New South Wales Supreme Court CITATION : Allied Constructions Pty Limited v Hyder Consulting (Australia) Pty Limited & Ors [2004] NSWSC 808 HEARING DATE(S) : 31/08/04 JUDGMENT DATE : 3 September 2004 JURISDICTION: Equity Division Technology and Construction JUDGMENT OF : Einstein J DECISION : Report to be adopted CATCHWORDS : Practice and Procedure - Part 72 reference - Application to adopt Referee's Report - Application to set aside sections of the Report - Principles applicable LEGISLATION CITED : Fair Trading Act 1987 (NSW) Trade Practices Act 1974 (Cth) ABB Engineering Construction Pty Limited v Abigroup Contractors Pty Limited [2003] NSWSC 665 Abigroup Contractors Pty Limited v Peninsula Balmain Pty Limited [2001] NSWSC 752 Franks v Berem Constructions Pty Ltd (Court of Appeal of New South Wales, 2 December 1998, unreported) BC9806367 Henville v Walker (2001) 206 CLR 459 Homebush Abattoir Corporation v Bermria Pty Limited (1991) 22 NSWLR 605 I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 CASES CITED : James Hardie & Co Pty Ltd v Seltsam Pty Ltd (1998) 159 ALR 268 Jarvan Pty Ltd (in liq) formerly John R Carr & Associates Pty Ltd v Seery (Court of Appeal of New South Wales, 1 December 1998, unreported) BC9806365 Jukes v Hudson (Supreme Court of New South Wales, 13 August 2003, unreported) Leighton Contractors Pty Ltd v C E Heath Underwriting & Agency Services Ltd & Kinhill Engineers Pty Ltd (1995) 8 ANZ Ins Cas 61-231 Multiplex Constructions Pty Ltd v HSH Hotels (Australia) Ltd [2003] NSWSC 1069 Peabody Resources Ltd v Allco Constructions Pty Ltd (Supreme Court of New South Wales, 14 March 1994, unreported) Super Pty Ltd v SJP Formwork (Aust) Pty Limited (1992) 29 NSWLR 549 Allied Constructions Pty Limited (Plaintiff) Hyder Consulting (Australia) Pty Limited (First Defendant and Cross Claimant to First, Second and Third Cross Claim) Alfred Neilson (Second Defendant) PARTIES : Craig Burrell (Third Defendant) Mark Easton (Fourth Defendant) Corkjoint (Australia) Pty Limited (Cross Defendant to First and Third Cross Claim) James Henry Gately (Cross Defendant to Second and Third Cross Claim) Mercantile Mutual Insurance (Australia) Pty Limited (Cross Defendant to Third Cross Claim) FILE NUMBER(S) : SC 55044/00 Mr I Faulkner SC (First Defendant and Cross Claimant to First, Second and Third Cross Claim) COUNSEL : Mr D Ronzani (Corkjoint (Australia) Pty Limited and James Henry Gately) Mr P Braham (Mercantile Mutual Insurance (Australia) Limited) Minter Ellison (First Defendant and Cross Claimant to First, Second and Third Cross Claim) SOLICITORS : Pigott Stinson Ratner & Thom (Corkjoint (Australia) Pty Limited and James Henry Gately) Hickson Lawyers (Mercantile Mutual Insurance (Australia) Limited) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY & CONSTRUCTION LIST Einstein J Friday 3 September 2004 55044/00 Allied Constructions Pty Limited v Hyder Consulting (Australia) Pty Limited & Ors JUDGMENT The Referee's Report 1 Following an order made on 12 September 2003 pursuant to Part 72 r 2(1) of the Supreme Court Rules that a substantial part of the proceedings be referred to Mr Tozer ["the Referee"] for inquiry and Report in accordance with an attached Schedule, the Referee reported to the Court on 5 July 2004. 2 There are presently before the court motions alternatively pursuing orders for the adoption of the whole of the Report or for the rejection or variation or remitter to the Referee of portions of the Report. General Background 3 The proceedings arise from a claim by the plaintiff, Allied Constructions Pty Limited ["Allied"] against the first defendant, Hyder Consulting (Australia) Pty. Limited ["Hyder"] and several of its employees in relation to defects in the design of the Winmalee Sewerage Treatment Plant Upgrade project in the lower Blue Mountains west of Sydney. Allied was a joint venture partner with another company, Environmental Solutions International Limited ["ESI"], as head contractor to Sydney Water Corporation ["Sydney Water"] for the design, construction and commissioning of the Winmalee Sewerage Treatment Plant Upgrade project. 4 Hyder (previously known as Acer Wargon, Chapman until September 1996) were retained by Allied to design the concrete structures for the treatment plant. 5 As a result of various shortcomings in the design, Allied was required to undertake substantial rectification work on the Sequence Batch Reactor ["SBR"] structure at its cost. That additional work caused delays and liquidated damages were recovered from Allied pursuant to the head contract. Allied sought to recover the rectification and delay damages costs from Hyder. Those proceedings were settled pursuant to a judgement in favour of Allied against Hyder for an amount of $3,000,000.00. 6 The issues determined by the Referee concerned the three cross claims: · The first cross-claim by Hyder against Corkjoint (Aust) Pty Ltd ["Corkjoint"]; · The second cross-claim by Hyder against Mr Gately [at material times the managing director of Corkjoint]; · The third cross-claim brought by Mr Gately and Corkjoint against Mercantile Mutual Insurance (Australia) Ltd ["Mercantile Mutual"]. The principles 7 It is convenient to commence with a short recitation of the relevant principles which are not in contest having been summarised on a number of occasions including the summary of Barrett J in Abigroup Contractors Pty Limited v Peninsula Balmain Pty Limited [2001] NSWSC 752, which was applied by Nicholas J in Jukes v Hudson (unreported, 13 August 2003, NSW Supreme Court), and more recently by Bergin J in Multiplex Constructions Pty Ltd v HSH Hotels (Australia) Ltd [2003] NSWSC 1069. All of the cases apply the benchmark decision of the Court of Appeal in Super Pty Ltd v SJP Formwork (Aust) Pty Limited (1992) 29 NSWLR 549, particularly at 563-564. 8 In Leighton Contractors Pty Ltd v C E Heath Underwriting & Agency Services Ltd & Anor (1995) 8 ANZ Ins Cas 61-231 Giles J said: "The principles which should guide me in considering the report have been discussed in a number of cases culminating in the decision of the Court of Appeal in Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549. A comprehensive summation can be found in Peabody Resources Ltd v Allco Constructions Pty Ltd (O'Keefe CJ Comm D, 14 March 1994, unreported). More shortly, a party dissatisfied with a referee's report is not entitled to have the judge before whom it comes reconsider and determine afresh all issues whether of facts or law which it would wish to contest. Nor does the consideration of the report involve an appeal. Rather, the judge has a judicial discretion to exercise, a discretion which would normally be exercised by reconsidering a question of law or the application of legal standards to established facts, but otherwise may fall to be exercised having regard to matters such as the nature of the complaints, the type of litigation involved, and the length and complexity of the proceedings before the referee. Patent misapprehension of the evidence, or perversity or manifest unreasonableness in fact finding, would ordinarily preclude relevant adoption of or action upon the report, but a report may be adopted or acted upon even if