FALGAT CONSTRUCTIONS PTY LTD v LIGHTNING READY MIXED CONCRETE PTY LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MAHONEY, MEAGHER and SHELLER JJA 28 October 1994, 25 November 1994 [1994] NSWCA 94 ADMINISTRATIVE LAW — procedural fairness; referee's report The respondent agreed to supply the appellant, a builder, with ready mixed concrete of a specified strength. In proceedings in the Construction List the appellant alleged breach of the contract for supply of the concrete. The concrete as placed was found to be under strength. The Court referred out certain matters to a referee pursuant to Pt72 of the Supreme Court Rules and adopted the referee's report. The appellant appealed from the decision to adopt the report on the grounds that the referee had made a finding that contamination of the concrete was explained by the addition of water to the concrete after delivery by the respondent and at the pump on the site without evidence or in reliance upon his own expertise and without giving the appellant an opportunity to meet the point. The appellant argued that accordingly the Court should not have adopted the referee's report. Held: That the appeal should be dismissed. The appellant to succeed in its action had to show that the concrete was contaminated when it was delivered by the respondent. The referee was doing no more than saying that the appellant had failed to establish that there was a breach of contract by the respondent in delivering concrete that was not up to specification. His conclusion that the excess water was added at the pump did not undermine the finding which was clearly open to him that when delivered the concrete was not contaminated. Per Mahoney JA: There was evidence upon which the referee could conclude that the water was added at the pump, and there was not any failure of due process in the referee considering and determining that issue. A tribunal of fact is not bound to accept one or other of the contentions put to it by the parties; provided the matter is appropriately in issue, the tribunal of fact may adopt such conclusion as the evidence allows. ORDER Appeal dismissed with costs. Mahoney JA I agree with the judgment of Sheller JA and with the orders he proposes. Mr Bailey, for the appellant, limited his argument to one finding in the Referee's report. This was his finding that the concrete mixture was not according to the contractual requirements because water had been added to it "at the pump". It was to this that his submissions were directed. Mr Bailey did not contest that the appeal is to be determined upon the basis of the law as established by Super Pty Ltd v SPJ Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549. The submissions that he made, or as ultimately they were pressed, moved essentially between two propositions: that the Referee's report involved a denial of natural justice in that his decision that water was added "at the pump" had not been a matter sufficiently raised during the hearing; and that there was no evidence before the Referee on which he could conclude that the water was so added. 2 UNREPORTED JUDGMENTS It may be accepted that, in proceedings before the Referee and subsequently before the Judge, the proceeding is to be dealt with according to (as it has been described: Super Pty Ltd v SPJ Formwork (Aust) Pty Ltd at 566) due procedure. In the sense there referred to, the parties must have the opportunity to address the issues raised for decision and those issues must be determined by reference to the evidence presented or such other information as, in a proceeding before a referee, may be referred to. I am satisfied that, insofar as the Referee found as he did, he acted in accordance with due procedure. It was open to the Referee to conclude that the concrete did not meet the contractual specification and that one at least of the reasons for this was that there was too much water in the mix. It was accordingly necessary for him to consider when and by whom the excess water was added. It could have been added at a number of different points in the process: it could have been added during the mixing in the respondent's plant; during the transport from that plant to the appellant's site by persons for whom the respondent was responsible; at the point of discharge from the vehicles which had brought it there; or during the use of it, by pouring and otherwise, at that site. The Referee had evidence upon which he could conclude it was not added during the first two stages. If he accepted that evidence, he could so conclude. Accordingly, it was open to him to conclude that the water had been added at a later stage in the process. He chose to conclude that it had been added "at the pump", that is, at the third of those stages. Upon the process of reasoning open to him - it was described during argument as "the Sherlock Holmes process" - he could choose one or other of the possibilities that remained after all other possibilities had been excluded. See generally Tubemakers Ltd v Fernandez (1976) 50 ALJR 720 at 724, 725; (1975) 2 NSWLR 190 at 199-200. Mr Bailey's objection - at least at one stage in his argument - was that, even if this be so, the Referee could not choose as the point for injection of the water the point at which the concrete was "at the pump". He claimed that the respondent had not suggested that the water had been added at that point and that, in any event, there was no evidence upon which the Referee could find that it had been then added. Mr Bridge, for the respondent, accepted that he had not, at least in terms, submitted to the Referee that the water which had affected the concrete mix had been added "at the pump". His submission was, as I understand it, a more general submission, namely, that the deficiencies in the concrete were the result of added water and failure properly to compact it; that the water had not been added at any time up to the time when those for whom the respondent was responsible had deposited the concrete mix at or