the evidence shows that DCWC was assessing both the cost of obtaining documentation required to enable an assessment of compliance with the 9C classification and the cost of capital works which might be required if that documentation could not be obtained.

85 For these further reasons it was submitted, DCWC's assessment of Completion Cost under Special Condition 14.5 of the Contract is not binding on 500 Burwood.

86 AU's arguments on the issues in contention are summarised below.

87 In relation to the issue of the independence of the quantity surveyor, AU submitted the requirement for "independence" as properly construed in Special Condition 14.5 meant no more than that the quantity surveyor appointed by AU had to be "independent" in the sense of not being an employee, officer or director of AU. It was on this basis, AU submitted, both Mr Hogg and DCWC were "independent" within the meaning of the Contract.

88 AU submitted that it was clear, from his presentation in the witness box and from his evidence, Mr Hogg was not actually biased.

89 AU submitted that Mr Hogg presented as an honest, careful, considered and intelligent witness with experience in risk assessment on building projects.

90 Relying on authority AU submitted, an expert in the position of Mr Hogg, is not required by law to afford the parties procedural fairness, to allow each party a hearing or to seek information or to consider their views, unless the specific contract requires those steps be taken. The Contract did not.

91 AU submitted that the highest 500 Burwood could put their submissions in relation to the alleged bias related to the provision of a draft report to Mr Darren Morgan of AU on 14 November 2007, with Mr Morgan inserting in the spreadsheet dollar figures which represented actual quoted costs to complete aspects of the work in lieu of estimates arrived at by Mr Hogg. AU submitted the purpose of that interaction was to provide to Mr Hogg, for his consideration, available assessments of costs by reference to quotes to complete aspects of the works, rather than estimates based on rates. An analysis of the changes allowed by Mr Hogg shows that the net effect was a reduction of the final cost to complete assessed by Mr Hogg. Even if the assessment had increased as a result of Mr Hogg considering information provided by Mr Morgan, such interaction, it was submitted, would not support a finding of actual bias on the part of Mr Hogg. Mr Hogg gave evidence that the figures provided by Mr Morgan were benchmarked by him. There is no reason to refuse to accept his evidence, nor was it put to him that he was being dishonest when giving evidence about these matters.

92 Evidence that Mr Hogg, or his company DCWC, had previously performed work on the Project for APAC, Hyaline Finance, the ANZ bank and for AU, it was submitted were also not matters capable of supporting a finding of actual bias. Nor were they matters which would disqualify Mr Hogg from either being appointed by AU as the "independent quantity surveyor" or from performing that role under the Contract.

93 In relation to the nature of the assessment which was required pursuant to the terms of the Contract, AU submitted that the quantity surveyor performed the task which the Contract required and contemplated. Accordingly, AU submitted that Mr Hogg's assessment of the cost to complete the work in the sum of $2,862,764, was an assessment made in accordance with the Contract.

94 AU submitted that 500 Burwood's primary obligation under the Contract was to complete the Facility and the eight Living Units, and to provide AU with each of the certificates referred to in Special Condition 14.1(A)(b), (c), (d) and (e). If each of these obligations were not satisfied prior to 1 November 2007, then Special Condition 14.5 would be triggered. 500 Burwood failed to meet those obligations by 1 November 2007, triggering the operation of Special Condition 14.5.

95 AU invited the Court to approach the issues in the following way: In determining whether or not Mr Hogg performed the Special Condition 14.5 task, the key matters to be considered are, first, what the Contract required, assessed as at the date of the Contract and, second, whether or not Mr Hogg performed that task, assessed as at November 2007.

96 AU submitted that the assessment by Mr Hogg is binding if made in accordance with the Contract. It is beside the point that:

(a) it may have proceeded on the basis of error; or

97 AU submitted of central importance was the Contract and what it required of the quantity surveyor. If Mr Hogg allowed a greater amount for the cost to complete than other witnesses thought appropriate, whether generally or in relation to a specific item, that is not a matter that goes to validity. If he took into account an irrelevant consideration, that does not of itself provide a basis to impugn his assessment so long as that assessment was in accordance with the terms of the Contract.