upon reconsideration of the evidence the judge might have reached a conclusion different from that of the referee. In general, where there is shown to be evidence available to support a referee's findings of fact, or where the issue involves a choice between conflicting evidence, in the exercise of the discretion the judge will not reconsider disputed questions of fact. But it is always a question of a judicial discretion, exercised in a manner consistent with the object and purpose of the Rules and the place which they play in the administration of justice according to law." 9 Barrett J in Abigroup Contractors Pty Limited v Peninsula Balmain Pty Ltd [2001] NSWSC 752 at paragraph 21 said of the above: "These observations (aspects of which were confirmed by the Court of Appeal in Jarvan Pty Ltd v John R Carr & Associates Pty Ltd , unreported, 1 December 1998 and Franks v Berem Constructions Pty Ltd , unreported, 2 December 1998) emphasise the limited role of the Court in a case such as the present. It would substantially defeat the purposes underlying Pt72 if the report of a referee was effectively overtaken by a detailed re-assessment of all matters when the Court came to consider the question of adoption. The counter-productive nature of any such detailed re-assessment is emphasised in a case such as this where the vast majority of the issues go to matters of a technical and practical kind, including discretionary matters, lying squarely within the province of a specialised and experienced practitioner of the kind to whom these proceedings were referred. The Court's main function is to review general cogency. And where, as here, the referee has taken a particular issue to a point short of definitive legal conclusion, the Court may, of course, complete the task." 10 In ABB Engineering Construction Pty Limited v Abigroup Contractors Pty Limited [2003] NSWSC 665 the applicable principles concerning the proper exercise of the discretion conferred on the Court in considering a Referee's Report and the decision as to whether or not a report should be adopted were addressed: "34 The relevant principles include: (a) The Supreme Court Rules confer a wide discretion on the Court considering a Referee's Report and the decision as to whether or not a Report should be adopted is an exercise in discretion ( Super at 557). (b) The present rules replace earlier provisions dealing with decisions of Arbitrators and Referees, to whom matters were referred by order of the Court. Those earlier provisions had the effect of giving the decision of an Arbitrator or Referee the same effect as though the decision was a verdict of a jury; the decision was only liable to review for error of law, perversity or manifest unreasonableness ( Super at 562-563). (c) An application under Part 72 rule 13 is not an appeal. A reviewing judge has a judicial discretion to exercise. This must be exercised in a manner which is consistent both with the object and purpose of the rules and the wider setting in which they take their place ( Super at 563). (d) It is undesirable to attempt closely to define the manner in which the discretion is to be exercised. The nature of the complaints made about the Report, the type of litigation involved as well as the length and complexity of the proceedings before the Referee are all relevant considerations ( Super at 563). (e) A party who is dissatisfied with the Referee's Report is not entitled to require a judge acting under Part 72 rule 13 to reconsider and determine afresh all issues whether of fact or law which that party wishes to contest before the judge ( Super at 562). (f) A judge exercising his discretion under Part 72 rule 13 may consider the material before the Referee where there is a real question as to whether there was any evidence for the decision made. The requirement for a "real question" in this context goes beyond a mere suggestion of the type of factual error that, if made by a trial judge, would be corrected on appeal ( Franks at 12). (g) A judge exercising a discretion under Part 72 rule 13 may also need to consider the evidence before the Referee where the Referee's reasons appear adequate on their face, but the challenge is based on the adequacy of the reasoning due to the Referee's failure to refer to very significant evidence against the finding ( Franks at 12). (h) There is no implied authority given to the Referee to make errors of law. The Court is bound to decide for itself whether the Referee erred in law and, if such error be found, to correct the error in exercising its discretion under the rules ( Bermria at 609). (i) It would ordinarily be a reason for rejecting the Report if it reveals some error of principle, some absence or excess of jurisdiction or some patent misapprehension of the evidence. Perversity or manifest unreasonableness in fact finding would also ordinarily be a reason for rejecting a Referee's Report ( Super at 563 to 564). 35 The Court's discretion to adopt, vary or reject the Referee's Report is not constrained in the same way that challenges to arbitral awards are constrained. As Super makes plain, grounds for rejecting a Report may include: (a) an error of principle; (b) a patent misapprehension of the evidence; (c) perversity or manifest unreasonableness in fact finding. 36 Super also makes plain that where a complaint about a Report involves a question of law, or the application of legal standards to the facts, a proper exercise of the discretion requires a judge to consider and determine that matter afresh." 11 It is particularly important to bear in mind in relation to the Reference here under consideration that the Referee was himself an expert, receiving assistance during a complex technical inquiry from other experts who importantly in conclave, achieved particular measures of agreement. 12 The convenient course is to deal with each of the notices of motion seriatim. In that regard it is necessary to very carefully travel through the Report in order to understand the structure of the Report and the analysis given in the reasons. General observations 13 Before turning to deal with the notices of motion it may be convenient to make some general observations. The subject product 14 The proceedings concerned a product called " Hydrotite" being the brand-name for a type of waterstop based on the technology of hydrophilics, being a material which expands in the presence of moisture and would create a pressure seal within a joint. The technology made use of what was described as "a first" in the development of co-extrusion of hydrophilics and neoprene rubber so as to direct most of the expansion across the joint for maximum seal. 15 Hence Hydrotite was promoted as a dependable and reliable system for sealing joints in concrete. 16 All such products share the characteristic of expanding upon contact with water. In the key joints of the SBR the designers conceived that upon contact with water, the hydrophilic would expand, creating a pressure seal within the concrete and preventing the passage of water through the joints. Design philosophy fundamentally flawed 17 The first matter to note is that the Referee held "that the design philosophy for waterproofing tanks adopted by Hyder was fundamentally flawed"(at [21] on page 31). This was because surface sealant would require replacement as part of the on-going maintenance cycle of the basins. The need in this SBR for periodic emptying out of the tanks meant that there would be occasions when there would be no water at all in contact with any hydrophylic. 