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JUDGMENT - EX TEMPORE

1. BELL CJ: This is an application for leave to appeal from a discretionary decision of Darke J (the primary judge) to adopt aspects of a referee's report concerning defects relating to sunshades on the façade of the Opal Tower building at Olympic Park. The background to the matter is set out in The Owners - Strata Plan No 97315 v Icon Co (NSW) Pty Ltd [2023] NSWSC 363 (the primary judgment or PJ).
2. At PJ [5], the primary judge noted that the referee had concluded in summary that: "(1) due to structural inadequacies, the existing installation of all the sunshades was defective and in breach of the warranties contained in s 18B(1)(a), (b), (c) and (f) of the Home Building Act 1989 (NSW); and (2) the 'C-Bracket Solution' [advanced by Icon] was the 'proper rectification methodology'."
3. His Honour recorded that the Applicant, the Owners' Corporation, had contended at the hearing before the referee that the proper rectification methodology was the so called "Hidden Bracket" solution. I note at this stage that it was not suggested that the C-bracket solution advanced by the Respondent, Icon Co (NSW) Pty Ltd (Icon), was structurally inadequate, but it was submitted, both before the referee and the primary judge, that it was not in conformity with the building contract and, in particular, did not meet certain aesthetic requirements said to be mandated by the contract documents.
4. The primary judge applied the well-known principles summarised by McDougall J in the Chocolate Factory Litigation (Chocolate Factory Apartments Pty Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784) in relation to the adoption of a referee's report. No challenge was made to those principles, nor to his Honour's application of them in terms.
5. The Applicant accepted that it needed to establish House v The King (1936) 55 CLR 499; [1936] HCA 40 (House v The King) error on the part of the primary judge. The error relied upon by the applicant was expressed in [15]-[17] of the summary of argument prepared by Mr Corsaro SC, who appeared on behalf of the Owners' Corporation, as follows: "A proper construction of the contract drawings establishes that the aspects of the design and construction that the Respondent was required to fulfill included: (a) Sunshades that were connected to brackets housed inside the profile of the sunshades and the façade end of those brackets are bolted into the façade framing system; (b) Sunshades which had no brackets or any other feature which interrupted the clean and neat lines of the façade window walls and sunshades; and (c) The architectural look and feel of the building typified by horizontal lines created by the contours of the sunshades which were not interrupted by external brackets or other external features. At paragraph 89(a) and (b) of the Report, the Referee construed the contractual provisions so that he 'attached little weight to the significance of' the Sketches and AMA Details as they were merely 'indicative sketches' and 'indicative details' that had originally been prepared for considering where cost savings should be made. Then at paragraph 89(c) of the Report, the Referee construed the CC Drawings as only prepared for the purpose of 'Design development' and not indicating that 'visible supporting brackets for the sunshades could not be used'. The Applicant's case below was that the Referee had made a legal error by misconstruing the Respondent's obligations under the building contract viewed in the context of how a principal's project requirements are typically accommodated. The primary judge similarly misconstrued the Respondent's contractual obligations in upholding the Referee's determination. This constitutes House rules error: see Reasons [69]. The Applicant submits that the Referee and the primary judge erred in failing to accept that the contractual drawings visually indicated aspects of the design required under the building contract notwithstanding that various aspects of the design needed to be further developed before it could be constructed. They were 'indicative' in that sense, but not 'optional'. That is how a principal under a design and construct contract (here a contract to pay $154,707,110 plus GST) would normally control the contractually required outcome notwithstanding that the detail for how the contractor is to implement the preliminary design will in many respects need to be further developed." (Emphasis in original.)
6. In essence, the error which was said to have been made, both by the referee and the primary judge, was to conclude that the so-called C-bracket solution contended for by Icon was in conformity, or perhaps not in disconformity, with the contractual requirements.
7. In addition to needing to satisfy House v The King to impugn a discretionary decision, the Applicant must also satisfy the criteria for leave to appeal to this Court. Those criteria have been stated in numerous cases and are, in short, that leave applications in the Court of Appeal attract a general obligation on the applicant for leave to establish that there is an issue of principle, a question of public importance, or a reasonably clear injustice going beyond something that is merely arguable. Simpson AJA and I collected a number of the leading authorities in PPK Willoughby Pty Limited v Baird [2019] NSWCA 48 at [6]. In one of those decisions there cited, namely BE Financial Pty Limited v Das [2012] NSWCA 164, Basten JA also referred, in the context of established principles in relation to the grant of leave to appeal, to the significance of ss 56 and 60 of the Civil Procedure Act 2005 (NSW) for the grant of leave to appeal.
