RYDE CITY COUNCIL v TOURTOURAS [2007] NSWCA 218 | Case summary

(c) The Council was not responsible for the defective workmanship to the roof and wall frames as a result of this negligent inspection because by the time that the Council came to inspect these works, this defective workmanship was already in existence and the Council was not responsible for undertaking periodic supervision of these works. In other words, the defective roof and wall frames were not caused by the inspection of 23 January 2001." 15 The referee then dealt with the loss flowing from the negligent inspection on 28 November 2000. At [53] the referee made the following finding: "53. In my opinion, the Council is liable for the defects that existed as at 28 November 2000 as I accept that if that inspection had been properly undertaken then they would have been rectified shortly afterwards by the Builder. This did not occur because of the Council's failure to properly inspect the Works, with the result that these defects were not identified until some time after the Builder left the site on 13 February 2001." 16 This finding also was not in dispute and led to the referee's conclusion that the Opponents were entitled to the sum of $17,111.57 inclusive of GST and interest to 10 July 2006: at [66]. 17 The referee was also pressed with the contention that, had the defective work, as at 28 November 2000, been identified by that inspection, then the subsequent defective work on the first floor wall frame and roof would not have occurred: at [51]. This was because, so it was contended, "the work would not have been permitted to proceed beyond the floor until the work had been rectified and the Owners would thereafter have been on notice as to the adequacy of their Builder": at [52]. 18 The referee rejected this contention in two further paragraphs which were rejected by the trial judge, namely [54] and [55]. The reasoning of the referee was as follows: first, the result of a proper inspection on 28 November 2000 would have been to require the builder to rectify the defects that then existed. That would have caused progress with the building work to be "slightly delayed": at [55]. The subsequent defective work was "completely unrelated to the defective floor joists and beams": at [54]. That work was caused by further negligence on the part of the builder: at [54]. However, rectification of the earlier defects would not "have prevented the subsequent defects from occurring": at [55]. Accordingly, the referee concluded that there was no causal link between the negligent inspection on 28 November 2000 and the subsequent defective building work. 19 Apart from the referee's report, the trial judge had a brief affidavit from the Opponents' solicitor of 11 August 2006. The affidavit noted that the experts for the parties had agreed that "the cost of rectification of the defects that ought to have been discovered but for the second defective inspection" totalled $71,026. The figure is not in dispute. Relevant legal principles 20 The argument on the appeal identified two areas of relevant legal principles. The first concerned the correct approach to be taken by the trial judge in relation to the referee's report. The second concerned the nature of the appeal in this Court. 21 The powers of the trial judge, as invoked by the notice of motion filed by the Opponents in the District Court, are to be found in r 20.24 of the Uniform Civil Procedure Rules. That rule provides: " 20.24 (1) If a report is made under rule 20.23, the court may on a matter of fact or law, or both, do any of the following: (a) it may adopt, vary or reject the report in whole or in part, (b) it may require an explanation by way of report from the referee, (c) it may, on any ground, remit for further consideration by the referee the whole or any part of the matter referred for a further report, (d) it may decide any matter on the evidence taken before the referee, with or without additional evidence, and must, in any event 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 by leave of the court." 22 Despite the apparent width of the language of the rule, it is well-established, and was not disputed in the present appeal, that the power of a trial judge to reject a report, whether in whole or in part, should not be exercised too readily. The correct approach was identified by Gleeson CJ (with whom Mahoney and Clarke JJA agreed) in Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 at 562-564. In considering the scope and operation of the predecessor to the current rule, namely Part 72, r 13 in the Supreme Court Rules 1970 (NSW), the Chief Justice noted that an application under that provision was "not an appeal, whether by way of a re-hearing de novo or a more limited re-hearing": at p 563D. He continued: "This is consistent with the right of the referee to conduct the reference as the referee thinks fit and unconstrained by the rules of evidence. Rather, the judge, in reviewing the report and deciding whether to adopt, vary or reject it, has a judicial discretion to exercise in a manner that is consistent both with the object and purpose of the rules and with the wider setting in which they take their place. That wider setting is a system for the administration of justice according to law. In so far as the subject matter of dissatisfaction with a referee's report is a question of law, or the application of legal standards to established facts, then a proper exercise of discretion would require a judge to consider and determine that matter afresh. … 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 … . 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 … . So also would perversity or manifest unreasonableness in fact-finding." 23 An error of law on the part of the referee might form a basis for the rejection of part or all of the report. However, it appears that it was the referee's assessment of a question of causation, rather than any error of law, which gave rise to the application to reject his conclusions in relation to the defects which arose after 28 November 2000. 