18 No hydrophilic could make the key joints of the SBR watertight for the simple reason that they take time (measured in days) to fully expand, during which time no watertight seal exists and the SBR will leak. In the context of a sewerage treatment plant such leakage is, of course, unacceptable. In those circumstances a hydrophilic would not provide an acceptable waterstop. 19 Importantly the Referee found that there had been no advice given by Mr Gately that Hydrotite CJ0725-3K was a suitable product for the purpose of ensuring that the SBR was and remained a watertight structure in all circumstances (at [41]) 20 The matter was summarised by the Referee as follows: "21 … the design philosophy for waterproofing the tanks adopted by Hyder was fundamentally flawed. 45 I find that it was envisaged by the Hyder design team that the Hydrotite would not have had any contact with waste water (sewage) whilst the surface sealant was effective in preventing that water from penetrating into the joint. In those circumstances, it was likely that the Hydrotite would dry out and contract in the absence of contact with moisture, or if recently placed, would not expand until there was contact with water or moisture. 46 I have concluded that the design intent was inconsistent with the use of this hydrophilic product . If the surface sealant was unable to retain the water, leakage into the joint would occur and expansion of the Hydrotite would commence. However, consistent with the properties of Hydrotite, it would take some days before any gap was closed and a water-tight seal effected. 47 The larger the gap between the sloping faces of the key joint, the longer it would take for a water-tight seal to be effective. In the meantime, leakage through the joint would occur continuously at a rate depending on the extent of the failure of the surface sealant. 48 I have found that this design concept was established and detailed on the initial drawings for the inlet structure. The intention to use a hydrophilic material (Adeka Ultraseal) as the secondary waterstop in wall key joints was made before the meeting with Gately. Based on those facts, I find that Corkjoint through Gately could have had no involvement in the creation of the design concept. 49 That concept relied on the surface sealant as the primary water seal and where effective deprived the secondary hydrophilic waterstop of the supply of moisture necessary to retain its character as an effective water barrier. There is no evidence that the design concept was explained to Gately by Easton or that he was asked to comment on whether Hydrotite would be suitable for use in those circumstances . [emphasis added] The distinction between the cracking of the floors and the wall leakage 21 The Referee found that the cracking of the floors was caused by the positioning of the Hydrotite and that the wall leakage was simply caused by the fact that an entirely inappropriate type of product, namely a hydrophilic, was used and could never have worked. Reasons why the walls leaked 22 As will appear from what follows, the Referee found that the reasons why the walls leaked was that the design incorporated as a waterstop, a hydrophilic product. The material representation-preferred placement location 23 The only material representation by Corkjoint held to constitute a breach of TPA section 52 was as to the recommendation that Hydrotite should be placed on the lower sloping faces of key joints which was made in error, was made without any engineering or scientific basis and was not supported by the manufacturer as an appropriate location for the product. That recommendation was in relation to the preferred placement location for the Hydrotite found to be a future matter, Corkjoint not having established that it had reasonable grounds for making that recommendation. The Hyder motion Paragraph 4 of the motion – Litigation against Mr Gately 24 The gravaman of the submissions put by Hyder concern: · the manner in which the litigation was pressed against Mr Gately; · the contention that the Referee failed to explicitly recognise or deal with a cause of action pleaded against Mr Gately; · the contention that this Court is presently able to discern from what was decided [as found in the reasons of the Referee] that the cause of action against Mr Gately was established. 25 Hyder originally sought [but no longer seeks] an order varying the final sentence of paragraph 49 and substituting in its place the following finding: "There is evidence that the design concept was explained to Gately by Easton and that he was asked to comment on whether Hydrotite would be suitable for use in those circumstances." 26 It is apparent that the claim which is no longer pressed would have represented a clear attempt to seek to alter the Referee's finding from a determination that the "design concept" was not explained to Mr Gately, and, that he was not asked to make a comment on product suitability, into the opposite conclusions. Had such a claim been pressed and notwithstanding the high bar set by the above authorities confronting Hyder, been upheld, different considerations may have applied in terms of the reasons which now follow Dealing with the issue which is pressed 27 There is clearly substance in the proposition that the Referee appears to have failed to recognise that the Hyder cross-claim against Mr Gately was pressed in terms of a breach of the Fair Trading Act [" FTA"]. As Hyder has submitted: "In Section 2 of the Referee's Report, page 5, the Referee stated: "3. Hyder alleges that such failure occurred as a result of negligence of the Cross-Defendant to the First Cross-Claim ["Corkjoint"] and/or as a result of negligence of the Cross-Defendant to the Second Cross-Claim ["Gately"]." 28 That is not correct. 29 At page 5 the Referee further stated: "5. Hyder has contended that Corkjoint (and Gately) owed a duty to Hyder and the Plaintiff, to exercise reasonable care, skill and diligence so as to ensure that information and advice provided by Corkjoint (and/or Gately) to Hyder in connection with the project was correct, accurate, and could be relied on by Hyder and the Plaintiff." 30 Neither is that correct. That contention has never been made against Gately. In this paragraph the Referee has adopted the description of the "duty" from the Hyder pleading against Corkjoint in the Further Amended Cross-Claim, paragraphs 3 and 10. That was not pleaded against Mr Gately. 31 The subheading to paragraph 6.3 includes a reference to both the TPA and the FTA suggesting that the Referee was cognisant at least at some time, of the need to determine the FTA count. 