98 At the date of the Contract, AU submitted that the following matters were within the knowledge of both parties:

(a) The Contract required the construction of the Facility as described in the lease. It was for this Facility that an occupancy permit, one of the Special Condition 14.1 certificates, was required.

(b) 500 Burwood was required to construct and complete the Facility in accordance with the BCA 2007, Classification 9C and generally in accordance with a plan to be prepared by Axiom Architects and approved by the responsible authority.

(c) The Facility to be completed would include a lower ground floor of 1981m², a ground floor of 1698m² and a first floor of 1753m².

(d) The permitted use of the Development was for a Residential Aged Care Facility for both low and/or high care services with a minimum of 112 single rooms, constructed to meet in all relevant respects the requirements of Commonwealth Victorian and Local Government Regulations and Rules.

(e) The relevant "Deemed to Satisfy" provisions of the BCA provided in relation to such a building, given its size and use, that a Certificate of Occupancy issue for 480 persons.

(f) CH Group was the "Independent Consultant" appointed by the parties to certify compliance with the Class 9C classification requirements of the BCA.

(g) AU would be the operator of the Facility upon settlement of the Contract.

(h) If the permits and certificates for which Special Condition 14.1 provided, including a certificate from CH Group as to 9C Compliance and a Certificate of Occupancy, were not provided by 500 Burwood by 1 November 2007, Special Condition 14.5 would apply. It followed that the $35 million purchase price under the Contract would be reduced by the amount of the "Completion Cost" assessed by an independent quantity surveyor appointed by AU.

99 AU submitted that the Contract referred to, and identified, what was to be built. It stipulated what, on 1 November 2007, may have needed to be the subject of an assessment as to completion costs. The Contract specified both the Stage 2 permit, which issued for the construction of a nursing home and retirement village on 22 March 2005, and the Stage 4 permit for construction of a new building which issued on 16 January 2007.

100 AU submitted further that Special Condition 17.2 of the Contract required 500 Burwood to notify AU of any proposed changes to the "Works" which may directly, substantially, or detrimentally affect the property and prohibited such changes being effected without the prior written consent of AU. Both the Contract and the stamped plans that were approved by the Stage 4 building permit provided for a class 9C building. Level 4 was to be built in accordance with Architectural plan A1-06(J), including a computer room and store. The Contract acknowledged the "Works" were to be carried out pursuant to a D&C contract. It referred to the planning permit plans and limited specifications for finishes and the like prepared by Mr Allison.

101 AU contended that, viewed from the perspective of the contracting parties at the time of entry into the Contract on 16 May 2007, in order for Special Condition 14.5 to be invoked, it was necessary for 500 Burwood to have failed to provide by 1 November 2007 any of the following certificates:

(a) A Certificate of Occupancy in respect of the 112 bed Facility and or any of the eight Living Units (Special Condition 14.1(A)(b)).

(b) A Certificate of Practical Completion for either some or all of the Facility and the eight Living Units issued by 500 Burwood's licensed building surveyor (Special Condition 14.1(A)(c)(A)).

(c) Confirmation from 500 Burwood's licensed building surveyor that the "relevant provisions" of the BCA had been complied with (Special Condition 14.1(A)(c)(b).

(d) A certificate of final inspection for the Stage 1 infrastructure issued by 500 Burwood's licensed building surveyor (Special Condition 14.1(A)(d)).

(e) A certificate by the "Independent Consultant" (CH Group) certifying that the Facility is a building which complies with the Class 9C Classification requirements of the BCA ("9C compliance certificate") (Special Condition 14.1(A)(e)).

