SHIELS & ANOR v HELKEAST P/L & ANOR [2001] NSWSC 1032

New South Wales Supreme Court

CITATION : SHIELS & ANOR v HELKEAST P/L & ANOR [2001] NSWSC 1032 CURRENT JURISDICTION: EQUITY FILE NUMBER(S) : SC 1660/1998 HEARING DATE(S) : 02/11/01 JUDGMENT DATE : 16 November 2001

Roger Kenneth Shiels - First Plaintiff PARTIES : Vickie Shiels - Second Plaintiff Helkeast Pty Ltd - First Defendant Garose Pty Ltd - Second Defendant JUDGMENT OF : Bryson J at 1

COUNSEL : J. Prowse (sol) - Plaintiffs A.M. Gruzman - Defendants SOLICITORS : Macedone Christie Willis Solari Partners - Plaintiffs Mark Philip Symonds - Defendants CATCHWORDS : PRACTICE and PROCEDURE - reference under SCR Pt72 - application to reject or vary report of referee - numerous complaints of procedural injustice and misapprehension of evidence were examined and rejected. CASES CITED : Super Pty Ltd v. SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 DECISION : The defendants' Notice of Motion filed on 16 October 2001 is dismissed with costs.

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRYSON J

FRIDAY 16 NOVEMBER 2001 1660/1998 SHIELS & ANOR v. HELKEAST PTY LTD & ANOR

Judgment 1 BRYSON J.: In the defendants' Notice of Motion filed on 16 October 2001 they seek orders that the Report pursuant to Pt.72 be rejected or varied, with alternative claims that the matter be remitted for further consideration by the referee or decided by the Court upon further evidence. 2 In 1996 the plaintiffs embarked on a project to purchase residential property in Regatta Road, Canada Bay, demolish the buildings and develop a complex of 11 townhouses. They acquired options to purchase properties, they had plans prepared for the development, they obtained development approval from Drummoyne Council and they obtained a quotation from Deltown Constructions Pty Ltd to construct the buildings. They had difficulties in financing the project and, through the intermediation of a finance broker and a firm called Waters Gambles & Associates, they in effect sold the project to the defendants by a Deed of Agreement of 9 August 1996. 3 Clause 2 of that Deed was in the following terms: 2.(i) In consideration thereof the Purchaser will pay to the Vendor an amount determined in accordance with the following scale:- Profit of $500,000 or less - NIL Profit of $500,000 to less than $600,000 - $ 50,000.00 Profit of $600,000 to less than $700,000 - $ 75,000.00 Profit of $700,000 to less than $800,000 - $125,000.00 Profit of $800,000 or more - $200,000.00 Plus 25% of any profit above $800,000.00 (ii) In this clause the profit will be the gross profit before taking into account the incidence of income tax of the Project as determined by the accountants employed by the Company for the purposes of the Project, Tony Commisso & Co., of Shop 24B, Homeworld Shopping Centre, Soward Way, Tuggeranong, in the Australian Capital Territory whose certification thereof will be accepted by all the parties as final and conclusive. Such determination will be carried out by the said Accountants in accordance with all normal and proper accountancy procedures. BUT in determining such amount the total of the loan account of $164,931.45 or any other costs or expenses incurred on the Project on or before 8 August, 1996 (excluding legal fees payable to Macedone Christie Willis Solari Partners by Roger Kenneth Shiels and Vickie Shiels incurred prior to 5th August, 1996) shall not be taken into account. 4 Clause 5 of the Deed was in the following terms: If the profit of the project as determined in accordance with Clause 2 is more than $500,000 so that the Vendors receive a payment as set out therein then the Vendors will purchase from the Company the last of the eleven town houses comprising the Project to be sold. The purchase price will be $285,000 and the Vendors will apply to such purchase all their right title and interest in any amount to be received by them in accordance with Clause 2 or otherwise under this agreement and the Vendors do hereby authorise the Company and Purchasers to apply all the Vendors' entitlement under this agreement to such purchase and to retain the same for such purpose until all the said units have been sold and the Project completed. 5 The defendants carried out and completed the project, in a modified form, but did not obtain a determination by their accountants Tony Commisso & Co. or a certification of the amount of profit. The plaintiffs by Summons dated 10 March 1998 claimed orders requiring the defendants to provide financial statements and for specific performance of cl.2, and related relief. An order of the Court made by consent on 7 May 1998 referred questions pursuant to Pt.72 r.2(1) to a quantity surveyor, to be appointed by the President of the Australian Institute of Quality Surveyors (New South Wales Branch). Mr Clifford Paul Ventris was appointed Referee. The matter referred was: The following questions arising in the proceedings, namely: 1. What are the profits of the project, as defined by Clause 2(ii) of the Deed of Agreement between the parties dated 9 August, 1996; 2. What would the profits have been assuming a contractor at arms length from the proprietor? 6 After very extended proceedings the Referee made a Report dated 24 May 2001, Exhibit 1. The plaintiffs applied by Notice of Motion of 21 September 2001 for orders adopting the Report and giving judgment, and the defendants' Notice of Motion now under consideration was filed in response. 7 The principles upon which the Court acts when it is asked to adopt, or not to adopt the report of a referee under Pt.72 of the Supreme Court Rules were stated authoritatively in Super Pty Ltd v. SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 in the judgment of Gleeson CJ with whom Mahoney and Clarke JJA agreed; and Mahoney JA added some important further observations: see 565-568. For reasons stated extensively in the judgment of Gleeson CJ, a party who is dissatisfied with a referee's report is not entitled as of right to require the Judge acting under Pt.72 r.13 to reconsider and determine afresh all issues which that party decides to contest; see 562F. Gleeson CJ said at 563: What is involved in an application under Pt 72, r 13 is not an appeal, whether by way of a hearing de novo or a more limited re-hearing. 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. 