32 It appears clear from paragraph 6.1 (5) that the Referee, having first [6.1 (4)] made the point that Mr Gately was not bound by the judgment for Allied to which he was not a party, the Referee determined not to further consider the claim against Mr Gately, for the following reasons using his words: "Hyder have not sought in the Reference to prove its total liability to Allied other than by reliance on the consent judgement entered in favour of the Plaintiff [Allied]. I find, accordingly, that Hyder have not proven liability as a basis for a claim for contribution by Gately who was not a party to those proceedings…" 33 The reasons for upholding the TPA cause of action against Corkjoint are to be found in paragraph 6.3 on page 35 as follows: "8 I find that Gately was a director of the company, Corkjoint [Statement of James Henry Gately, 17/12/2003, para 1], and any representations made on his part related to the properties or use of the product, Hydrotite, were made within the scope of his authority in the course of his duties for the company. His conduct is deemed by the legislation, to be the conduct of the corporation [Fair Trading Act, 1987, s70 (2)(a) and Trade Practices Act, 1974, s84 (2)(a)]. 9 I have found that Gately recommended to Hyder that the Hydrotite should be placed on the lower sloping face of key joints. It was his concept and invariably the recommendation of Corkjoint for placement of Hydrotite in keyed joints. The recommendation was applicable to both the inlet structure and the SBR. 2 The recommendation was in error, was made without any engineering or scientific basis and was not supported by the manufacturer, Kasei, as an appropriate location for the product. On the manufacturer's recommendations, such a placement was contrary to its warning on the placement of Hydrotite in close proximity to the surface of unreinforced concrete. 11 I find that the recommendation by Corkjoint was in relation to the preferred placement location for the Hydrotite, a future matter. I further find Corkjoint has not established that it had reasonable grounds for making the recommendation. 12 I find that the recommendation by Gately to place the Hydrotite on the lower sloping face of the key joint was credible. Gately explained why the Hydrotite would be a more effective water seal in that position. He did not raise any concerns about expansion pressures because he had none. It was his belief at that time that it was an appropriate location to place the Hydrotite. 13 The evidence is that Hyder relied on that recommendation and prepared the key joint detail accordingly, incorporating the three points of advice given by Gately. 14 The experts have agreed that the Hydrotite in that position exerted substantial forces when exposed to moisture or water. There were other forces acting on the floor key joints, but it was only at locations where those forces combined with the effect of the Hydrotite, that cracking occurred. 15 In conjunction with other forces on the concrete, expansion pressures of the Hydrotite were a cause of cracking of the concrete floor slab of the SBR adjacent to the key joints in some locations. 16 I find that Corkjoint was in breach of section 52 of the Trade Practices Act on the grounds that; (a) Hydrotite was a cause of the cracking in the floor key joints; (b) Hydrotite was not suitable to be used by locating it on the sloping face of the key joint; and (c) Corkjoint had no scientific or engineering basis for recommending that Hydrotite be used on the sloping face of the key joint. 17 I find that Hyder suffered loss or damage by the conduct of Corkjoint and pursuant to section 82 is entitled to recover the amount of the loss or damage caused by that conduct." 34 In my view it is clear enough that the Referee grounded his reasons for not considering the claim against Mr Gately upon the proposition that Hyder had not, as against him, proven liability to Allied. 35 Hyder has contended that it had proven its FTA case against Mr Gately in terms of quantum. The detailed submission by Hyder includes the following: "The Referee accepted the evidence of Mr Bendeich at Report, page 32, para 29: "Bendeich assessed the loss and damage suffered by Allied up to 30 June 2001 as a result of the SBR defects at $4,776,597. The assessment was supported by several volumes of documentation, including cost ledger transaction Reports, invoices, site diaries and other records kept by Allied". At page 32, para 30, the Referee accepted the evidence of Mr Robinson on behalf of Hyder: "In that Report he apportioned the total damages claimed by Allied between Allied, Hyder and Corkjoint, based on his understanding of the issues of liability. I have calculated his assessment of the total liability of Hyder (and Corkjoint) for the loss and damage incurred by Allied at an amount of $3,058,890 (exclusive of costs)." At Report, page 32, para 31, the Referee referred to Robinson's source documents and Robinson's involvement in the mediation process that led to settlement of the claim by Allied in the principal proceedings and then stated: "Based on the calculations and the assessment of the liability of Hyder (and Corkjoint) to Allied in that Report, Robinson has opined that it was reasonable for Hyder to settle the claim with Allied for an amount of $3 million (exclusive of costs)." At Report, page 33, the Referee then made the relevant findings as follows: "33. I find that the allocation of the total cost of about $3 million to Hyder (and Corkjoint) as contained in the individual entries in the summary prepared by Robinson, where derived from actual costs is reliable evidence of the damages incurred under those separate cost categories in a total amount of damages for which Hyder was liable to Allied. 34. In order to assess the contribution for which Corkjoint is liable on the facts found, I have accepted as a fact that the extent of Hyder's liability was to pay Allied an amount of $3 million (excluding costs). 35. I have accepted that the total of $3,058,890 compiled from the costs in each category and allocated to Hyder (and Corkjoint) by Robinson, is reliable evidence of the cost components comprising the quantum of the liability of Hyder to Allied. I have used the amounts which sum to that total allocated by Robinson in the relevant cost categories of the claim as a starting point to determine the contribution due by Corkjoint for those matters where I have assessed that Corkjoint has some liability to Hyder." 36 The proposition is that the Referee: · erred in summarising the claim from Gately as "a contribution" and in failing to assess the claim, in that context, as a claim for FTA damages; · erred in stating that Hyder had not sought to prove its total liability to Allied, other than by reliance upon the consent judgment. 37 Hyder had earlier in its submissions contended that: · before the Referee, it had adduced evidence which clearly established its liability to Allied, independently of the judgment; · Hyder had tendered the evidence of Mr Maher, which was a substantial statement, and the exhibited exhibited folders of documents; · counsel for Corkjoint/Gately did not require Mr Maher for cross-examination; · Hyder had also tendered quantum evidence from Mr Bendeich. He also was not required for cross-examination; · the evidence of Mr Maher and Mr Bendeich had in fact been Allied's evidence against Hyder in the principal proceedings.; · after settlement with Allied, Hyder adduced that evidence in its Cross-Claims against Corkjoint and Gately. Dealing with those submissions 38 It seems to me that there is substance in the responsive submissions put by Corkjoint which I adopt. 