8. It does not appear to me that this case raises an issue of principle, a question of public importance, or a reasonably clear injustice going beyond something that is merely arguable. I should make it clear that in relation to the matter "not raising a question of public importance", the Opal Tower building has been the subject of much publicity as to its building defects but I note that, at this point in time, the vast majority of those defects have been resolved following both negotiations between the parties and or acceptance before the referee or in the course of the reference of the existence of certain defects and means of rectifying them. So, by saying the matter does not raise a question of public importance, I do not mean to diminish the impact on occupants of the Opal Tower who have been affected by the well-publicised issues in relation to that building.
9. To explain why I have come to the conclusion that the criteria for the grant of leave are not satisfied and, in particular, why, in my opinion, a reasonably clear injustice would not arise from the refusal to grant leave, it is necessary to begin with the fact that the Owners' Corporation's ultimate claim is one for damages.
10. There is no doubt that the original manner of the affixing of the sunshades involved a relevant defect in relation to their original construction. The referee had to determine, as he set out in para [3] of his report, following a conclusion that there were relevant defects in relation to the sunshades: "If and to the extent that Icon is found liable for any, or all, of the defects … what is the respective proper rectification methodology, including the appropriate quality assurance and/or independent consultant steps, if any, attributable thereto."
11. Before the referee, Mr Corsaro addressed the topic of the proper rectification methodology at p. 12 and following of his written submissions. He identified that the starting point for considering the appropriate measure of damages for construction defects was the well-known decision of the High Court in Bellgrove v Eldridge (1954) 90 CLR 613; [1954] HCA 36 (Bellgrove). He referred to passages at 617 and 618 of the joint judgment. He went on to refer to a later High Court decision on the same topic, namely Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 at 288; [2009] HCA 8. He submitted that: "A plaintiff is entitled to damages based upon the repairs required to now achieve conformity unless carrying out repairs would not be a reasonable course to adopt. That reasonable course to adopt qualification will only apply in fairly exceptional circumstances where a plaintiff was seeking to rely upon a technical breach to secure an uncovenanted profit."
12. The last part of this passage is, in my opinion, to express the matter too narrowly. While it is accepted that the qualification will only apply in "fairly exceptional circumstances", it is not confined to where a plaintiff is seeking to rely upon a technical breach to secure an uncovenanted profit. This may be seen by reference to the recent decision of this Court in Owners SP 92450 v JKN Para 1 Pty Ltd [2023] NSWCA 114 at [67]-[70] in the judgment of Gleeson JA, with whom White JA and Basten AJA both agreed. His Honour then said: "In Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8 at [13], the joint judgment reiterated the 'ruling principle' with respect to damages at common law for breach of contract is that stated by Parke B in Robinson v Harman (1884) 1 Exch 850 at 855; 154 ER 363 at 365: The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed. Consistent with this principle, rules have been developed in particular types of cases for the bases of assessing damages. In a case like the present, where the claimant is entitled to have a building erected upon its land in accordance with the contract and the plans and specifications which formed part of it, the prima facie measure of damages is the cost of reinstatement, not the diminution in value of the defective building. In Bellgrove v Eldridge, Dixon CJ, Webb and Taylor JJ said (at 617): In the present case, the respondent was entitled to have a building erected upon her land in accordance with the contract and the plans and specifications which formed part of it, and her damage is the loss which she has sustained by the failure of the appellant to perform his obligation to her. This loss cannot be measured by comparing the value of the building which has been erected with the value it would have borne if erected in accordance with the contract; her loss can, prima facie, be measured only by ascertaining the amount required to rectify the defects complained of and so give to her the equivalent of a building on her land which is substantially in accordance with the contract. (Emphasis in original.) Bellgrove v Eldridge recognised a qualification to the rule it stated in regard to damages recoverable by a building owner for the breach of a building contract. 'The qualification … is that, not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt' (at 618). The joint judgment gave as an example of unreasonableness, demolishing the walls of a house which were to be cement rendered with second-hand bricks, to replace second-hand bricks with new bricks, which was said to be 'quite unreasonable', whilst indicating that the expression 'economic waste' goes too far in stating the test (at 618-619). Importantly, the test of 'unreasonableness' is only to be satisfied 'by fairly exceptional circumstances': Bellgrove v Eldridge at 617, cited in Tabcorp at [17]. Tabcorp at [16] referred by way of an example of unreasonableness to the situation where the innocent party was 'merely using a technical breach to secure an uncovenanted profit', citing Oliver J in Radford v De Froberville [1977] 1 WLR 1262. Other examples include where the cost of the 'proposed rectification is out of all proportion to the benefit to be obtained': Brewarrina Shire Council v Beckhouse Civil Pty Ltd [2006] NSWCA 361 at [87]-[88], citing South Parklands Hockey & Tennis Centre Inc v Brown Falconer Group Pty Ltd [2004] SASC 81 at 90 (Debelle J); and Scott Carver Pty Ltd v SAS Trustee Corporation [2005] NSWCA 462 at [120] (Ipp JA); see also Wheeler v Ecroplot Pty Ltd [2010] NSWCA 61 at [81] (Macfarlan JA, McColl and Basten JJA agreeing). For a recent application of this principle in this Court, see Renown Corporation Pty Ltd v SEMF Pty Ltd [2022] NSWCA 233."
