Banabelle Electrical v State of New South Wales & Ors [No 4] [2006] NSWSC 861

New South Wales Supreme Court

CITATION : Banabelle Electrical v State of New South Wales & Ors [No 4] [2006] NSWSC 861

JURISDICTION : Equity Division Technology & Construction List

JUDGMENT OF : McDougall J at 1

EX TEMPORE JUDGMENT DATE : 08/15/2006

DECISION : See paras [31], [32] and [34] of judgment

CATCHWORDS : PRACTICE AND PROCEDURE - where further remitter to referee was to proceed only on the basis of evidence in first reference - where party changed approach to quantification of damages - whether further remitter should be terminated - no question of principle

Banabelle Electrical Pty Limited (Plaintiff) State of New South Wales (First Defendant) PARTIES : Walter Construction Group Ltd (Second Defendant) Stephen Tamone (Third Defendant) Doug Sutherland (Fourth Defendant)

FILE NUMBER(S) : SC 55030/01

COUNSEL : M R Gracie (Banabelle) P F Liney, Solicitor (State)

SOLICITORS : Crisp & Associates Mallesons Stephen Jaques

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY & CONSTRUCTION LIST

McDOUGALL J

Tuesday 15 August 2006 Ex tempore (revised 16 August 2006)

55030/01 BANABELLE ELECTRICAL PTY LIMITED v STATE OF NEW SOUTH WALES & ORS [No 4] JUDGMENT 1 HIS HONOUR: This is the fourth judgment that I have given relating to the report of a referee given on 14 January 2005. I shall assume that the reader of this judgment (presumably, the Court of Appeal) has read also my first judgment ([2005] NSWSC 714) and my second and third judgments (given on 8 August and 4 November 2005 respectively). 2 As a result of my third judgment, the referee provided a further report clarifying his approach to GC1.27.1 of the contract. In his first report, the referee had dealt with the claim up until 10 January 2000 being the date when, as it appeared he then found, Banabelle was given possession of the site (or part) although generally not in accordance with the contract programme. Those findings are found in a number of places in the first report including paras 468 and 609. 3 The referee did not consider the possibility of the continued operation of GC1.27.1 and its breach, because (as he has confirmed in his second report) he thought that clause "ceased to have any continuing effect once Banabelle was given sufficient possession of the site to commence work on or about 11 January 2000" (see para 44 of the second report). Emboldened by that, Banabelle asked me to remit to the referee consideration of the continuing breaches of GC1.27.1 and of the damages claimed for those breaches. I did so by orders made on 9 December 2005 (varied irrelevantly as to timetable matters, by orders of 2 February and 11 May 2006). For convenience, I set out orders 1 and 2 made on 9 December 2005: "(1) I remit to the referee, Mr G A Markham for further inquiry and report the question of the amount of damages, if any, suffered by the plaintiff by reason of such breaches of clause GC1.27.1 as occurred: (a) during period 11/1/2000 to 12/10/2000 (b) during period 13/10/2000 to 3/7/2001 (2) I direct that in respect of each period the referee identify, among other things: (a) the event or cause of the breach; (b) the exact duration of the breach; (c) the amount of damages flowing from that breach." 4 I followed those orders with a number of directions, the intention of which was to confine both the parties and the referee to the evidentiary material taken on the hearing of the reference (ie, the hearing that culminated in the production of the referee's report dated 14 January 2005) but to make it plain that the parties could put submissions as to the matters that they said followed from that evidence. 5 The parties did indeed put submissions to the referee. It is apparent that Banabelle's submissions puzzled the referee in some respects. Accordingly he asked for clarification. It is the referee's attempt to seek clarification, and what Banabelle would provide in response to that request, that has caused the present controversy. 6 The State takes a number of objections to the referee's request for further submissions and to Banabelle's response. A narrow ground of opposition to the request for further submissions is that it goes beyond the terms of the further remitter. That may be so; but if that were the only objection, it is one that could and should be cured by extending, so far as necessary, the terms of that further remitter. 7 There are, however, other, and more troubling submissions. The first is that the claim for damages for GC1.27.1 for the period after 10 January 2000 amounts to what the State in its written submissions of 5 July 2006 call "a new and impermissible global claim". 8 Mr Gracie of counsel, who appeared for Banabelle, has conceded that the way in which the claim for damages for breach of GC1.27.1 for the period after 10 January 2000 is now put is not the way in which that aspect of the case was argued before the referee on the initial reference. However, he says, what Banabelle seeks to do is to take the methodology advanced by the State's expert (Mr Holland) for the GC1.27.1 claim up to 10 January 2000 and extend that methodology, although using figures from Mr Byford (Banabelle's expert) for the period thereafter. 