102 AU submitted that should Special Condition 14.5 be deemed operative, there was no obligation under the Contract for AU to utilise the services of the existing builder or consultants to complete the unfinished work on the Project. The Contract did not provide for novation of the existing D&C Contract.

103 It pointed out that the Contract provided that in order for the independent quantity surveyor to carry out the Special Condition 14.5 task, he is deemed to have been given all reasonable access to the property. It submitted that the Contract did not contemplate, and did not provide, that the quantity surveyor would have available to him all plans, designs, drawings and other documents prepared regarding the Development in performing the assessment pursuant to Special Condition 14.5. Similarly, it was submitted that it did not contemplate that he would have available a complete set of drawings and specifications showing alterations, additions and improvements "as built". If the building had not reached practical completion, there could be no such drawings. The provision of all "plans, designs, drawings, and other documents" which had been "prepared regarding the Development" was a matter dealt with in Special Condition 16.1; they were required to be provided by 500 Burwood to AU "on or before settlement". However, there was no obligation to provide any documents which had then not been created or were not then in existence.

104 Based on these matters, it was contended by AU that should 500 Burwood default on its primary contractual obligations, the context in which the task set out in Special Condition 14.5 was to be carried out was:

(a) a failure by 500 Burwood to provide one or any of the required Certificates;

(b) in all likelihood, the development would not be finished and who was to complete the works would be a matter for AU;

105 Reference was made to the express contractual agreement that, in respect of the 9C compliance certificate, the views of the "Independent Consultant" (CH Group) as to what was "necessary" to achieve 9C compliance would be determinative. The Contract did not prescribe how this would be achieved. This would likely be uncertain given the D&C nature of the project and the absence of any novation or assignment of the building contract.

106 Accordingly it was submitted by AU that the task of assessing the cost to complete in this context, based on assessing an incomplete project and incomplete information, was to be carried out between 1 November 2007 and 14 November 2007. That is, the independent quantity surveyor appointed by AU pursuant to the Contract had a 14 day window in which to make his assessment.

107 As a matter of construction, the task to be performed by the quantity surveyor in November 2007 involved him, first, ascertaining which of the Certificates referred to in Special Condition 14.1 had not issued. Second, identifying what work was necessary in order to obtain the Certificates (all of them). Third, assessing the cost of carrying out the works to cause the Certificates to issue. In the case of 9C compliance, this involved assessing the cost of the work necessary to satisfy CH Group that it was able to issue the 9C compliance certificate.

108 AU submitted that the quantity surveyor, Mr Hogg, performed the task which the Contract required and contemplated. In this regard, the following was submitted:

(a) As at 1 November 2007, 500 Burwood had not provided any of the Special Condition 14.1 Certificates. As expressly contemplated by the Contract, Mr Hogg assessed the cost to practically complete on the basis of his inspection of the Development as evidenced by his detailed inspection notes and photographs. Appendix A to his report set out his assessment of this element of the cost to complete.

(b) By 1 November 2007, a Certificate of Occupancy had not issued. Mr Hogg had advice from CH Group as to the requirement of the "Deemed to Satisfy" provisions of the BCA regarding maximum occupancy numbers for the Facility, and this was to be 480 persons. He also had advice as to the requirements of the operator, AU, namely occupancy by 435 persons.

(c) Practical completion had not been achieved by 1 November 2007. Mr Hogg costed the works to practically complete against the plans. In the case of the "head end room" on level 4 to which all of the wiring in the building led, there is no evidence that 500 Burwood sought or obtained the consent of AU to delete that room from the building as contemplated by the Contract. Mr Hogg allowed for an independent builder and consultants to undertake the works required to complete. Not only was there no provision in the Contract for novation of the D&C building contract, but by 8 November 2007, the project had been in financial difficulty for many months with subcontractors being paid direct by the financier, Suncorp-Metway. There was also a history of apparent vandalism by unpaid subcontractors. As a matter of fact, an allowance for an independent builder assessed as at November 2007 was an absolute requirement. In determining to make these allowances, Mr Hogg exercised this discretion as an expert and acted in accordance with the Contract.

