New South Wales Supreme Court CITATION : P Ward Civil Engineering v Civil & Civic [2003] NSWSC 133 HEARING DATE(S) : 03/03/03 JUDGMENT DATE : 13 March 2003 JURISDICTION: Equity Division Technology and Construction List JUDGMENT OF : Barrett J DECISION : Short minutes to be brought in CATCHWORDS : CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - adoption of report by referee - whether indemnity applies - no question of principle CASES CITED : Walter Construction Group Ltd v Walker Corporation Ltd (2001) 47 ATR 48 PARTIES : P Ward Civil Engineering Pty Ltd - Plaintiff Civil & Civic Pty Ltd - Defendant FILE NUMBER(S) : SC 55062/97 COUNSEL : Mr S R Donaldson SC - Plaintiff Mr M R Gracie - Defendant SOLICITORS : Tress Cocks & Maddox - Plaintiff Freehills - Defendant - 9 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY AND CONSTRUCTION LIST BARRETT J THURSDAY, 13 MARCH 2003 55062/97 – P WARD CIVIL ENGINEERING PTY LTD v CIVIL & CIVIC PTY LTD JUDGMENT 1 As a result of judgment delivered by McClellan J on 17 April 2002, Mr K.J. Hinds, a referee appointed by order made under Part 72 of the Supreme Court Rules, delivered a report on 7 November 2002. He had previously delivered a report in November 2001. The second or supplementary report dealt with two aspects of the controversy between the parties in respect of which McClellan J had not considered it appropriate to adopt the first report. 2 The first report dealt with a number of matters in contest between the parties in relation to a contract under which the plaintiff/cross-defendant (which I shall call "Ward") performed, as a sub-contractor, certain services for the defendant/cross-claimant ("C&C") which was the head contractor for the construction of a water treatment plant at Prospect. Ward was retained to perform site preparation and earthworks. In the original report, the referee found that Ward had been guilty of delays in completing parts of its contracted works, with the result that John Holland Construction Pty Ltd ("Holland"), a subcontractor retained by C&C to perform works subsequent to and dependent upon the works for which Ward was responsible, was delayed in commencement of its works. The referee also found that C&C was accordingly entitled to "late completion damages" as against Ward, such damages being described as "liquidated damages" and being calculated at a flat rate per day provided for in the contract between C&C and Ward. 3 When the question of adoption of the referee's report came before McClellan J, his Honour held that the "late completion damages" provision, as it applied to the particular delay, was in the nature of a penalty rather than a genuine pre-estimate of loss, with the result that that provision was unenforceable and the question of damages for breach of contract in respect of the particular delay required re-examination. 4 In consequence of the judgment of 17 April 2002, that matter, together with another concerning interest, were referred back to the referee for further consideration and report. The interest issue is now accepted by the parties as having been determined in principle by the referee's second report, with no more than calculations outstanding. The question for determination by me is whether the court should adopt the referee's second or supplementary report of 7 November 2002 in so far as it deals with the question of liability on the part of Ward for loss said by C&C to be referable to Ward's breach of time stipulations, being loss represented by a payment or allowance by C&C to Holland in respect of the latter's inability to start work as scheduled. 5 It is not necessary to dwell on the function of the court in cases of this kind. The principles emerging from the decided cases were conveniently listed by Hunter J in Walter Construction Group Ltd v Walker Corporation Ltd (2001) 47 ATR 48. The substance of the list is as follows: 1. The hearing of a reference should not be equated with a hearing at first instance in this Court. So much may be extracted from the fact that a referee may be appointed by reason of his or her technical expertise (not necessarily in legal matters) and from the provisions of Pt72 r8. 2. It is untenable to construe the power of the Court under Pt72 r13 as falling within the umbrella of a proposition that all litigants are entitled to have a judge decide all issues of fact and law that arise in any litigation. The procedure that Pt72 r13 establishes is not that of an appeal from a referee to a judge. The concept of "a re-hearing" which is itself ambiguous, at best provides an imperfect analogy. 3. Pt72 r13 does not require a judge to reconsider and determine afresh all issues, whether of fact or law which a party desires to contest before the judge. It would be a radical departure from the history of the rules to treat them as giving a dissatisfied party an automatic right to a hearing de novo. What is involved in an application under Pt72 r13 is not an appeal, whether by way of a hearing de novo, or a more limited re-hearing. 4. 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 the matter afresh. 5. 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. 6. In the case of findings of fact by the referee, where there is evidence to support such findings and the court is satisfied that those issues have been carefully considered by the referee it will not normally engage in a re-examination of the referee's findings. 6 I proceed to the referee's findings in his further report of 7 November 2002. First, there is a finding that Ward breached the contract because it did not achieve certain "Dates for Substantial Completion" as specified therein. I do not understand that finding to be disputed by Ward. Second, the referee found that the breach resulted in loss or damage to C&C. Third, he assessed damages at $186,268. 