8 Gleeson CJ also said, after dealing with dissatisfaction with the referee's report on a question of law, 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: cf Nicholls v Stamer [1980] VR 479 at 495 per Brooking J. 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: cf Jordan v McKenzie (1987) 26 CPC (2d) 193. So also would perversity or manifest unreasonableness in fact-finding. As to the last-mentioned matters, I refer again to the history of the rules and to Buckley . 9 In the present case it was clear that there was a large body of material in the nature of evidence before the Referee which has not been put in evidence before me. Further the Referee, a quantity surveyor, was entitled and able to bring to bear on his consideration his own expert knowledge and understanding, which a judge would not be entitled to use in the same way and would not be likely to have. The defendants did not in their case bring forward or attempt to bring forward the whole body of material which was under the Referee's consideration but brought forward their own account of the material, accompanied by a small part of it, supported by reasoning or argumentation which was put forward so as to show that particular findings should be departed from. The defendants did not even bring forward in evidence the terms of the letter from their former accountants, which the report shows that the Referee had and of which the defendants claim that they had not seen the document during the reference. In my opinion I should not act on partial narrations of what took place in the reference extracted by the defendants and brought forward in evidence in this way; I cannot have any confidence that I have a complete understanding of what was before the Referee on any particular subject, nor can I have any of the insight which expertise would make available to a referee. 10 In the circumstances of this case, as appears from the whole of these reasons, I am of the view that it would not be right, as a matter of discretion, for me to embark on reviewing factual matters on which the Referee reached conclusions so as to address whether I would myself have found the facts differently, or whether I would be of the view that the Referee should have found the facts differently. A significant matter is that the proceedings before the Referee were very extensive, taking several years. Material put in evidence by the defendants themselves appears to me to show that the defendants, who dispensed with their professional legal representation for most of the reference, did not conduct their case or deal with the Referee with an appropriate regard to time or efficiency in the conduct of the reference. They dealt with the Referee in ways which were sometimes tardy and at times even to some degree were combative. It has contributed, to some degree, to my conclusion adverse to embarking on review of findings that the quality of the defendants' participation in the reference was as I have stated. 11 Where the defendants make allegations adverse to the Referee's conduct, it would be significant to have a whole picture of how the particular part of the proceedings complained of was conducted, and of how easy or difficult it was for the Referee to deal with the defendants, communicate with them and obtain their participation in any particular aspect, and of whether any matter complained of was the subject of any request for the Referee to explain something, make some information available, adopt any particular course or change any course. Where the defendants complain that they did not know of one of the documents referred to in the Schedule to the report, it is a difficulty for seeing what importance that complaint may have, and any underlying facts may have, that the defendants did not treat communication of documents as appropriately important. One of their complaints now is to the effect that the Referee did not have and (as they would put it) declined to receive a body of documents which the defendants had available. The complaint is grossly inept, as the defendants disregarded directions by the Referee to furnish such documents, and to furnish them within stated times. 12 The Referee did not conduct the reference in the form of a hearing modelled, even loosely, on hearings conducted by courts. He obtained the agreement of the parties to provisions which were to regulate the reference, set out in his letter dated 19 August 1998 which dealt with the conduct of the proceedings as follows: 1. PROCEEDINGS 1.1 The conduct of proceedings will generally follow Part 72 Rule 8 of the NSW Supreme Court Procedure. 2. TIME TABLE 2.1 On or before the 14th September 1998, the Plaintiff shall deliver to the Defendant and myself a sworn statement detailing the full nature of the dispute, any agreed statement of facts and a written submission on the dispute in support of the Plaintiff's contention. 2.2 Thereafter, on or before the 5th October 1998, the Defendant shall deliver to the Plaintiff and myself a sworn written response to the written submission of the Plaintiff. 2.3 If deemed absolutely essential and upon written application by the Plaintiff to myself, I will consider allowing the Plaintiff to submit a sworn written response to the Defendant's statement within a time to be determined by me. In this event, the Defendant will also receive consideration to a similar request upon written application to myself. Time shall however remain of the essence. 2.4 Having received the aforegoing written statements, I reserve the right if deemed necessary to call for further written submissions or documents from either and/or both parties or to call a conference meeting between the parties. 2.5 Within 21 days of all evidence having been completed, I shall submit my written expert report to the Court in accordance with Part 72 Rule 11. 13 The letter went on to deal with fees and indemnity. 14 The Referee conducted a preliminary conference on 19 November 1998, at which each party was represented by its solicitor. The directions at the preliminary conference were in these terms: 4. Referee stated that he required copies of all contract documents, drawings, specifications, correspondence, quotations, supplier and sub-contractor orders/invoices, variation orders, progress payments, defect lists, completion certificates, auditors books and financial records, all pleadings, previous expert reports (if any), witness statements, etc.