39 As to the submission by Hyder that there was evidence before the Referee "independently" of the judgment, which proved Hyder's liability to Allied on all quantum issues as against Gately, it is necessary to recall that the Referee made certain findings with respect to the experts' opinions relied upon by Hyder (paragraphs 29 to 35 (inclusive), Report pages 32 and 33). However his findings at paragraphs 33, 34 and 35, Report page 33, do not go as far as Hyder's case against Gately requires in order for it to succeed against him personally. 40 The Referee as against Corkjoint (not Gately) determined that because it could not go behind the judgment (whereas Gately could), Hyder had adduced sufficient evidence to prove part of its case on liability and on quantum by merely relying upon Mr Robinson's opinions. 41 The Joint Report on Quantum by Scerri and Robinson (Volume 3 pages 436 to 438) contains the important qualification, namely: "This Report is not to be understood to accept that any individual item has been proved by Hyder to a loss sustained by it. Scerri's comments and analysis have been produced subject to Hyder proving each and every claim ." (page 436). [emphasis added] 42 The Referee determined that while the Robinson approach to quantum satisfied him that there was "reliable evidence" to support the reasonableness of the settlement (paragraph 31, Report page 32), the cost components allowed by Robinson were only the "starting point" (paragraph 35, Report page 33). The Referee did not wholly accept the opinions given by Mr Robinson on quantum. While Mr Robinson supported a claim against Corkjoint for $1,293,836 (Volume 3, page 438) (plus interest and costs), the Referee only allowed $186,875 plus interest. Hyder had proved that the settlement amount was reasonable given the claims against it by Allied: cf the reference given in footnote 184 of the Report paragraph 6.1(2) to James Hardie & Co Pty Ltd v Seltsam Pty Ltd (1998) 159 ALR 268 at [41]. 43 To my mind the reasons given by the Referee, where referring to the fact that the cost components allowed by Robinson were only the 'starting point", require to be interpreted as a statement that the Referee had commenced from the viewpoint of simply accepting matters put in the judgment which Corkjoint could not gainsay and proceeding to move on from that base. Importantly the Referee was not making a finding that he was satisfied as against Mr Gately that the evidence adduced during the reference amounted to sufficient proof of quantum or loss. 44 In the result the Referee is not shown to have erred in grounding his reasons for not considering the claim against Mr Gately upon the proposition that Hyder had not as against him, proven liability to Allied. Onus of proof 45 It is apparent that the Referee at least in part relied upon the recommendation by Corkjoint in relation to the preferred placement location for the Hydrotite as a future matter where the onus of proving that it had reasonable grounds for making the recommendation was upon Corkjoint being a Corporation. That of course could not have been the approach to be taken to the FTA cause of action against Mr Gately 46 During the application the subject of this judgment senior counsel for Hyder submitted, as I understood him, that the Referee had been satisfied that Hyder, without any need to rely upon the reversal of the onus of proof, had proven as a matter of fact that Corkjoint had not had reasonable grounds for making the recommendation in relation to the preferred placement location for the Hydrotite. 47 It does not seem to me that this submission can be accepted. 48 I accept that whether the Referee approached the matter in terms of: · being satisfied by some evidence which travelled a certain distance in pointing to partial proof that no such reasonable grounds for making that recommendation had been held, as well as; · filling in any gaps in that proof by relying upon the reversal of the onus of proof; is not easy to discern from the reasons. However where the Referee explicitly utilised the reversal of the onus of proof, it is appropriate for the Court presently to regard him as having relied upon that matter as an important parameter in his approach to this critical issue. Paragraph 2 of the motion – wall joint leakages 49 The issue raised by Hyder is contentious. The matter is addressed by Hyder as follows: The wall joint leakages - liability of Corkjoint/Gately In his Report, para 20 at page 38, the Referee states: "The cost of testing water has been attributed to the wall leakage only for which it has been found that Corkjoint was not responsible. Those costs were not incurred as a result of cracking in floor key joints." However, nowhere in his Report has the Referee made an express finding that Corkjoint was not responsible for the wall leakages. Nevertheless, it is accepted that such finding is implicit in his Report, but it requires quite a search for the reasoning process. The Referee has found that the critical recommendation was made, and that it was made in respect of both the wall joints and the floor joints. At para 23, page 14 he said: "I have concluded that Gately recommended to Burrell and Easton of Hyder that the Hydrotite CJ 0725-3K be placed on the lower sloping face of the key joints in the walls and floor of the inlet structure. On his advice that was the location at which this product would work most efficiently ..." (Emphasis supplied) There is no doubt that, where references are made to the "lower sloping face" of the key joints, the Referee, and Mr Gately in December 1995-February 1996, were referring also to the "taper" surfaces in the wall key joints, which were vertical. In that vertical location it was the taper surface closest to the external wall (surface away from the water). It is submitted, therefore, that references to " taper " surfaces are at all times to be regarded as references to both floor and wall key joints . For example, in the Referee's Report at page 18, paragraph 53, it is stated: "I have concluded from this evidence that Hydrotite CJ 0725-3K would not have been shown on the lower sloping face of the key joint but for the recommendation made by Gately of Corkjoint." The context, beginning at paragraph 50, page 17, shows that he was referring to both wall and floor joints . In paragraph 51 he referred to the specific evidence by which the Gately advice was given, especially the 19 December 1995 facts on which Gately had written "OK Jim": see the document in Mr Easton's statement, 20 December 2002, pp.18-19 (Bundle, 1-1063/1064). That fax sought Gately's advice (and he gave unqualified advice) as to both floors and walls . He did not say that his advice applied only to the floors. Further, Mr Easton, in his statement 20 December 2002, at para 32 (Bundle, 1-274), said that at the 18 December 1995 meeting with Mr Gately, Gately had said, inter alia: "... As