24 The second matter concerns the scope of this Court's jurisdiction to review the judgment of the trial judge. Counsel for the Opponents argued that the Court should apply the analysis of what constitutes an error of law as explained by Mason CJ in Australian Broadcasting Tribunal v Bond (1990) 170 CLR 323. As may be seen at pp 352-353, the discussion in that case was concerned with the question whether an administrative decision involved an error of law within the meaning of s 5(1)(f) of the Administrative Decisions (Judicial Review) Act 1977 (Cth). More importantly, there is no reason to suppose that the appeal in the present case was otherwise than an appeal by way of re-hearing, pursuant to s 75A(5) of the Supreme Court Act 1970 (NSW). 25 There is a sense in which such an appeal may be an appeal restricted to questions identifying an error of law. If the Court from which the appeal is brought can only review a decision for error of law, then the powers of this Court will also be so limited: s 75A(6). More broadly, the jurisdiction of this Court may in practice be limited to identification of an error of law, if, despite the wider powers available to the Court below, that was the only issue raised in the proceedings. However, as already noted, the power of the District Court to reject a referee's report was not limited to the circumstances where error of law had been identified, nor in practical terms was that the basis relied on by the trial judge in the present matter. 26 As counsel for the Ryde City Council submitted, the proceeding in this Court, being an appeal by way of re-hearing, requires that the Court be satisfied that there was error on the part of the trial judge: see Coal & Allied Operations Pty Ltd v Australian Industrial Relations Commission (2000) 203 CLR 194 at [14] (Gleeson CJ, Gaudron and Hayne JJ). In the present context, the proper role of this Court was explained by Gleeson CJ in Nine Network Pty Ltd v Kennedy Miller Television Pty Ltd (unrep, NSWCA, 8 June 1994) in a passage helpfully extracted by Beazley JA in Abigroup Contractors Pty Ltd v Sydney Catchment Authority (2004) 208 ALR 630 at [16] in the following terms: "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 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 … 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 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." Error in approach of trial judge 27 The Council contended that the trial judge adopted the wrong approach in deciding to reject paragraphs 46, 54 and 55 of the referee's report. If that challenge be made out, and subject to the possibility that the decision of the trial judge could be supported on an alternative ground, the Council argued that leave should be granted and consequential relief must follow. 28 As explained above, the referee approached the question of liability for the cost of the post-28 November defects on two bases. First, he rejected the argument that the later negligent inspection, carried out on 23 January 2001, caused loss to the Opponents through a failure to identify the defective work which had been carried out since the November inspection. Secondly, he concluded that the negligent November inspection did not cause the loss flowing from the subsequent defective work. It was the latter conclusion upon which the trial judge focused and in relation to which the Council directed its principal submissions. 29 There were two passages in the reasoning of the trial judge to which the Council directed its challenge. The first, at p 5 of the judgment, read as follows: "The effect of the Council's failure to identify the defects in existence as at the 28th of November 2000 was to allow an inadequate builder to continue his operations in respect of that particular premises. The Council should have identified that there were defects on the 28th November 2000, and stopped the work until those defects were remediated. I am unable to say how long such remedial work might have taken, but until that was carried out the builder would not have been able to progress any further with the construction. Two things may well have flowed from that, firstly that the builder would have taken more care with the continuance of the construction and, secondly, he may have avoided the defects that came into existence between the 28th of November and the 23rd of January. Alternatively the owner and/or the Council would have been able to keep a more wary eye on the progress of the builder and the building as the construction went ahead after that date." 30 In substance, this passage contains a different analysis of the effect of the negligent inspection on 28 November, in relation to the subsequent defective work, to the findings of fact and inference set out by the referee in his report at [54] and [55]. In effect, the trial judge accepted submissions which had been identified by the referee at [52], but rejected by him for the reasons summarised at [14] above. The trial judge did not identify, nor did this passage in his reasons address, some matter which the referee had failed to take into account or some misapprehension of the evidence. The trial judge expressed the view, to the extent that it was relevant, that he was unable to say how long such remedial work might have taken, although the referee had concluded that the progress of the building works would have been only "slightly delayed". Perhaps nothing turns on this, but it indicates an approach on the part of the trial judge which involved the reconsideration of factual matters and disagreement on matters of evaluative judgment. It was common ground between the parties in this Court that the evidence before the referee was not before the trial judge. 31 Of greater significance, the trial judge sought to draw inferences that, had the inspection identified defective work, the builder may thereafter have taken greater care and both the owner and the Council "would have been able" to keep a more wary eye on the progress of the builder. With respect to the Council, there was no suggestion that it had any duty of monitoring the work on a continuing basis or that it should have conducted a further inspection prior to 23 January 2001. So far as the Opponents were concerned, there was no evidence before the trial judge as to when their own disquiet, which led to the termination of the building contract, first arose. Nor is it known whether they were asked about the possible consequences of identification of the relevant defects in November 2000. The referee noted evidence of Mr George Tourtouras which he accepted, at [25] of the report, but it did not address that question of timing or causation. 