into the pump; and that accordingly the water must have been added at some time thereafter. But the claim that the water was added at or after the pump was plainly an issue in the proceeding. It was raised, in terms or in effect, by the pleadings; it was referred to by Mr Bailey in argument before the Referee; and it was clearly the subject of contest in the questions, the evidence and the submissions before the Referee. There was not any failure of due process in the Referee considering and determining that issue. There was, in my opinion, evidence upon which the Referee could conclude that the water was added "at the pump". As I have said, the Referee apparently accepted the evidence that it was not added before that point in the process. Evidence from the workmen employed by the appellant or its sub-contractors suggested that it had not been added during the pouring of the concrete into the works on the site. The Referee may well have accepted that evidence. That left WRUGAT CONSTRUCTIONS PTY LTD v LIGHTNING READY MIXED CONCRETE PTS LTD (Sheller JA) (Sheller JA) as the only practical alternative - or at least an obvious alternative - that the water had been added "at the pump". Had there been nothing more, it would in my opinion have been open to the Referee to conclude that the water was added at that point. A tribunal of fact is not bound to accept one or other of the contentions put to it by the parties; juries are conventionally so directed. Provided the matter is appropriately in issue, the tribunal of fact may adopt such conclusion as the evidence allows. But in this case the evidence indicated the real possibility that the Referee would determine as he did. In his questioning of the appellant's expert Mr Kaye, he and, I think, Mr Kaye each saw the watering of the mixture "at the pump" as having a purpose, viz, the facilitation of the flow of the material through the pipe to the site. The workman in question Mr Romeo was questioned by Mr Bridge to make clear that he was not "at the pump" at relevant times and accordingly that water could have been added to the mixture at that place without his seeing it. The evidence was, in my opinion, such that it was open to the Referee to find, as a matter of inference, as he did. Upon this basis, it is not in question but that it was open to Staff AJ to adopt the report and accordingly to give judgment as he did. Ihave dealt with the factual issues as I have in deference to Mr Bailey's earnest and persistent submissions on behalf of the appellant. However, notwithstanding what he has put, I am satisfied that the orders to be made are those proposed by Sheller JA. Meagher JA I agree with Sheller JA. Sheller JA Introduction The appellant, Falgat Constructions Pty Ltd, appeals from the decision of Staff AJ of 23 December 1991, in which his Honour adopted the report of a referee, Mr JW Muirhead, appointed pursuant to Pt72 of the Supreme Court Rules, and gave judgment for the respondent, Lightning Ready Mixed Concrete Pty Ltd, in an amount of $8,903.68 plus interest. His Honour ordered the appellant to pay the respondent's costs. In 1987 the appellant, a builder, was engaged in building a two-storey residence at 92 Barker Street, Strathfield. The respondent, which carried on the business of supplying ready mixed concrete under the business name "Borham Concrete", agreed to supply to the appellant at the building site eighty-one cubic metres of concrete with a minimum strength of 20 mpa. The concrete was delivered on 24 April 1987 in the respondent's truck. From the truck the concrete was placed in a pump owned and operated by a third party under sub-contract to the appellant, pumped onto the site and placed by another sub-contractor. In place the concrete was found to be substantially less than the minimum strength agreed. For present purposes it can be accepted that this deficiency was due to the presence of excess water in the concrete as placed. The appellant commenced proceedings in the Construction List to recover damages from the respondent for its alleged breach of the agreement to deliver concrete with the minimum strength of 20 mpa. In its defence the respondent alleged, inter alia, that 10. The supply contract provided as follows: (a) The [respondent] would not be liable in respect of any claims which arose out of any defects or other faults which might develop in the concrete due to: (i) faulty handling, placing or curing of the concrete by the [appellant]; or 4 UNREPORTED JUDGMENTS (ii) the addition of any water either before or after discharge from the delivery unit without the written instructions of an authorised representative of the [respondent]. (b) Such guarantee by the [respondent] of strength of the concrete delivered to the [appellant] would not arise in the event of any of the circumstances referred to in paral0O (a) of the defence. PARTICULARS A. The terms and conditions referred to in subpara(i) and subpara(ii) of paral0 (a) of the defence are contained in subpara(a) and subpara(b) of paraA.3 found on the delivery dockets. B. The term and condition referred to in paral 0(b) is contained in paraA.5 and paraD.2 found on the delivery dockets. 