7 C&C contends that the referee was correct in the second and third findings. Ward contends that he was not. The source of the loss or damage suffered by C&C, as found by the referee, was a liability of C&C to Holland because of C&C's inability to give Holland timely possession of parts of the site that were affected by the delays by Ward constituting breaches by Ward. It was submitted on behalf of Ward that the referee did not have before him evidence of the extent to which the delayed handover by Ward to C&C delayed the commencement of Holland's work or of the cost to Holland of that delay. Ward also submitted that it had not been shown that C&C had any legal liability to Holland to meet whatever may have been the cost to Holland of its delay in commencing. 8 I shall deal first with the latter matter, that is, the issue of C&C's liability to Holland and the basis on which any such liability may (or may not) be sheeted home to Ward. This entails an examination of the interaction between provisions of the contract between C&C and Ward and provisions of the contract between C&C and Holland. 9 Clause 8.4 of the contract between C&C and Ward imposes on Ward (and causes it to indemnify C&C against) liability for losses and the like incurred by C&C which "arise out of or are connected with a wrongful act or omission of [Ward] arising out of or as a consequence of the carrying out of the Works …". The full text of the clause is as follows: "Subject to Clause 10.14, the Contractor [Ward] is liable for and indemnifies C&C and the Client from and against all actions, claims, suits, demands or losses for or in respect of which C&C or the Client may be or become liable which arise out of or are connected with a wrongful act or omission of the Contractor [Ward] arising out of or as a consequence of the carrying out of the Works except to the extent that the liability of C&C or the Client is caused by their negligence." 10 Ward's failure to make the site available at the time required by the contractual promises given by it to C&C is said by C&C to be such a "wrongful act or omission" on the part of Ward, so that any consequential exposure of C&C to claims by Holland for late access to the site is an exposure in respect of which C&C is entitled to be protected by Ward. 11 Ward's response is that C&C was not subjected to any such exposure to claims by Holland because of the operation of clause 8.3.1 of the contract between C&C and Holland. That clause says that C&C will not be liable in contract, negligence or otherwise for losses suffered by Holland and arising from or connected with "a delay, disruption or interference to the progress or completion" of the works that arises out of or is connected with the acts or omissions of others – the relevant acts or omissions, in the present context, being those of Ward in not giving possession of the site at the contracted time. The full text of clause 8.3.1 is as follows: "C&C will not be liable in contract, negligence or otherwise for losses suffered or incurred by the Contractor [i.e. Holland] which in any way whatsoever arise out of or are connected with a delay, disruption or interference to the progress or completion of the Works which arises out of or is in any way connected with either or both of the following: (1) the acts or omissions of others (excluding the Client, the Client's consultants and C&C's consultants but otherwise including, but not limited to, the Contractor's [i.e. Holland's] personnel and C&C's construction employees), whether engaged by C&C or otherwise;" 12 It was submitted before the referee that clause 8.3.1 of the contract between C&C and Holland could not operate because a delay in commencing work (on account of unavailability of the site) was not a delay, disruption or interference "to the progress or completion" of the works, since only something that has been started can be affected as to its "progress or completion". The referee regarded that argument as based on "a tenuous distinction" and rejected it, observing that "work that is delayed in commencement must be delayed as to progress and potentially delayed as to completion". Clause 8.3.1 of the contract between C&C and Holland was therefore seen by the referee as operating to exclude liability on the part of C&C to Holland on account of delay in Holland's obtaining possession of the site from C&C, being delay arising from the delay on the part of Ward. Because of what was thus seen as the inability of Holland to recover as against C&C, the referee concluded that there was no loss to C&C upon or in respect of which the indemnity in clause 8.4 of the contract between C&C and Ward could operate. 13 Having reached that point, however, the turned his focus to the point that the delay by Ward entailed breaches of contract, being breaches consisting of failure to achieve certain "Dates for Substantial Completion" and therefore entailing late delivery of the site to Ward by C&C. He assessed damages for those breaches at $186,268. The referee took the view that Ward's breaches of contract just mentioned were "outside clause 8.3.1" of the C&C-Holland contract. The basis for that view was explained by referring back to a passage on page 255 of the original report concerning a different aspect of the dispute between the parties: "I am not of the opinion that clause 8.3.1 extends beyond delay, disruption or interference in that [C&C] is alleging 'breach of contract' against [Ward], which results from a 'breach of contract' allegation as between [Holland] and [C&C] and in turn, as between [C&C] and [Ward]. I am therefore of the opinion that breaches of contract as between the parties should be claimable, otherwise the efficacy of a contract would be affected and an unfair result would be produced. I therefore accept [C&C's] submissions that the losses are due to breaches of contract, as between [C&C] and [Ward], outside of clause 8.3.1 for which the [Ward] is responsible." 