I said on the phone, you need to pour the female side of the key joint first. The Hydrotite goes on the lower face of the female portion of the key joint in the floor slab. It runs in the same location up the wall . Your drawings depict the hydrophilic in a different position. It will work best if you place it on the lower face of the female portion ..." (Emphasis added) Whilst Easton was challenged in cross-examination as to a sketch which he said he made at that meeting: T-302, the evidence of the words spoken in the conversation was not in issue, and Gately's statement of 17 December 2003 in answer to Easton, at paras 32-33 (Bundle, 1-311), stated only: "To the best of my recollection Mark Easton did not sketch a key joint on a piece of blank paper at the meeting". Further, faxes from Easton to Gately of 31 January 1996 and 2 February 1996 (pages 36-42 of Easton's statement; Bundle, 1-081 to 085), which Gately discussed with Easton, clearly depicted Hydrotite on the taper surface of the key joint in the walls. Later, by his fax of 5 June 1997 (cross-examination bundle, pp.136-137; Bundle 1-193/4) and his hand-written note (at page 137; Bundle 1-194), Gately made it clear that he was dealing with Hydrotite CJ 0725-3K in the vertical wall joints. The Referee's logic appears to be as follows: • In paras 32-41 at pp.15-16, he has found that Hyder's engineers had (independently of Gately) sufficient knowledge "to determine whether or not the product was suitable for use in the SBR wall joints ": paras 36-38. • Gately was not told that the structure would be periodically emptied of water and refilled: para 39. • Gately's advice was only as to the manner of Hydrotite use, i.e. a recommendation of a "specific product" and "its placement location": para 40. • Gately did not give advice as to the product achieving watertightness in all circumstances: para 41. • At paras 48-49, page 17, he found that, as a concept, Hyder always had an intention (independently of Gately) to use "a" hydrophilic material in the wall key joints, and that Gately had no involvement in that design concept, which was not explained to Gately. • The Hyder "design intent was inconsistent with the use of this hydrophilic product ... [because] it would take some days before any gap was closed and a watertight seal effected": para 46, page 17. • Finally, at para 28, page 32: "I have accepted the opinion of Mr Smee that the prime reason for wall joint leakage was the time lag in the expansion of the Hydrotite product ..." In summary, the Referee appears to have held that there was no liability in relation to the leaks from the wall joints because: • Hyder's intention was always to use "a" hydrophilic. • Any hydrophilic would take some days to be wetted sufficiently to cause it to expand and create watertightness. • The "prime reason" for wall joint leakage was the time lag in the expansion of the Hydrotite product. Therefore, Gately's recommendation for the use of Hydrotite in the wall key joints was not a cause of recoverable damages , such damages as claimed being limited in duration and quantum to the period when the wall joints leaked due only to the lack of expansion of the Hydrotite product. It is convenient at this stage to record the unchallenged evidence of Mr Burell, the senior engineer for Hyder, in paragraph 16 of his statement of 19 December 2002 (Bundle, 1-259), that in the absence of the "OK Jim" fax, he would not have used Hydrotite in the key joints. [emphasis added] Dealing with the issue 50 The submission by Mr Faulkner SC that nowhere in the Referee's Report did the Referee make an express finding that Corkjoint was not responsible for the wall leakages is incorrect and overlooks paragraph 19 on page 36 of the Report: "19 I find that Hyder has no entitlement to recover a contribution from Corkjoint for the costs associated with leakage from the wall joints of the SBR." 51 Moreover and as submitted by Corkjoint, the Referee set out in considerable detail (paragraphs 32 to 49 (inclusive), Report pages 15, 16 and 17) his reasoning for that finding, and for the inevitable conclusion against Hyder that "the prime reason for wall joint leakage was the time lag in the expansion of the Hydrotite product." (paragraph 28, Report page 32 – see also paragraphs 22 to 27 (inclusive). That time lag was correctly found not to be a matter on the basis of which Hyder could make out any case against Corkjoint under the Trade Practices Act or in negligence (or, it follows, against Mr Gately under the Fair Trading Act) (see paragraphs 32 to 41 (inclusive) of Report pages 15 and 16). 52 In particular, the Referee found (paragraph 41, Report page 16): " 41 I find that no advice was given by Gately that Hydrotite CJ 0725-3K was a suitable product for the purpose for ensuring that the SBR was and remained a watertight structure in all circumstances ." [emphasis added] 53 The approach taken by Hyder with respect to the Referee's decision not to allow Hyder's claim regarding leaking in some of the wall key joints of the SBR, is to focus upon the location of Hydrotite CJ 0725-3K rather than upon the behaviour of hydrophilics (not just Hydrotite CJ 0725-3K) which behaviour the Referee found was well known to Hyder. This approach for Hyder is incorrect. The particular location of Hydrotite CJ 0725-3K in the wall key joints of the SBR (as distinct from the use of hydrophilics) on all of the evidence, and as found by the Referee, was not a cause of any leakage in the relevant joints. 54 In particular, the Referee found (Report page 15): "36. I have concluded from this evidence that Burrell and Easton had sufficient knowledge of the properties and behaviour of Hydrotite CJ 0725-3K at the time of the meeting with Gately, or shortly thereafter, to determine whether or not the product was suitable for use in the SBR wall joints." 55 Moreover, the Referee dealt with the true issue before him regarding wall key joint leaking in the SBR, namely, that the use of a Hydrotite product was not because of any recommendation by Mr Gately (and Corkjoint). 56 Additional reasons explaining the analysis of the Referee in reference to the evidence were given by Mercantile and seem to me to be of substance. 57 Mr Gately was not involved in the decision to use a hydrophilic. 58 Before the designers met Mr Gately for the first time, the joint design was on hold, according to Mr Easton (T 312): "… to finalise not the dimensions of the joint, but the actual sealant and the locations of the hydrophilic material, whichever hydrophilic material that might be." 59 That is, the designers had determined the joint geometry and design, and were waiting only to decide, not whether to use a hydrophilic, but what hydrophilic to use and where it ought to be placed. 60 The simple fact found by the Referee is that the designers did not rely on Mr Gately or Corkjoint to tell them whether it was appropriate to use a hydrophilic in the walls. They had already decided to use a hydrophilic (see Tozer finding at par. 4 on page 11). Their client had expressed a preference for hydrotite over other hydrophilics and they, according to Mr Burrell (T 112.10): "were responding to a request from our client for a construction preference and we were seeking advice as to how best to utilize the product." 