11. The [appellant's] claim arises out of defects or other faults of the concrete due to the [appellant's] - (a) Faulty handling, placing or curing of the concrete; and/or (b) The addition of water to the concrete either before or after discharge from the delivery unit without the written instructions of an authorised representative of the [respondent]." Originally the terms of the contract and the specification of the concrete to be supplied were in issue. On 18 March 1991 the Court referred the matters set out in the Schedule to the order to Mr Muirhead. The only matter material to this appeal was Item 4 in the Schedule as follows: "4. In the event that the concrete did not comply with the Contract, did its failure to comply with such Contract, arise from faulty handling, placing or curing of the concrete or the addition of water after discharge from the delivery unit so as to entitle the [respondent] to the benefit of CLD.5 of the delivery docket comprising the Contract." CLD.5 of the delivery docket was not referred to in argument. Mr Muirhead noted in his report that the respondent had said that it would not rely on the conditions in the delivery docket. REFEREE'S REPORT The referee, Mr Muirhead, reported that the low strength of the concrete measured after its placement was attributable to a combination of: "(a) Excessive water in the concrete as placed. There was evidence that there was water lying on the surface of the plastic membrane prior to the start of the pour. I think it unlikely that this would have a significant effect over the whole slab. It is more likely to have an effect in a limited area at the location to which it was pushed by the concrete. I think it much more likely that water was added at the pump with the purpose of facilitating pumping and the placement of the concrete. I am aware that none of the truck drivers has given evidence of having observed water being added while discharging. The builder was not present nor was there any other supervision. I think it unlikely that the concrete discharged from the transit mixers would have excessive water from the plant. On balance I am of the opinion that the excess water was added on the site. It is not necessary for me to go further. (b) Excessive voids in the concrete. The evidence for this is discussed in parall above. The cause is likely to be a combination of excessive water and insufficient compaction by vibration." The reference to paral 1 (there are in fact two paral1 in the report) seems to be a reference to Mr Muirhead's conclusion that the parameter most affecting the strength of properly placed concrete is the water/cement ratio, so that, for a mix WRUGAT CONSTRUCTIONS PTY LTD v LIGHTNING READY MIXED CONCRETE PTS LTD (Sheller JA) (Sheller JA) proportioned to provide concrete of a particular strength the addition of water will reduce the strength. Another parameter which has a significant effect on the strength of concrete is its density. Concrete which has not been properly compacted is less dense than well vibrated concrete. The lack of density is revealed by weighing and measurement and by the inspection of broken surfaces. Voids are visible in poorly compacted concrete and in concrete with grossly excessive water. The referee concluded that the concrete supplied to the appellant was within the terms of the contract. REASONS FOR JUDGMENT OF STAFF AJ In his reasons for judgment Staff AJ, after referring to the terms of the reference and the issues between the parties, said that, in his opinion, the report satisfied the requirements set out in the judgment of Cole J in State Authorities Superannuation Board v Property Estates (Queensland) Pty Ltd (unreported) 8 February 1991 and that there was ample material on which the referee could reach his findings. His Honour continued: "The [respondent] submitted that the failure of the concrete to achieve 20 mpa within 28 days was attributable to - 1. additional water being added to the concrete on site by a person or. persons not being servants or agents of the defendant, and/or 2. poor placing practice by Oxford Concrete Pty Ltd, a sub-contractor of the [appellant]. Each of these matters was capable of causing the failure, as was also the inclusion in the mix of too much water. The Referee had before him evidence bearing on each of these matters and concluded, as he was in my opinion entitled to do in the light of his own expertise and experience, that the cause of the failure was the addition of water at the pump". GROUNDS OF APPEAL By consent the appellant filed a supplementary notice of appeal on which it relied. This it supported with written as well as oral submissions. Very properly counsel for the appellant confined the grounds of appeal in a way which can be demonstrated by quoting from the supplementary notice of appeal. The appellant urged that Staff AJ had erred in adopting the finding of the referee that the cause of the failure of the concrete was the addition of water at the pump. In particular in relation to that finding the appellant disputed: "(i) that the referee had before him evidence bearing on the finding that water was added at the pump; (ii) that the referee had before him evidence that it was possible for water to be added at the pump; (iii) that the referee was entitled, contrary to the only evidence before him on the issue, to find that the addition of water at the pump could or would facilitate pumping of the concrete; (iv) that the referee was entitled, contrary to the only evidence before him on the issue, to rely upon his own expertise and experience to find that the addition of water could or would facilitate pumping, without disclosing to the parties that he would do so; (v) that the referee was entitled, in the absence of evidence that it was possible or likely for water to be added at the pump, to rely upon his own expertise and experience to so find; (vi) that the referee was entitled, in the absence of evidence that it was possible or likely for water to be added at the pump, to find that water was added at the pump without disclosing to the parties that he would do so." 6 UNREPORTED JUDGMENTS The appellant cited authority to support the proposition, about which there could be no doubt, that a factor to be taken into account by the Court in considering whether to adopt a referee's report is whether the referee has acted in accordance with the requirements of procedural fairness. These requirements may vary in some degree from case to case. The appellant's complaint was that the referee never indicated to it that he would find that water was added at the pump for the purpose of facilitating the pumping and placement of concrete and that this excess water led to the downgrading of the concrete. Further there was no evidence before the referee to base this conclusion. If