New South Wales Supreme Court CITATION : Stockland (Constructors) Pty Limited & Anor v Darryl I Coombs Pty Limited & Ors [2005] NSWSC 157 HEARING DATE(S) : 07/03/05 JUDGMENT DATE : 9 March 2005 Equity Division JURISDICTION : Technology and Construction List JUDGMENT OF : Einstein J DECISION : Second report to be adopted CATCHWORDS : Practice and Procedure - Part 72 references - Contract - Construction LEGISLATION CITED : Arbitration Act 1902 Abigroup Contractors Pty Limited v Peninsula Balmain Pty Limited [2001] NSWSC 752 Astor Properties Pty Ltd v L'Union des Assurance de Paris (1989) 17 NSWLR 483 Buckley v Bennell Design & Construction Pty Ltd (1978) 140 CLR 1 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 CASES CITED : Peabody Resources Limited v Allco Construction Pty Ltd. [O'Keefe J, New South Wales Supreme Court, 14 March 1994, unreported] SJP Formwork (Aust) Pty Ltd v Leda Constructions Pty Ltd (Giles J, New South Wales Supreme Court, 19 May 1992, unreported) Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 Walter Construction Group Limited v Walker Corporation Limited (2001) 47 ATR 48] Stockland (Constructors) Pty Limited (ACN 002 421 098) (First Plaintiff/First Cross-Defendant) Stockland (Properties) Pty Limited (ACN 000 059 393) (Second Plaintiff)/Second Cross-Defendant) Darryl I Coombs Pty Limited (ACN 001 367 317) (First Defendant) PARTIES : Philip J Flook Pty Limited (ACN 004 412 504) (Second Defendant) Retail Design Group (International) Pty Limited (ACN 002 421 098) (Third Defendant/Cross- Claimant) FILE NUMBER(S) : SC 55046/99 Mr PL Dodson (Plaintiffs/Cross-Defendants) COUNSEL : Mr RD Newell (Third Defendant/Cross-Claimant) Cohen & Krass (Plaintiffs/Cross-Defendants) SOLICITORS : Edlegal Consulting (Third Defendant/Cross-Claimant) LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY AND CONSTRUCTION LIST Einstein J Wednesday 9 March 2005 55046/99 Stockland (Constructors) Pty Limited & Anor v Darryl I Coombs Pty Ltd & Ors JUDGMENT The notice of motion 1 There is before the Court a notice of motion by which the applicants [the plaintiffs/cross-defendants in the proceedings] seek an order for the adoption of the report of Mr G Lumsdaine AM dated 29 November 2004. The contradictor [the third defendant/cross-claimant] opposes such an order and presses in its own notice of motion for orders: · that the referee's decision dated 29 November 2004 be rejected insofar it concerns the quantum of fees recoverable by the cross-claimant; · that the court substitute orders that the cross-claimant is entitled to recover additional fees relating to design changes undertaken in the course of the Earlville Project; · that the court assess the additional fees. The background to the motion 2 The background to the present motions is set out in the judgment delivered in these proceedings on 28 September 2004 [2004] NSWSC 894. As the judgment (at [30]-[34]) made plain, the particular issue which presently falls for determination follows a remitter to the referee for clarification/reconsideration of the ambit of fees properly allowable to the joint venture in the light of his findings or varied findings following the remitter. The referee's further report 3 The referee's further report determined: · "that the cross-claimant had failed to prove its claim under heads 4 and 5 (par. 7 above) for additional works throughout the construction documentation period January 1994 to March 1996 inclusive. [Heads 4 and 5 are to be found in paragraph 7 of the Report in the following terms: 4 Additional works throughout the construction documentation period January 1994 – August 1994 inclusive. See cost sheet 4: $710,602.00. 5 Additional works throughout the construction documentation period September 1994 – March 1996 inclusive. See costs sheet 5: $1,744,780.00." · to confirm the finding set out in par. 9.3 of the original report. [A reference to the finding for the cross-claimant to the first cross claim in the sum of $230,996.00] 4 In order to follow the challenge to the referee's ultimate finding it is necessary to track through: · the relevant paragraphs of the first report; · the relevant paragraphs of the second report; · the challenge to the reasoning adopted in the second report mounted by the cross-claimant; · The contradictor submissions of the cross-defendant 5 The referee expressed his material findings in the second report in terms of an acceptance of submissions put to him by the cross-defendant. Dealing with the matter 6 As explained in the 28 September 2004 judgment (at [13]), the appropriate construction of the relevant communications by the referee had to take into account the relevant background as known to all parties and as proven before him. That same consideration is ultimately pervasive in relation to the present challenge to the further report. 7 I have come to the conclusion that the challenge is without substance. 