Grounds for opposition to the adoption of the Report
25In a careful argument, Mr Vincent of counsel for the defendant, identified three matters which he contended - individually or collectively - warranted a conclusion that there was a breach of procedural fairness on the part of the referee with the result that the report should not be adopted. First, he contended that the referee received communications from the plaintiffs at times the defendant was not present and was not later apprised of. Second, he pointed to the fact that the referee received the letter of 30 April 2012 and maintained that there was insufficient time for his client to provide any meaningful response prior to the issue of the report. Thirdly, he relied upon a failure by the referee to disclose an aspect of his reasoning in his report and which I will later describe.
26Mr Vincent referred to the decision of Bergin J, as her Honour then was, in Julie Dawn Rhodes v Christine Elizabeth Fletcher & Quasar Professionals ACT Pty Ltd [2000] NSWSC 797 and especially to the analysis of her Honour at [11]-[19]. After reviewing various authorities, her Honour stated at [18]:
"I am satisfied that Mr Hollands [the referee] was required to afford natural justice to the parties, giving each the opportunity of putting before him the relevant matters for which they contended and giving each the opportunity to comment upon the relevant information adduced from the other party and to comment upon information on contentious matters otherwise gathered by him."
27In Rhodes, important information was imparted to the referee when he conferred with one of the parties and it was not later communicated to the other side (see Rhodes at [39].) It is clear that that information played a role - perhaps a significant one - in the referee's reasoning and analysis (Rhodes at [57]).
28The circumstances of an administrative decision-maker receiving information which is not disclosed to an affected party but which does not appear to have played a part in their ultimate decision-making, and whether that constitutes a breach of procedural fairness, was considered in Applicant VEAL of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs [2005] HCA 72; 225 CLR 88.
29However, a motion for the adoption of a report is a qualitative different context to judicial review of an administrative decision. There are significant limitations upon the Court's function in judicial review. In particular, the Court does not have power to determine the ultimate merits of the dispute. In this context and unlike judicial review, the question for the Court is not the legal validity of the referee's report but whether the ultimate interests of justice would be served by its adoption in whole, in part, or its rejection. Thus a conclusion that the report involved a breach of natural justice in some sense, does not necessarily lead to a finding that the report should be rejected in whole or in part, although it is obviously a strong start. There would still need to be considered the overall dictates of justice, including the principles set out in s 56 of the Civil Procedure Act 2005. Thus, if I were satisfied that a matter imparted to the referee by one party without the knowledge of the other played no role in his overall decision and that the matters that did play a role were sufficiently disclosed to the parties, that would be a strong factor in favour of the adoption of the report. This would be the case notwithstanding that a strict analysis of those circumstances might warrant a finding of a breach of a procedural fairness. A further factor of particular relevance to this case is that the amounts in dispute are relatively modest and there is therefore a consequential risk that further fragmentation and delay will increase the cost of the dispute out of all proportion to the amount being litigated.
30I turn to the specific matters raised by Mr Vincent said to constitute a breach of procedural fairness. It is clear from the above recitation of events that each of the parties spoke with the referee in private conference. It is also clear that the referee did not provide either a line by line recitation or even a summary of what was stated to him by the other parties. This was not a desirable course.
31In paragraph 3.4 of his report the referee stated:
"I note that in undertaking my enquiry and report, I have had the benefit of discussions with Mr Taouk and Mr Shehadie. In addition, Mr Taouk and Mr Shehadie have provided me with the information on which the conclusion and opinions expressed in this report are based."
32I read the reference to the "information" in the second sentence of this extract as a reference to the documentary material that was provided. Read in that way, the paragraph suggests that the conclusions and opinions were based upon the documentary information that was provided, and not the discussions. While this might be considered a strained reading of the paragraph, it is confirmed by the balance of the report with one area of exception. In paragraph 4.4 Mr Smith sets out what Mr Shehadie instructed him were the terms of the loan facility. However, as I stated earlier, Mr Smith was not embarking upon an exercise of determining what the terms of any loan facilities were, and both parties understood that. No decision by me to adopt any aspect of his report, in whole or part, is to be taken as an adoption of Mr Smith's description of those terms. The clear view that I have formed about the balance of the report, however, is that in determining quantum, Mr Smith exclusively relied upon the contemporaneous records that were provided by the parties. Mr Smith evaluated for himself whether or not the parties established the making of the various payments that were in issue. There is nothing in that material which supports a suggestion that anything that was orally imparted by Mr Shehadie - which Mr Taouk was not aware of - played any role at all in relation to the relevant findings in Mr Smith's report.
33I have referred earlier to the affidavits that were exchanged in support of the application to set aside the default judgment. Those affidavits, amongst other things, debated the amount that was owing, and did so by reference to the documents that were retained by the deponents. To both parties' knowledge Mr Smith received those affidavits. In my view, the parties could not have been under any real misunderstanding that Mr Smith's reconciliation exercise would be undertaken by reference to those contemporaneous documents. Consistent with the observations that I have made above, I do not consider the fact that Mr Smith received information orally from Mr Shehadie at a meeting at which neither Mr Taouk nor any other representative of the defendant was present, to be a matter that warrants the rejection of the report.