the referee was going to rely upon his own expertise he should have informed the appellant and given it an opportunity to meet the point. The appellant alleged in its statement of claim that the respondent had broken the terms of the contract by delivering concrete which was not up to the agreed specification. The respondent in its defence said, in part, that the defects or other faults of the concrete were due to the addition of water to the concrete after discharge from the delivery unit and without the written instructions of an authorised representative of the respondent. This was the issue referred to Mr Muirhead by Item 4 in the Schedule. The respondent called witnesses who described the process whereby the concrete was mixed and the ingredients put into it and tendered records showing the concrete mix supplied by it to the appellant. Harry Butler, an industrial chemist and the Technical Services Manager of Australian Cement Limited, gave evidence about the water content of concrete made in accordance with the mix designs in the records produced by the respondent. He said that he had examined the concrete batch records of the appellant and that the proportions of all the constituent items therein were appropriate in order to achieve a compressive strength of 20 mpa at 28 days. On this material it was open to the referee to conclude that when delivered at kerbside at the site by the respondent the concrete met the specification strength. The corollary was that the strength must have been affected by something that happened after that point. In cross examination, Frank Romeo, the sub-contractor employed to place the concrete, gave the following evidence: "Q. You weren't concerned with what was happening up at the truck as long as the concrete kept coming? A. Not at all. Q. And you don't know of course whether the concrete pumping people put any water in the concrete or not? A. They not allowed, until I give them permission. Q. You don't know whether they did it with or without your permission? A. No. Q. And of course concrete runs through the pipe more easily the more liquid it is, doesn't it? A. Well, I won't say that. Q. The more water there is in concrete, the easier it is to pump, isn't that right? A. It is easy to come out as it should, yes, not from the pump. Q. You say the thickness or the texture of the concrete makes no difference at all to the ease with which it can be pumped? A. Not to my knowledge. Q. Have you done any concrete pumping yourself? A. Not pumping. Q. You concern yourself just with the placing? A. Right." Later he gave the following evidence: "Q. Again I am not being at all critical of you. What happened up at the truck, if anything, between the pump and the concrete delivery man - A. Assuming - WRUGAT CONSTRUCTIONS PTY LTD v LIGHTNING READY MIXED CONCRETE PTY LTD (Sheller JA) (Sheller JA) Q. - was no concern of yours either? A. Well, if he says he want it done, I would have explained because of the service I would have explained which I did. As far as the time and the truck come and the truck wasn't lost on the way, eventually come to my knowledge to go and say what is going on. Q. You just wanted, putting it bluntly, to get stuck into the job and get it finished? A. That is right, get into the job and get it over and done and finished. Q. As long as the concrete kept coming - A. I was happy. Q. And the sooner you get the job done the better? A. Yes. Q. And provided that the concrete kept coming down the line so you could place it, it was no concern of yours whether anyone put water in the concrete up at the pump or not, was it? A. Well, it wasn't a reason to criticise the pump if you hadn't have any water, because you against the road, more water coming on more time to finish the concrete, and we don't need any water, especially when you lay the concrete on plastic. We require that water to be on the slump required by the engineer and not have any excess water, so we have 9 hours to finish that concrete, so there was no need by me or anyone else to suggest we have any water in it. Q. And the pump operator is the man who can tell the truck driver, if he wants more water in the concrete, isn't he? A. Assuming it is possible, yes, but he is not entitled to do it unless he come and ask and then the truck driver - Q. it happens though, doesn't it? A I couldn't say yes, I couldn't say no. It could happen if you ask him to." The pump operators were not called to give evidence. There is some force in the submission that there was no evidence to base the conclusion that the water was added at the pump. However to succeed in its action the appellant had to show that the concrete was contaminated by water when it was delivered by the respondent. Mr Muirhead in saying that he was of opinion that the excess water was added on the site was doing no more than saying that the appellant had failed to establish that there was a breach of contract by the respondent in delivering concrete that was not up to specification. The referee added that, in the circumstances, it was likely that the water was added at the pump with the purpose of facilitating pumping in the placement of the concrete. This conclusion does not undermine the referee's finding, which was clearly open to him, that when delivered the concrete was not contaminated. The only other point raised was a suggestion that the contamination was caused by the addition, when the concrete was mixed, of wet sand. The acceptance by the referee of the evidence of the mix and of the technical evidence about the consequence of the mix must inevitably lead to the rejection of this alternative explanation. CONCLUSION In my opinion, Staff AJ was right to adopt the referee's report and the appeal should be dismissed with costs. Appeal dismissed with costs. Counsel for the appellant: IH Bailey Solicitors for the appellant: Kemp Strang and Chippindall Counsel for the respondent: ACA Bridge 8 UNREPORTED JUDGMENTS Solicitors for the respondent: PW Turk and Associates