8 The September judgement included a section setting out the principles which are to be applied. It may be appropriate to amplify that examination briefly: · the principles which inform the Court's discretion whether and to what extent to adopt, vary or reject the referee's report are as set out in Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 [an appeal from Giles J in SJP Formwork (Aust) Pty Ltd v Leda Constructions Pty Ltd (19 May 1992, unreported)]; · on the appeal the appellant submitted that Giles J misconceived the nature of his duty under Pt 72. It was submitted that his Honour was obliged to consider and determine for himself, all issues whether of fact or of law, in respect of which the appellant was not satisfied with the referee's report. In particular, that Giles J should have re-heard some of the evidence and formed his own view as to their reliability; · this contention was rejected by Gleeson CJ (Mahoney JA and Clarke JA agreeing). Gleeson CJ agreed with Giles J's approach (as set out above) – see (1992) 29 NSWLR 549 at 564. · Gleeson CJ reviewed the provisions of Part 72 (see (1992) 29 NSWLR 549 at 556-558). His Honour emphasised the importance of Pt 72 r 8 and the wording on r 13(1), which "appear[s] to confer a wide discretion". Gleeson CJ concluded that: "The proposition that all litigants are entitled to have a judge (or, presumably, a master) decide all issues of fact and law that arise in any litigation, is unsustainable… Again, one thing that is clear about Pt 72, r 13 is that the procedure it establishes is not that of an appeal from a referee to a judge." (at 558) [emphasis added] · Gleeson CJ then reviewed the historical development of Pt 72 (see (1992) 29 NSWLR 558-560). In particular, the cases of Buckley v Bennell Design & Construction Pty Ltd (1978) 140 CLR 1 (per Stephen J and Jacobs J) (which concerned the provisions of the Arbitration Act 1902) and Astor Properties Pty Ltd v L'Union des Assurance de Paris (1989) 17 NSWLR 483 (per Cole J). 9 A comprehensive summary of the relevant principles that have been established is set out in the judgment of O'Keefe CJ in Comm D in Peabody Resources Limited v Allco Construction Pty Ltd [NSWSC, unreported, 14 March 1994, pages 10-13]. They were also distilled by Hunter J in Walter Construction Group Limited v Walker Corporation Limited (2001) 47 ATR 48 and recently approved by Barrett J in Abigroup Contractors Pty Limited v Peninsula Balmain Pty Limited [2001] NSWSC 752 at paras, 19-21. The appeal in Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Limited did not concern his Honour's reasoning as to the relevant principles that should apply on an application to adopt a referee's report]. The construction issues 10 One of the difficulties which is involved in determining the merit of the present challenge to the further report is that the construction of the material correspondence again becomes critical at a number of levels. In deference to the cross-claimant's current challenge I returned to the material correspondence and carefully read it and of course also carefully examined the material sections of the first and second report. All this in the context of the submissions presently made on the motions. 11 As already observed the procedure established by Pt 72, r 13 is not that of an appeal from a referee to a judge. 12 In my view the referee is not shown to have erred in his reasoning where he accepted in its entirety the cross-defendant's submissions which the referee set out in the further report (at [27]). 13 Without being exhaustive it is convenient to refer to the following matters: · paragraphs [19]-[22] of the second report have not been shown to exhibit an error calling for a rejection of the report within the above described principles; · paragraphs [23]-[ 25] of the second report have not been shown to exhibit an error calling for a rejection of the report within the above described principles; · paragraph 28 of the second report [accepting as correct the cross- defendants submissions (detailed in paragraph 27 [26-35] of those submissions)] has not been shown to exhibit an error calling for a rejection of the report within the above described principles; · paragraphs [4]-[9] have not been shown to exhibit an error calling for a rejection of the report within the above-described principles. 14 It is inappropriate to do more than to make the points that the referee in a fairly difficult context documented by imperfect materials had to endeavour to deal with the concepts: · substantial alteration to the design or scope of works [letter of 31 August 1992]; · future costs variations [letter of 24 May 1994]. 15 The difficulties involved included the fact that whilst (1) an alteration to the design or scope of the work might result in a costs variation, and (2) whilst a costs variation might result from an alteration to the design or scope of the work, it was also possible: · that substantial design changes involving omissions or substitutions could result in no costs variation; · that a costs variation could arise from a variety of causes entirely unrelated to changes in the design or scope of the work. 16 The relevant context made it necessary for the referee to deal with the asserted need for a different method of valuation for on the one hand, changes in scope, and on the other hand, changes in design. . The real issue however concerned whether, properly construed, the agreement: (1) differentiated between the method of valuation for these types of changes or, (2) provided only the same method for valuing both or, (3) provided only for a mode of valuing changes in scope , leaving no formula for dealing with changes in design. 