(d) Compliance with the relevant provisions of the BCA, to be confirmed by the Vendors' Licensed Building Surveyor, was not an issue that directly impacted upon the cost assessment task. This is because, in addition to this "Certificate", the 9C compliance certificate was required.

(e) No certificate of final inspection regarding Stage 1 infrastructure, had issued. Schedule A items 1.5 and 1.6 of the cost to complete report prepared by Mr Hogg deals with costing of these works.

(f) As at 14 November 2007, CH Group could not issue the 9C compliance certificate because it was not satisfied that the Facility complied with the requirements of classification 9C of the BCA. What was required by CH Group before it would issue the 9C compliance certificate, was the subject of a report by CH Group in November 2007 (the Update Report), which was to be read in conjunction with an earlier report prepared by CH Group in June 2007 (the 29 June Report). Each item identified in the Update Report was considered by Mr Hogg, taking into account the 29 June Report and the possible solutions identified by CH Group in those reports. Works identified by CH Group as necessary before it would be willing to issue the 9C compliance certificate, were assessed as to cost.

(g) Mr Hogg costed the capital works associated with the possible solutions and, rather than simply allow them at 100%, he weighted the risk that the capital works would need to be carried out based upon his assessment of likelihood. These matters were detailed in Appendix B of his report. It was submitted that this was open and appropriate for him to do so in the context of the task required by Special Condition 14.5.

109 AU provided the following example in relation to balustrades in its submissions. It was put that what is "necessary" in order for the 9C certificate to issue in relation to the balustrades are works which are structurally certified as BCA Part B1 compliant. That could be achieved in a number of ways: either, by the simple provision of a Structural Engineers' Certification relating to the existing balustrade or by removing and replacing the existing balustrading with structurally compliant balustrading and by certification of that balustrading. Mr Hogg was not required to choose between possible approaches to the work to be performed in order to achieve 9C compliance for the balustrading. How the "necessary" certification might in fact be brought about involved alternatives. The task required of Mr Hogg was to "assess" the cost of the works in light of those alternatives, the result being the cost "necessary to cause the certificates" to issue. He applied a risk weighting as part of his assessment of what works would be required so that the necessary certificate would issue. It was within his expertise and the scope of his authority under the Contract to do so.

110 Accordingly, AU submitted that the total of $2,862,764 represented Mr Hogg's assessment of the cost to complete. It was an assessment that was made in accordance with the Contract.

111 AU further submitted that there can be no criticism of the manner in which Mr Hogg performed his task so far as the assessments detailed in Annexures A and B to his report are concerned. Even if the Court disagreed with Mr Hogg's methodology, or concluded that he made significant or substantial error in his assessment, it was put that this was not a basis on which his report can be set aside. On the established authorities, such matters do not constitute grounds for setting aside a contractual determination of this kind.

112 As to Mr Hogg's reduction of completion cost items by the application of a risk based approach, AU pointed out that the Contract did not specify how Mr Hogg was to assess the cost to obtain the various Certificates. Such matters of methodology were left to Mr Hogg in his expert opinion. The Contract did, however, expressly provide that the 9C compliance certificate was to be issued by the "Independent Consultant" (CH Group). CH Group was therefore the decision maker in terms of what was required before it would be willing to issue the 9C compliance certificate. The Contract did not direct Mr Hogg how he was to assess the cost to complete to cause the CH Group to issue 9C compliance certification. That was a matter for Mr Hogg in his expert opinion.