61 As a result of Mr Gately's advice, Hyder changed its design to incorporate hydrotite CJ0725-3k instead of another hydrophilic and changed the location of the hydrophilic in the key joint (Tozer par. 14, pg 12). The Referee found that Gately's advice went to limited issues (Tozer, par 31, pg 15). 62 Mr Burrell's evidence was that he understood that the Hydrotite would contract when dry to about 7mm thickness. He was aware that the design of the SBR had to allow for the contraction of the Hydrotite, and that the SBR had to be watertight under all circumstances (T 230). The joint sealant, specified by Allied, was intended to provide that assurance (T 230-1). The intent of the design was that Hydrotite would remain sufficiently expanded to provide a watertight structure at all times (T 241). 63 In Mr Burrell's own words (T 234): "In our view at the time, we made an independent assessment that it would work at the time, and that was that it would expand to fill the voids, and that the void – between the male portion and the female portion of the key joint on the key surfaces was such that the expansion to fill that void was more than catered for. Q: So that in that sense you didn't rely on Gately and Corkjoint; you made your own independent judgment about it, isn't that right ? A: Yes . Q: And we are talking about whether the walls wouldn't leak? A: Yes." 64 In sum, Mr Burrell agreed that all Mr Gately did was provide him with a recommended product, and that it was his responsibility to design the key joints for the walls and floor to provide a watertight structure. 65 Mr Easton agreed that he assessed that hydrotite would expand sufficiently to make a watertight seal, but that he had made no assessment of what would happen if the hydrotite subsequently dried out and contracted (T332). He was aware that the emptying of the SBR was part of the required process. Mr Gately was not told that the SBR would be required to be periodically emptied and refilled (T 350). 66 The above described evidence provides a sufficient basis for the Referee's findings at pages 15-16 of the Report, which contain the essence of his reasons for rejecting the claim in relation to the wall leaking. The evidence supports his finding that the designers did not in fact rely on Gately as to the effectiveness of Hydrotite to act as a waterstop in the walls. 67 I accept that in those circumstances no action under the TPA, FTA or in negligence could possibly succeed in relation to the wall leaks. Paragraph 5 of the motion 68 For reasons already given the application pressed in the Motion at paragraph 5 (a) and (b) is rejected. Paragraph 6 of the motion 69 For reasons already given no grounds for such remitter have been made out. Causation 70 Hyder also submitted that the Referee had erred in his approach to the issue of TPA causation. 71 The submission was as follows: "28 Extensive oral and written submissions were given to the Referee as to the TPA causes of action against both Corkjoint and Gately, with particular emphasis on the situation where there have been concurrent causes. The Referee was taken to the reasons for judgment in Henville v Walker (2001) 206 CLR 459 and I & L Securities v HTW Valuers (2002) 210 CLR 109. 29 In Henville v Walker , at p.469.3[14] Gleeson CJ said: "In the present case there were two concurrent causes of the imprudent decision to buy the land and undertake the development project. The conduct of the respondents was one of those causes. That is enough." In that case the plaintiff's negligence was in its own assessment of profits in its feasibility study. At 468[9] Gleeson CJ held that if the feasibility study had been estimated with reasonable accuracy "... the project would not have gone ahead." "[10] ... ... The reversal of that finding by the Full Court, and the conclusion that the erroneous cost estimates were the sole cause of the decision to proceed, was not justified. The feasibility study was based upon two integers: costs and returns. Each was erroneous. If either integer had been correct, the project would not have gone ahead. Neither error was the sole cause of the decision to undertake the project. Each was a cause." It is submitted that the Referee has erred on the issue of TPA causation. At no time did he articulate the issue correctly and ask himself the question: Was the Gately recommendation a cause of the decision by Hyder to use Hydrotite in the wall key joints? 30 The first question which the Referee should have asked himself was whether the decision (already made by Hyder) to use "a" hydrophilic was the sole cause of "the imprudent decision" to use Hydrotite CJ 0725-3K on taper surfaces in the wall key joints. It is submitted that, clearly, it was not the sole cause. For example, the Referee relevantly found facts as follows: "23. [page 14] I have concluded that Gately recommended to Burrrell and Easton of Hyder that the Hydrotite CJ 0725-3K be placed on the lower sloping face of the key joints in the walls and floor of the inlet structure. On his advice, that was the location at which this product would work most efficiently. ... 40. [page 16] I find from the evidence of Burrell and Easton that Hyder had already decided that a Hydrotite product would be suitable for the proposed application. Gately provided advice only on the manner in which the Hydrotite should be used. That was a recommendation on a specific product in the range of available Hydrotite profiles and a recommendation on its placement location. ... 53. [page 18] I have concluded from this evidence that Hydrotite CJ 0725-3K would not have been shown on the lower sloping face of the key joint but for the recommendation made by Gately of Corkjoint." 31 It is submitted that, upon a consideration of the whole of the evidence and in the light of relevant findings of fact, it is not possible to conclude that the sole cause of the decision to use Hydrotite CJ 0725-3K in the wall joints was that Hyder's engineers had already decided to use "a' hydrophilic. 32 Prior to the recommendation from Gately, the Hyder engineers had planned to use "a" hydrophilic called "Adeka" in the wall key joints, but not on the surface of a key taper. The decision to place it on the key taper was entirely as a result of Gately's recommendation. 33 In effect, Gately said: "Here is a product which is suitable for use in the wall key joints in this project, and it is most suitably located on the key taper within the joint. 34 The decision to use this unsuitable product had two causes. One cause was the negligent assessment by Hyder's engineers, who overlooked the fact that there was a time lag between the Hydrotite becoming wet and providing a watertight seal. The second cause was Gately's recommendation, which was acted upon by Hyder's engineers. Gately said it was a suitable product. The engineers acted on that. It was not a suitable product. 