13. The builder, Icon, also referred to and called into account Bellgrove considerations in its submissions to the referee, which were before us on this application for leave to appeal. Thus, at [44]-[53] of the Respondent's written submissions, arguments were made in relation to the Owners' Corporation's proposed method of rectification in the context of considerations of both necessity and reasonableness.
14. Returning to the referee's report, two main findings emerged. First, that the C-Bracket solution was in conformity with the building contract. This was the principal conclusion attacked by Mr Corsaro in his careful and thorough submissions before us. The second principal finding was that, of the two rectification solutions proposed, not only was the C-bracket solution more reasonable, but, critically for present purposes, the solution propounded by the Owners' Corporation was said to be unreasonable and completely out of proportion to what was reasonable.
15. To make this clear, it is necessary to note (having already noted that no attack was made on the structural efficacy of the C-Bracket solution) that the referee also found (at para [91(a)(vii)]), in respect of the "300" sunshades C-brackets, that: "given that the tapered lower horizontal leg and the vertical leg of the C-bracket protrude by less than 51 millimetres and will be powder-coated so they are colour-matched, I do not see how these C-brackets will be visible - let alone noticeable - from the exterior of the building. My opinion in this regard is reinforced by the fact that even the lowest level of C-brackets would be installed some 5.1 metres above ground level, and thereafter only repeats upwards at some 3.2-metre intervals."
16. In relation to both the "450" C-brackets and the "450" intermediate brackets, there were broadly equivalent conclusions expressed in paras [91(b)] and [91(c)] of the referee's report. At para [92], the referee concluded, "As I am of the opinion that the C-brackets will not be readily visible from either the exterior or interior of the building, I am unable to conclude that the required high-quality outcome specified in clause 3.1.1 of the PPR [Principal's Project Requirements] will not be achieved if the C-brackets are used."
17. The referee went on, in para [98(a)] of his report, to conclude that the Hidden Bracket Solution was not a reasonable method of rectification as the rectification work involved was out of all proportion to the benefit to be obtained.
18. In para [99], the referee again expressed the conclusion that the Hidden Bracket solution was not a reasonable and proper method of rectifying the sunshades. He gave numerous reasons for that conclusion, including that the work was disproportionate to the benefit to be obtained. He elaborated on that conclusion by reference to seven separate reasons. He concluded also that the installation of the Hidden Bracket solution would cause significant inconvenience to the occupants of all 96 units and that, although "technically viable", the design of the Hidden Bracket solution is "at present only a concept solution which is subject to detailed design and development work."
19. In sub-para [99(f)], he concluded that the cost of carrying out the Hidden Bracket solution will "likely be many times greater than the cost of carrying out the C-bracket solution" and, indeed, referred in this context to the evidence of a Mr Karsai, an expert called for the Owners' Corporation. He also pointed out, in sub-para [99(g)], that having regard to the rectification methodology, the overall time taken to carry out the Hidden Bracket solution will likely be many times greater than the time taken to carry out the C-Bracket solution.
20. These are powerful and unchallenged findings.
21. If one were to assume the validity of Mr Corsaro's attack both on the referee's report and the primary judge's conclusion that no error of law was involved in the referee's construction of the building contract, and if the decision to adopt the report were set aside, the matter would need to go back to a judge at first instance to assess damages. Precisely the same issues, which I will refer to compendiously as the "Bellgrove considerations", would arise on such a remitter and there is no reason to consider that the same technical conclusions based on the expertise of the referee as to the efficacy of the competing solutions would not again be reached.
22. What I have said means that it is not necessary to engage with the principal line of Mr Corsaro's attack on the contractual construction, both by the referee and by the primary judge. Having said that, I would not be inclined to characterise the attack on the contractual construction as more than "merely arguable", and thus not satisfying the criteria for leave to appeal.
23. For these reasons, I would refuse leave to appeal with costs.
24. MEAGHER JA: I agree with the Chief Justice and the orders his Honour proposes.
25. ADAMSON JA: I agree with the orders proposed by the Chief Justice for the reasons his Honour has given.
26. BELL CJ: It follows that the order of the Court will be application for leave to appeal dismissed with costs.
27. The Court is grateful to counsel and their instructors.