113 AU referred to criticisms made by 500 Burwood of Mr Chenoweth of the CH Group and suggestions advanced to the effect that his approach to 9C compliance was pedantic and overly technical. AU submitted that such criticisms were not justified. Mr Chenoweth's role was to certify whether the Facility complied with BCA classification 9C. The Contract contemplated that CH Group would perform this role in order to provide a certificate of 9C compliance. In turn, this would enable settlement to take place prior to 1 November 2007. It was contended that 500 Burwood essentially refused and failed to work and cooperate with CH Group. It is because of the skills of the CH Group regarding 9C compliance, that it was nominated under the Contract as the Independent Consultant to certify 9C compliance. Having agreed to entrust that task to CH Group, it matters not if CH Group was overly pedantic or technical, or primarily worked in conjunction with AU. The parties agreed to be bound by the determination of CH Group regarding the issue of the 9C compliance certificate.

114 AU submitted that, contrary to the 500 Burwood opening submissions and cross examination of Mr Hogg, Mr Hogg did not abdicate his role to CH Group. He recognised and acted on the role of the CH Group under the Contract as the 9C certifier. He took into account what CH Group in their binding role required before it would be willing to issue the 9C compliance certificate. He applied a risk assessment approach to the physical or capital works suggested as possible means of achieving 9C compliance. He adopted an approach which is in accordance with Australian Standards and was in accordance with established quantity surveying practice and procedure. Not only as a matter of fact can no legitimate criticisms be made of his approach, most importantly it was an approach open to him whilst performing his role under the Contract.

115 AU observed that much time was devoted at trial to whether or not particular items forming part of Mr Hogg's assessment ought to have been included in that assessment and, if so, in what amounts. On the evidence, AU submitted that Mr Hogg's assessment of each of the individual items was both rational and reasonable. Further, there is no occasion or cause for the Court to determine or rule on these items. This was a matter for Mr Hogg; if he allowed $1 or more for an item that 500 Burwood believes he ought not to have included that does not invalidate his assessment. The evidence of Messrs Smith and Dresden of Napier & Blakely as to their own reports conducted for the financier, Suncorp-Metway, and as to the appropriateness of Mr Hogg's assessment were submitted to be irrelevant. They were performing different tasks to that which the Contract demanded of Mr Hogg. Even if the tasks were the same and if they took into account the cost of the works necessary to cause CH Group to issue the 9C compliance certificate, which they did not, the parties entrusted the task of assessing that cost to Mr Hogg via the contractual mechanism in Special Condition 14.5.

116 It was further submitted by AU that if the Court had misgivings about the risk based analysis method adopted by Mr Hogg, that too is irrelevant. It matters not how the Court might have approached the task or if some other approach might have been preferred given the uncertainties. No alternative was identified on behalf of 500 Burwood. All that matters is whether a risk based assessment was a methodology prohibited by the Contract. It was not. In fact, AU submitted that it was an entirely appropriate method given the circumstances likely to be in place and, which in fact materialised, as at 1 November 2007, as envisaged at the time the Contract was entered into.

117 AU contended that events that took place after 15 November 2007 are also irrelevant to whether Mr Hogg performed the contractual task assigned to him. His contractual role was to be performed in the 14 day window between 1 and 14 November 2007. It was and is irrelevant to the Contract and to his task whether any or all of the items included as part of his "cost to complete" assessment were ever actually expended thereafter. That is so because AU had no contractual obligation to obtain the "necessary" certificates or to perform such works as might have been needed to secure the issue of the Certificates. The function of Special Condition 14.5 was merely to determine the amount by which the $35m price was to be reduced. The reduction occurred at settlement. How AU then chose to proceed after settlement, including, for example if it had chosen to sell the partially completed Development, it was submitted, is not for the Court to determine.

118 AU submitted that the fact that the information available to Mr Hogg and to CH Group was incomplete was both a function of the terms of the Contract of Sale, which provided the context within which the cost to complete had to be assessed, and a function and a consequence of what it said was the deliberate policy of non-cooperation and non-disclosure on the part of 500 Burwood.