35 The fact that Gately was not told that it had to be "a watertight structure in all circumstances": Referee's Report, page 16, para 41, and that Gately was not told of the "design concept: Referee's Report, page 17, paras 48-49, is not to the point. Gately was prepared to give his unqualified recommendation without further enquiry. That was a commercial risk that he took. It is no answer, within the determination of a causation issue, for Gately to say: "You never told me precisely the operation procedure for this project [occasionally emptying and refilling] and that it was to be watertight in all circumstances". Gately took that risk when he made his confident recommendation. 36 It is submitted that, on the facts found by the Referee, Hyder is entitled to judgment against Corkjoint for recovery of damages caused by the leaking wall joints. It is submitted that the Court should so hold against Corkjoint, and should remit the Report to the Referee for further consideration and Report on quantum for this issue." 72 Here again it seems to me that there is no substance in the submissions put by Hyder. To the contrary the responsive of submissions by Corkjoint are of substance and adopted in what follows. 73 It is appropriate to commence by observing that it is a very bold submission to put as Hyder does, that it was not possible upon a consideration of the whole of the evidence considered in the light of the relevant findings of fact, for the Referee to conclude that the sole cause of the decision to use Hydrotite CJ0725-3K in the wall joints was that Hyder's engineers had already decided to use "a" Hydrophilic. 74 It appears that on the evidence before the Referee the only reason why the walls of the SBR leaked was because of Hyder's design which used primary and secondary seals, with hydrophilics as the secondary seal. The finding was that the SBR did not leak because Hydrotite CJ0725-3K was placed in the location "recommended" by Gately. 75 The Referee correctly found (paragraph 41, Report page 16) [and the evidence must be taken to have supported this finding] that: "41 … no advice was given by Gately that Hydrotite CJ 0725-3K was a suitable product for the purpose for ensuring that the SBR was and remained a watertight structure in all circumstances ." [emphasis added] 76 The Referee is not shown to have misunderstood the legal test of causation. He appears to have followed the "a cause" test but found, correctly, that Hydrotite CJ 0725-3K was not "a" cause of any of the leakage. 77 To the contrary of the submission made by Hyder, the evidence could only result in the Referee finding as he did, namely, that leakage was caused by reason of Hyder's own design of the structure in relation to which Gately (and Corkjoint) played no relevant part. 78 It is significant that the Referee found (paragraph 24, Report page 31): "… that where the surface sealant was ineffective, the Hydrotite, where present, contained any leakage past the sealant in key joints during that earlier hydrostatic testing." 79 The issue of the role played by Hydrotite in providing watertightness to the structure involved the time-related and moisture-dependent characteristics of Hydrotite in order for it to produce a watertight seal. The ability of Hydrotite to provide a watertight seal (the joint being properly detailed and the structure functioning properly) depended upon sufficient moisture reaching the Hydrotite for a sufficient period of time. 80 As Corkjoint submitted to the Referee [and he accepted], the evidence established that the surface sealant (designed by Hyder as the primary sealant) must have failed in those joints that leaked in July 1997 otherwise no such leaking would have occurred. Hyder apparently failed to establish why some only of the wall joints (both key joints and expansion joints) leaked in July 1997 but, it seems, not in January 1997 or relevantly March 1997. The initial hydrostatic testing was successfully undertaken in January 1997. It must be remembered that the wall 22 failure thereafter intervened. 81 Corkjoint submitted to the Referee, that from that moment of time, being the wall 22 failure, the causal chain (if any) involving Hydrotite (if at all), which involvement was disputed by Corkjoint and Gately, was forever broken with the legal consequence, "as a matter of common sense", of absolving Hydrotite from any (if any) involvement regarding subsequent wall key joint leaking. This appears to have been the approach taken by the Referee. 82 The major wall repairs following the wall 22 failure, and the March 1997 failures completed the break in the causal chain. These major wall repairs involved rebuilding a portion of the joints. 83 The Referee is not shown to have erred in finding (paragraphs 22 to 24, Report page 31) that Hydrotite completely performed its function (being prior to the second round of major repairs which commenced in May 1997 following the March 1997 failure of the stainless steel plates affixed to the walls of the SBR because of the excessive deflections and the inability to cope with the shear forces at play). 84 At paragraph 30, page 12, of the Hyder submissions, reference is made to the use of the product as having been an "imprudent decision". However, no such finding was made by the Referee. At paragraph 15 and footnote 22, Report page 13, the Referee found to the contrary (see paragraph 57 above). 85 The sequence of the events as found appears to have been as follows: "(i) the suitability of and the use of any hydrophilic product in the structure were decisions Hyder had made before contacting Corkjoint (Gately) (paragraph 36, Report page 15, and paragraph 40, Report page 16); (ii) the placement of Hydrotite CJ 07325-3K on the lower sloping face of the key joint followed Gately's recommendation in December 1995 (paragraphs 50 to 53 (inclusive), Report pages 17 and 18); (ii) the leakage of the SBR from July 1997 occurred only because of Hyder's design of the structure independent of Corkjoint (Gately) (in particular, paragraph 24, Report page 31; paragraphs 18 and 19, Report page 36)." Conclusion and short minutes of order 86 No errors of principle have been demonstrated, no patent misapprehension of the evidence has been demonstrated and there has been no perversity or manifest unreasonableness in fact-finding. The complaints advanced by Hyder have been carefully examined against the reasons given in the Report. Although the subject dealt with in the Report exhibits a degree of special complexity, at the end of the day Hyder has not shown any entitlement to set aside any part of the Report, to substitute or vary any finding or to remit the Report to the Referee for further consideration and Report in relation to any of the matters which were pressed on the amended notice of motion filed on 31 August 2004. 87 Short minutes of order should be brought in providing for the adoption of the whole of the Report. Costs may be argued on that occasion. Mercantile Mutual's contention that a finding was not open to the Referee 88 It should be noted that Mercantile Mutual did not press its motion that the Report should not be adopted in its entirety. I certify that paragraphs 1 - 88 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 3 September2004 ___________________ Susan Piggott Associate 3 September 2004 Last Modified: 09/08/2004 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.