32 So far as the possible effect on the builder is concerned, the language adopted by the trial judge, namely that certain things "may well have flowed" from revelation of the defects on 28 November 2000, suggests an air of speculation, rather than a factual finding on the balance of probabilities. 33 Similar language was used by the trial judge at a later point in his reasons, which the Council said constituted the relevant findings. At p 6 his Honour stated: "I disagree with Mr Goldstein's supposition that had the builder been required to rectify the earlier defects then all that would have occurred at that point of time is that progress would have been slightly delayed. Had the matter been drawn to the builder's attention it may well have been the case that further defects may not have occurred or not have been as substantial as they in fact were. In effect the negligent inspection of the 28th of November 2000 allowed an obviously incapable builder to continue to operate on a particular construction when that should not have happened. In those circumstances it's very difficult to see that the Council should not be held liable for the consequent defects because on the state of the evidence before the referee, about which there is nothing to indicate to me, nor has any submission been made that I should not accept, that relevant fault lies anywhere else for present purposes, other than with the council." 34 This passage confirms the view that, although the trial judge had set out early in his reasons the power conferred by r 20.24, he had treated the discretion as largely unconstrained, despite his attention having been drawn to the decision in Super Pty Ltd v SJP Formwork: see transcript, 25/08/06, p 2(20). Further, without any real explanation for the language adopted, his Honour treated the consequences of the negligent inspection in November 2000 as established by drawing an inference as to what "may well have been the case" had the defects been identified. However, to succeed, the Opponents needed to satisfy the referee (or the Court once properly persuaded that the report should not be adopted), on the balance of probabilities, that further defective work would not have occurred had the November inspection been properly carried out. The primary responsibility for the further defective work did, of course, lie elsewhere: it lay with the builder. 35 Given that the causal connection between the negligent inspection on 28 November and the further negligent work by the builder was one which needed to be established by the Opponents, either by evidence or on the basis of inference drawn from the evidence, one would wish to know on what evidence the trial judge relied in disagreeing with the referee, and on what basis he thought the referee had erred. If the referee's finding was a mere matter of "supposition", that would suggest that the burden of proof had not been satisfied. (It may be noted that in this passage the trial judge appears to have abandoned the somewhat speculative findings in the earlier passage that the Opponents or the Council would have paid more attention to the on-going work had the earlier defective work been disclosed.) 36 The approach adopted by the trial judge in these passages is inconsistent with the need for restraint in reviewing factual findings of a referee. If there had been thought to be some omission from the reasoning of the referee, it might have been appropriate to send the matter back for clarification. However, in the matter now under consideration, no such need for clarification has been revealed. Nor has any relevant misapprehension of the facts by the referee been identified. What has been demonstrated is a misapprehension on the part of the trial judge as to the proper scope of his discretion. 37 As noted above, there was an alternative basis, apparently argued before the referee, namely that damage resulted from the negligent inspection on 23 January 2001, in relation to the post-28 November defects. As noted above, the referee found that no loss had flown from that negligence for three reasons. One was that no subsequent work was undertaken on the site: that is correct, but does not answer the possibility that defective work might have been repaired by the builder, if it had been identified on 23 January. The second reason was that the Opponents did not "rely on" that inspection. That also was true: they did not rely on it, as a basis for terminating the services of the builder, because it disclosed no defect. As they did not keep the builder on site, presumably they did not rely on it for that purpose either. The third reason given was that the Council was "not responsible for the defective workmanship to the roof and wall frames" because it had already taken place prior to the 23 January inspection and thus "was not caused by" the inspection. 38 This reasoning does not explain why a different analysis was applied in relation to the later inspection, from that applied in relation to the earlier inspection. Thus, in relation to the 28 November inspection, the referee accepted that the negligence led to a failure to have the work rectified: report at [53]. This was a point noted by the trial judge in the following passage (Judgment, p 6): "Mr Goldstein found the Council liable for the defects that existed as at the 28th of November 2000 on the basis that if the inspection had not been negligent then the items in question would have been rectified shortly afterwards by the builder when in fact what occurred was that the defects weren't identified until the builder had left the site. In many respects the same consideration, I would have thought, would apply to the inspection that occurred on the 23rd January 2001, because as the builder was still on site at that point of time, there may have been some prospect on the part of the owner in getting the builder to rectify not only the defective work that existed as at the 28th of November 2000 but also the defective work that was put in place thereafter up to the 23rd of January 2001." 