17 The referee in the second report (at [20]-[21/22]) carefully considered the proposition put forward by the cross-claimant that: · the subject correspondence construed in context showed that there was an agreement that in general any design change work would be the subject of remuneration; · since abortive or reduced work associated with design changes could not be properly valued by application of the percentage fee, that form of work as part of the agreement, had to be subject to fee charges at the scheduled hourly rates. 18 The referee was clearly required to construe the subject correspondence in terms of the material context. To my mind he was entitled to regard the terms "the design of works" and " the scope of works" as appearing in the 31 August 1992 letter as terms of specialised technical meaning. 19 The cross-claimant essentially contended that the referee was incorrect in construing the words "the design or scope of works" as conjunctive rather than as disjunctive. 20 Clearly the referee's finding when examining the concepts "changes in scope" and "changes in design" was that these concepts, albeit indicating different elements, had in the relevant context been combined as one element of architectural services. 21 It seems to me that this finding which takes into account the whole of the subject context cannot be regarded as clearly incorrect. The finding was made in a context where emphasis was placed upon the word "undertaken" to be found in the 10 June 1992 letter [paragraph 5] in the sentence beginning: " Time-Charge Rates Our current hourly rates for any work or changes undertaken on a time charge basis are…" 22 The referee's view that the function of the scheduled hourly rates was plainly to reimburse the architect for work listed under the heading "Exclusion" or for work undertaken on a time charge basis (second report [20]) is not shown to exhibit an error of construction of clause 9 of the 10 June 1992 letter. 23 The parties may be taken to be aware of the common forms of variation clauses to be found in building contracts identifying the formalities for notification of a variation and the time, or moneys (often calculated by reference to bills of quantities), to be allowed for varied work. Of course the instant context involved issues going to an architects retainer but even so, one would anticipate a need for definition of how material changes would be recompensed. 24 The referee was plainly not prepared to regard clause 9 of the 10 June 1992 letter as relevantly a variation clause (second report at [27] - adopting the cross-defendants submissions put at paragraph 29). His conclusion was that the only contractual provision governing variations to the architectural services was the sliding scale provision to be found in the letter of 31 August 1992. The percentage fee was held to apply to the final construction cost. 25 In relation to (1) the various ways in which it was possible to interpret use of the words "scope" and "design" and (2) to support the proposition that use of imprecise words entitled the referee to express a view based upon a context with which he may be expected to have been familiar [but of course, relying upon the actual words used in the correspondence], the cross-defendant, advanced the following submissions: "[T]he word "scope" is a word of general import…[I]t connotes extent in this general context of a contract for the carrying out of various works in connection with a building project. "Scope" could refer to the physical extent of the works, the area, the volume, height, et cetera. It could also refer to the intricacies, that is the density of detail. It could also quite reasonably be taken to refer to the extent of the work involved to produce the project. The scope of the works is such that a great deal of work will be necessary to bring it about. All these things are potentially encapsulated in this rather vague word "scope". It is a word of broad general import. [T]he word "design" is a word which … connotes the presentation of visual detail or the creation and presentation of visual detail, and in an architectural sense, one narrows that down quite considerably, and one thinks in terms of design sketches all the way up to perhaps quite detailed plans… [W]hen you put them in the same sentence, in the same phrase, one sees that they can be very entangled words. That is, design could be referring to the appearance of the physical structure, including its area, height, volume, intricacy, and also the words "design of works" could refer to the extent or the content of the design work in the project. Dealing with a situation where reasonably experienced business people have used imprecise words, the referee has … attributed a meaning to these entangled words as they appear in that short phrase. In my respectful submission there is nothing which can be put from [the]context or from the language of the referee in his reports to suggest that there is any error on his part in suggesting that the phrase be read compendiously." 26 Those submissions seem to me to be generally of substance and further support the notion that the particular words qualify as technical expressions used in a particular field albeit also having well known meanings outside of that field. 