119 By way of conclusion, AU submitted that Mr Hogg approached the task demanded of him under the Contract of sale independently, with significant rigour and in accordance with what was required by Special Condition 14.5. He considered what CH Group identified as "necessary" in order for it to certify 9C compliance. He reviewed alternative scenarios involving suggested works in order to achieve the necessary outcomes. He assessed the cost of those works. Accordingly, there is no basis to overturn or interfere with his assessment.

Whether Quantity Surveyor 'Independent' Under the Contract (Special Condition 14.5)

120 It will be recalled that pursuant to Special Condition 14.5(a)(i), and the events that triggered its operation, AU was entitled to appoint, at the cost of 500 Burwood, an independent quantity surveyor to assess the cost of carrying out the works necessary to cause the Special Condition 14.1 Certificates to be issued and provided to it.

121 The term "Quantity Surveyor" is defined under Special Condition 14.5(a)(i) of the Contract. The defined term refers to an "independent quantity surveyor" who the purchaser is entitled, at the cost and expense of the vendor, to appoint. Either DCWC met the contractual requirement of independence, or it did not. In determining that question, it is necessary to construe the word "independent" as it was used in Special Condition 14.5 of the Contract.

122 The term "independent" is not defined in the Contract.

123 The well accepted approach to the construction of a contract was described by the High Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd in the following terms:

It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction. [3]

124 In the more recent case of Westgate Ports Pty Ltd v Port of Melbourne Corporation Pagone J explained the applicable principle in similar terms:

... the relevant contract is to be construed as a whole without individual clauses being considered in isolation. The meaning to be given to the terms of the contractual document is to be determined by what a reasonable person would have understood them to mean taking into account both the text and also the surrounding circumstances known to the parties, and the purpose and object of the transaction. [4]

125 The contention of AU was that the requirement for "independence" as properly construed under Special Condition 14.5(a)(i) meant no more than the quantity surveyor to be selected by AU had to be 'independent' in the sense of not being an employee, an officer or director of AU.

126 On the other hand, 500 Burwood contended that to be "independent" for the purposes of Special Condition 14.5, when properly read in the context of the Contract as a whole and the significance to the parties of the quantity surveyor's task reflected in the relevant sub-clause, called for a more purpose driven approach. It contended that to give proper effect to this purpose, the requirement of "independence" in Special Condition 14.5 must be construed to mean that the quantity surveyor had no prior involvement in the Development.

127 In my opinion, the construction of Special Condition 14.5 as urged by 500 Burwood is to be preferred.

128 The task assigned to the appointed quantity surveyor under Special Condition 14.5 was of central importance to the parties under the Contract. The appointed expert was to set the purchase price payable under the Contract by determining the extent to which the purchase price payable under the Contract was to be reduced. The transaction was potentially worth $35 million. Both parties would be affected by the determination which fixed the adjustment to the purchase price, and potentially in a significant way.

129 In the context of the present Contract the concept of "independent" as used in Special Condition 14.5 clearly requires independence from the parties who have a direct financial interest in the assessment. Thus, as submitted by AU, a qualifying appointee could not be part of the organisation of the appointing party in any formal way in the sense of being an employee, officer or director of that party. So much is accepted.

130 However, in my opinion, the mechanism established by the sub-clause calls for a broader approach to construction of the concept of "independence". This is dictated by the nature of the task to be undertaken and the purpose and importance of the assessment once completed.

131 The "independent quantity surveyor" was to be nominated at AU's sole discretion. The only limitation on the appointment of the expert, apart from the description "Quantity Surveyor", was provided by the qualifying term "independent". The description "Quantity Surveyor" called for the appointment of a person with sufficient qualifications and experience to carry out the contractual task. Here, with the appointment of Mr Hogg and DCWC, that is not in doubt. However, the qualifying term "Independent" also needs to be given its full effect to achieve the contractual purpose of the parties. That contractual purpose had two elements.