14 By applying those observations to the particular issue concerning Ward's delay in making the site available to C&C and the consequent delay in C&C making it available to Holland, the referee embraced the proposition that the exemption from liability on the part of C&C, as against Holland, effected by clause 8.3.1 of the C&C-Holland contract did not extend to losses resulting from delay occasioned by or constituting a breach of contract by a third party. The cause of the delay was thus regarded as important from the perspective of clause 8.3.1, with delay occasioned by a third party's breach of contract standing on a different footing from delay produced by some other form of third party conduct. 15 There is nothing in the terms of clause 8.3.1 or in the context in which it appears to warrant such a distinction. If there is "delay, disruption or interference" of the kind described and it "arises out of or is any way connected with" any "acts or omissions of others", the contractual exemption of C&C from liability towards Holland operates. The key words are "acts or omissions of others". Those words are not, expressly or by implication, cut down or qualified in any way that causes certain acts and omissions to be beyond their contemplation. An act or omission that is lawful is caught. An act or omission that is tortious is caught. An act or omission that is criminal is caught. So too is an act or omission that is or amounts to a breach of contract. 16 In the second of the paragraphs in the extract from page 255 of the original report quoted above, the referee seems to say that if there is a breach of contract that gives rise to a right to damages in favour of C&C as against a party responsible for delay and the breach in turn causes loss to another party, the benefit of C&C's recovery should, as a matter of "efficacy of the contract" and avoidance of an "unfair result", be passed through to the party suffering the consequential loss. It seems to me, however, that the contractual provisions themselves expressly preclude such a conduit. There is therefore no scope for "efficacy" and avoidance of "unfair result" to create it. 17 This is sufficient to dispose of the objections raised by C&C to the referee's second or supplementary report. I nevertheless record that I also consider C&C's other ground of objection to have merit. On the evidence before the referee, it appeared that a number of items in dispute between C&C and Holland became the subject of a global compromise under which Holland agreed to pay and C&C agreed to accept an aggregate sum by way of settlement of a number of claims. It appears that a component of $450,000 was taken into account in that composite arrangement on account of the delay now in question. But it cannot properly be said, in my opinion, that that had the character of damages for breach of contract which the referee saw as crucial to its being beyond the operation of clause 8.3.1 of the contract between C&C and Holland. 18 The referee proceeded, in any event, to analyse the figure of $450,000 and to subject it to various adjustments. That process produced a reduced amount of $186,268. But there is no firmer basis, as I see it, for treating as exempt from the operation of clause 8.3.1 the figure that, in the referee's estimation, would have been damages for breach of contract if the global compromise had not been struck and Holland had instead proceeded to claim damages against C&C. Holland never asserted a right to damages for breach of contract against C&C. 19 In the result, the supplementary report of the referee should not be adopted by the court, in so far as it deals with the matter of "late completion damages" (section 2 of the report on pages 4 to 22), and that matter should be resolved by a determination, first, that clause 8.3.1 of the contract between C&C and Holland had the effect that no liability in damages attached to C&C for delay in making the site available to Holland, being delay occasioned by Ward's breach of its contract with C&C consisting of late hand over of the site by Ward to C&C, second, that there was accordingly no liability of C&C in respect of such delay in making the site available to Holland upon which clause 8.4 of the contract between C&C and Ward could operate and, third, that C&C therefore has no maintainable claim against Ward in respect of that late hand over. 20 I think that this conclusion, coupled with those in McClellan J's judgment of 17 April 2002 (and the outcome on the interest matter in the second report), disposes of all issues arising out of the two reports of the referee. If that understanding is correct, the parties should bring in short minutes of the orders that need to be made to dispose of the proceedings. If, on the other hand, either party considers any matter arising from the two reports to be unresolved, the appropriate course will be for that party, after notice to the other, to approach McClellan J, as Technology and Construction List Judge, with a view to having that matter dealt with in an appropriate way. ********** Last Modified: 03/17/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.