27 I would add to this reasoning the proposition that a change in the scope of work could not logically entitle the architects to some specific remuneration unless and until it would be clear as to what additional work they were required to undertake apropos that change. Hence the referee approached the whole construction issue by interpreting the relevant provision as containing a compendious concept. 28 Nothing in the language itself is repugnant to the interpretation that the phrase "scope and design of works" was appropriate to be regarded as compendious. There was nothing about the words "scope" and "design" which necessarily indicated that this construction was incorrect. The two words were partially co-extensive in meaning because, as earlier indicated: (1) the word "scope" is capable of incorporating work done to bring about the change in size; and (2) design work would presumably be involved in any major change in scope. 29 It should also be observed that the referee was entitled to bring his own knowledge on practices of the industry to bear in construing the exchange of correspondence in terms of the proper approach to construction where one looks to discover the objective intention of parties operating in a particular highly specialised field. 30 It was accepted by the referee that the cost of re-design and re-documentation could not be accurately reflected in a percentage of the construction cost. On the other hand he also focused on the fact that there simply was no specific provision or protocol in the contract to deal with that type of varied work. As he said ([second report [20]): "[A]bortive or reduced work associated with design changes could not be properly valued by application of the percentage fee". He was however bound by the terms used in the correspondence, it being a leap of faith to find that the parties had simply neglected to deal with a head of change [design changes], where a sentence in the material had clearly included those precise words. 31 The ultimate finding was that the parties were in context seen to have combined the notions of changes in scope and changes in design as one element of architectural services. 32 None of the referee's reasoning is shown to be misconceived in the sense of that which requires to be demonstrated for a rejection of the report within the principles earlier discussed. And of course his approach meant that the sliding scale was applied both to changes in scope [this not being the subject of complaint from the cross claimant] as well as to changes in design. 33 Albeit that the cross claimant put forward a very detailed and interesting analysis of what was said to be critical to an understanding of the commercial/technical matrix within which parties had come to their relevant agreement, the simple fact is that the correspondence was particularly difficult to construe and had to take into account evidence before the referee of a number of contemporaneous circumstances. Hence the submission put by the cross claimant to the referee failed to influence his ultimate determination which was squarely based upon the particular construction and evidentiary issues to which he referred. 34 This was not a case where because of ambiguity, language should have been preferred which would avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust. The parties were bound by their written contract. The referee was unable to locate any specific separable provision for the allowance and valuation of variations. In the context he is not shown to have erred in law in the construction which he gave. Within the expression of principles earlier recited the referee is not shown to have erred in dealing with the subject correspondence and the agreement to be found within it. The quantum quantum meruit issue 35 The challenge which was mounted by way of the suggestion that the referee failed to deal with the cross-claimant's claim in the alternative by way of quantum meruit is without substance. That matter was dealt with in the finding that whilst an enforceable contract covering the relevant position existed between the parties, no action could be brought for restitution on a quantum meruit basis for a benefit conferred in discharge of that contract: Mason & Carter, Restitution Law in Australia, Butterworths, paras 901, 909; Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 256. Scope of work 36 The referee is not shown to have erred in his finding that Mr Hill, the Project Scheduler, did not "assess" or "quantify" the work which was necessary [23]-[24]. He is not shown to have erred within the above-described principles in his conclusion that the proper method of compensation was to apply the 3.5% rate to the increased cost of construction. Decision on the notices of motion 37 For those reasons the second report is to be adopted. The cross claimant's notice of motion is to be dismissed. Costs may be argued on the occasion when the parties bring in short minutes of order. I certify that paragraphs 1 - 37 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 9 March 2005 ___________________ Susan Piggott Associate 9 March 2005 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.