132 In the first place, the appointed Quantity Surveyor was to undertake the specified task of assessing the cost of carrying out the necessary works for the purpose of determining the purchase price. The concept as imported into Special Condition 14.5 required the appointed Quantity Surveyor to be in a position to carry out his or her work freely and in an objective manner in order to achieve a realistic figure which was as accurate as reasonably possible.

133 In the second place, the purpose of the assessment was to provide credibility to the process in which both parties could have confidence. This was to be achieved by providing a written expert report from an independent source which represented a true and fair view of the cost to complete the necessary works. This not only required the necessary level of expertise on the part of the appointed Quantity Surveyor. The purpose could not be met if one or other of the parties believed that the appointed Quantity Surveyor may have been influenced by extraneous factors, such as prior experience on the project, whether positive or not positive.

134 The parties gave up their respective rights to negotiate a concluded and binding purchase price. In return they agreed to entrust the determination to a system in which they could place their unreserved trust and confidence. They did not intend, in my view, to bind themselves to an assessment attended with a credible appearance or soundly based apprehension of partiality.

135 Thus, the requirement of independence in Special Condition 14.5 in the contractual context is to be construed as including two elements:

(a) independence of mind, thereby enabling the quantity surveyor to provide an opinion unaffected by influences that might compromise his or her professional judgment, objectivity and impartiality; and

(b) independence in appearance, thereby avoiding circumstances which would cause a reasonable person who knows all relevant information to conclude that the quantity surveyor's objectivity or impartiality might have been compromised.

136 For these reasons, and in order to bring the necessary level of objectivity to the task at hand and provide the necessary level of confidence in the determination to a person in the position of the parties, a reasonable person in that position at the time of entry into the Contract would have been entitled to expect that the appointee would also be independent from the very project the subject of the Contract, such that he or she could not be seen to be subject to influence one way or another, whether consciously or not, by any previous involvement with the Development.

137 In this way the appointed expert, unsullied by prior experience with the Development and its participants, would be in a position to bring a truly independent mind to the task at hand and produce an assessment which was beyond question in its objectivity and in which the parties could have mutual confidence. This was the outcome intended by the mechanism which the parties established for the purpose of determining the purchase price.

138 I arrive at this conclusion in spite of the fact that the task stipulated by Special Condition 14.5 was a complex one, required to be completed within a tight time frame, and that this would objectively have been known to the parties at the time of Contract, should Special Condition 14.5 be triggered. However, this did not mean, as submitted by AU, that in these circumstances, the person who would be engaged to perform the task would need to be a Quantity Surveyor who had some prior involvement with the Development and that this must have been in the assumed contemplation of the parties. If this was to follow, the result would be a significant erosion of the fundamental purpose of the "independence" qualification provided by Special Condition 14.5 of the Contract. Rather the tight time frame pointed to the imposition of an implied term for an extension of time for the preparation of the assessment report and a consequent extension of time for settlement, should that have become necessary.

139 This approach is not inconsistent with the legal principles establishing the requirement of actual bias of a contractually appointed expert before the expert's opinion will be amenable to being set aside, as later discussed. By way of contrast, in this particular case, the contract itself defined the qualities to be possessed by the appointed expert. The question at this point is whether the proper expert was appointed pursuant to the contractual criteria, rather than whether the report produced is amenable to being vitiated by the conduct of the appointed expert by application of the common law.

140 Further, I am not satisfied on the evidence that if any prior association with either AU or the Project resulted in disqualification of a proposed Quantity Surveyor under Special Condition 14.5, the Contract would become unworkable. I am not satisfied that the evidence went so far as to establish the unavailability of properly qualified quantity surveyors who could satisfy the criteria required by Special Condition 14.5 as I have found the criteria to be.

141 Thus in addition to the necessary technical competence and independence both from the parties, independence from the project itself was a most important factor in establishing the necessary credibility of the assessment.

Plaintiff v Defendants

At a glance

Court

Decision date

Before

Source

Judgment (696 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (7)