34The second matter relied on by Mr Vincent was what was said to be the absence of any opportunity on the part of his client to respond to the letter of 30 April 2012. I have set out the terms of that letter above. The only point being made in the letter was Mr Shehadie's assertion that, if there was no interest payment recorded in his ledgers, it was not made. Mr Shehadie said that that was to be "implied" in that document. I do not accept the defendant did not have a proper opportunity to respond to that letter by the next day. The letter was, after all, only nine lines long (in its original format). All it did was restate a position that the parties had debated with each other for a considerable period. Further, nothing in Mr Smith's report reveals that Mr Shehadie's assertions in his letter of 30 April 2012 played any part in his ultimate decision. It is the case that Mr Smith inferred from the absence of entries in the trust ledger that there was no interest paid. However, that conclusion was based upon his experience as an accountant in reading a ledger, not because of anything that Mr Shehadie stated. I reject this contention as a basis for not adopting the report.
35The third matter relied on by Mr Vincent concerned paragraphs 4.32-4.37 of the referee's report:
"INTEREST PAYMENTS
4.32 With respect to interest payments, there is agreement between the parties concerning the amount of those payments, with the exception of the following matters.
4.33 Mr Taouk has credited an interest payment of $3,238.39 on 1 August 1997. I assume Mr Taouk relied upon an entry in Mr Shehadie's Appendix J to Mr Shehadie's Affidavit of 20 April 2011 (attached as Appendix 4 to this report).
4.34 In my opinion, Mr Taouk made an interest payment of $258.39 on 25 August 1997. I rely upon Michie, Shehadie & Co's Ledger 1824 attached as Appendix 5 which records a payment of $258.39 on 25 August 1997.
4.35 I can only speculate as to why Mr Shehadie and Mr Taouk each added an additional $3,000 in their reconciliations. It may have something to do with the reduction in principal borrowed by Mr Maroun Taouk and on lent to Mr Gabriel Taouk / LGT Concrete as discussed at paragraph 4.12 above.
4.36 Mr Taouk has credited an interest payment of $3,681.78 on 1 November 1997. I cannot locate any record of that payment and accordingly I have excluded it from Schedule A.
4.37 Mr Taouk has credited an interest payment of $4,875.00 on 6 November 1998. I cannot locate any record of that payment being received by Michie, Shehadie & Co among the records available to me and accordingly I have excluded it from Schedule A. I note that Mr Taouk provided a copy of a cheque butt alleged to be a record of the interest payment. In my opinion, that evidence does not independently establish that Michie, Shehadie & Co received the interest payment. In the circumstances, Mr Taouk's bank statement, recording presentation of the cheque, and a copy of the original cheque would be adequate evidence to establish that the payment had been made to Michie, Shehadie & Co." (emphasis added)
36Mr Vincent submitted that so much of paragraph 4.37 which involves a reasoning process that the referee would not accept a cheque as independent evidence but might accept a bank statement and an original cheque, was not disclosed but should have been. The short answer to this contention is that it was not incumbent upon the referee to disclose in advance his mental processes in evaluating the documentary material (SZBEL v Minister for Immigration and Multicultural and Indigenous Affairs [2006] HCA 63; 228 CLR 152 at [48]). I have described the battleground that was established by the parties, namely that they were putting forward their respective documents as demonstrating the amounts advanced and amounts repaid. The referee decided the matter completely within that battleground. Within it he did not have to provide the parties with his thinking in advance of his actual reasons. On an issue as to whether an interest payment was made, the defendant had to satisfy Mr Smith that it was paid. It had the reasonable opportunity to do so and this included the opportunity to put forward whatever evidence it wished. It took up that opportunity but the referee was not satisfied. Such a process does not reveal a breach of procedural fairness.
37It follows that, considered individually or collectively, the matters relied on by Mr Vincent do not warrant the rejection of the report.
38I note two further matters. First, the defendant produced a list of a number of either factual errors or factual complaints concerning Mr Smith's report. Mr Vincent properly conceded that, of themselves, none of those complaints rose to the level of either perversity or unreasonableness which would warrant interference with the referee's report in accordance with the principles set out by McDougall J in Chocolate Factory at [7]. As the grounds upon which the defendant contend did warrant interference have not been successful, it is unnecessary to consider those further.
39Second, there was an attempt by the plaintiffs to tender a document concerning the interest payment referred to in paragraph 4.37 of the referee's report that I have extracted above. The purpose of the tender was to demonstrate that there was an interest payment, but that it related to something completely different. Not surprisingly, Mr Vincent seized upon this as a matter that warranted further referral of the issue concerning at least this interest payment. In my view, that is not justified. What this exchange reveals is the necessity to pay regard to the dictates of s 56 of the Civil Procedure Act. The debate that occurred over this tender reinforced my apprehension that, if this matter was to be returned to Mr Smith, there would be attempts to re-agitate the factual issues he has already determined and which only involve modest amounts of money. The inevitable likelihood is that the costs involved would far outweigh the amount in dispute. I reject the tender.