39 This proposition, put forward in somewhat muted terms, was considered further (Judgment, p 7): "If on 23 January 2001, the Council's inspection had uncovered the defects since 28 November, the reasoning contained in Mr Goldstein's report at paragraph 53 would still apply because as at 23 January the builder was still on site and could have been made to rectify the works. The council does not dispute the correctness of paragraph 53. As I said I have difficulty seeing why the same reasoning would not also apply to the inspection of 23 January given that the builder left the site on 13 February 2001." 40 If that were an error on the part of the referee, it was an error because he had failed to address a relevant basis of causation of loss, which arose on the facts as found. That approach would not, however, justify a finding by the trial judge, in the absence of relevant facts. The inference of causation would need, in those circumstances, to be based on the steps which might have been taken by the Opponents had the defective work been revealed on 23 January 2001. What the evidence needed to establish was that, despite their concerns as to the quality of the builder's work, which may well have been in existence at that time, they would have insisted upon the builder carrying out remedial work, at no cost to them, before dispensing with his services. If the Opponents had sought to run that case, one would have expected Mr Tourtouras to have given evidence to that effect. There is no suggestion in the summary of his evidence provided by the referee that he did so. 41 It appears that the trial judge was aware of the difficulty in reaching any conclusion in this regard on the basis of the material in the report, because, having outlined his concern as set out in the passage at [39] above, he then concluded that "even apart from that" the Council was liable for the cost of rectification of faulty work undertaken subsequent to 28 November 2000. It is therefore apparent that the trial judge did not rely upon this alternative approach and no notice of contention was filed in this Court seeking to support his conclusions on this basis. It is possible that the evidence did not support such a causal link and, for that reason, no reliance was placed on that matter by the Opponents in their written submissions, although somewhat equivocally, counsel seemed to embrace the suggestion when it was raised in the course of oral argument. In any event, to rely upon that alternative ground, the Court would need to be persuaded that it was raised in those terms before the referee, but not dealt with by him in his report. There was no material to suggest such reliance and, indeed, there were suggestions to the contrary. Accordingly, this aspect of the referee's approach would not have justified rejection of [46] of his report. Nor did the trial judge seek to reject [46] on that basis. Conclusions 42 It follows that the Council has demonstrated error in the approach of the trial judge. The error arises in relation to the application of legal principle, in the exercise of a broad discretion, although the correct approach is not in doubt. The amount involved is well below the monetary threshold for an appeal as of right, but it is not an insignificant amount. Further, some weight should be given to the desirability of maintaining the regularity of the administration of justice, so as to protect the efficient use of alternative dispute resolution by referees. On balance, the case is an appropriate one for a grant of leave to appeal. 43 If leave be granted, the appeal should be upheld. Subject to one possible qualification, the appropriate relief is to set aside the orders of the trial judge and, in their place, order that the report of the referee be adopted and judgment given for the amount identified by him at [66] of his report. 44 The qualification concerns a matter of detail. According to the referee, the Opponents were entitled, as at 10 July 2006, to be paid the sum of $17,111.57: according to the trial judge, the loss sustained by the Opponents "as quantified in paragraph 66" of the report, was $17,777.57. Although no reference was made to the variation in the submissions in this Court, the appropriate course is to assume that the referee's report was correct and a typographical error occurred in the judgment below. (The orders sought in the draft notice of appeal proceed on that basis.) If that assumption is wrong, the parties should have liberty to bring in short minutes reflecting the correct figure. 45 The Council, having been successful in this Court, is entitled to an order for the costs of the application for leave and of the appeal. In its draft notice of appeal, it also sought the costs of the motion in the District Court filed on 14 August 2006. Nothing was said in resistance to this order by the Opponents, but an issue arises as to other costs incurred in the District Court, prior to filing the notice of disputed issue raised by the motion. Even if the Opponents were not successful on the motion, they were successful in their claim against the Council, both in respect of liability and with respect to one head of damage. It would appear that they should receive all, or a substantial part of, their costs up to 10 July 2006. If no agreement can be reached in that respect, it is a matter which will need to be resolved in the District Court. It is not a matter which can be resolved by this Court on the material before it, nor should leave be granted to allow the parties to place further material before this Court. 46 Accordingly, I would propose the following orders:

RYDE CITY COUNCIL v TOURTOURAS

At a glance

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Judgment (38 paragraphs)

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Legislation Cited (6)

Cases Cited (4)

Cited By (11)