9 Banabelle submits that it is necessary to proceed in this way because Mr Holland, for reasons that appear from his evidence, did not consider the period after 10 January 2000. I am not sure that this is an appropriate characterisation of Mr Holland's evidence. The parties put before me by consent extracts of material before the referee. They include an extract from Mr Holland's report dated 28 March 2003. In para 313, Mr Holland said, amongst other things, "we are not able to identify any additional cost, in the information provided by Banabelle and [Mr Byford], arising in connection with any matter which might be characterised as a breach pursuant to cl GC1.27.1...". Mr Holland expanded that observation by pointing to a number of specific areas where, he said, no delay or additional cost had been identified. 10 In considering this question, it is necessary to bear in mind that the referee, in his first report, expressed a marked preference for the approach and evidence of Mr Holland (compared to Mr Byford) on the question of quantification of damages for breach of GC1.27.1 up to 10 January 2000. That is apparent in the relevant sections of the first report, including paras 610 to 627. The referee said, among other things, that "Mr Byford's evaluation does not assess the loss flowing from the breach". He said also that he disagreed with a number of particular items evaluated by Mr Byford. The table that he prepared, summarising his findings, confirms his preference for Mr Holland. 11 Mr Gracie submitted that this reflected the fact that Mr Byford's evidence covered the whole period, and not merely the period up to 10 January 2000. To the extent that there were particular matters that the referee did not accept, Mr Gracie stated that they were no longer pressed. 12 Nonetheless, the problem is that Mr Byford's assessment was a global one. That this is the way in which Banabelle put its case before the referee in relation to GC1.27.1 as well as other claims is apparent from what the referee said from the first report at para 540 and is also apparent from the submissions that have been advanced today. 13 I dealt with the problems flowing from the global approach in my first judgment, although I did so not in the context of GC1.27.1 but in the context of the claim for damages for breach of GC1.33.1 (a clause dealing with, among other things, directions from the superintendent as to the order and time for performance of stages of the work). I said that the global assessment of damages for breach of GC1.33.1 was fundamentally flawed for a number of reasons, which I considered from paras [86] to [114]. In substance, among other things, I noted that the referee had made findings of multiple causes of delay and disruption, and consequent increased costs. He did not confine those findings to the period up to 10 January 2000; on the contrary, it is plain from the report that he considered the problem to be pervasive. Thus, a global assessment that was based on one matter only (in the particular case that I was considering, disruption caused by directions under GC1.33.1) must fail if only because it did not separate out the costs attributable to that cause from costs attributable to other causes. 14 In my view, exactly the same reasoning applies to the way in which Banabelle now wishes to put its claim under GC1.27.1 for the period after 10 January 2000. That is why I included para (c) in order 2 made on 9 December 2005. 15 Mr Gracie submitted that since the referee had in substance adopted a global approach to the assessment of that claim for the period prior to 10 January 2000, and because I had adopted that assessment, it should be open to it to rely on the like methodology thereafter. I do not agree. There are a number of reasons why I do not agree. 16 The first reason is that the challenge to the adoption of that aspect of the report was not based on the global nature of the claim. Further, when one reads the relevant sections of the report in totality, it is apparent that the referee found that Banabelle had been denied possession, of the kind contemplated by GC1.27.1, for the whole of the relevant period, notwithstanding that it somehow managed to perform work to the value of about $200,000 (or four to five percent of the contract sum) during that period. It is apparent that, on this basis, the referee thought it either appropriate or, at the least, not inappropriate to attribute the whole of the time related costs incurred by Banabelle over that period to the breach of GC1.27.1. It may have been that he erred in failing to diminish the damages slightly to take account of such work as was done; but neither Banabelle nor the State put this to me as a basis for rejection or variation of the relevant part of the referee's report. 17 Another reason why I do not accept Banabelle's submission is that it is apparent that multiple causes of delay affected the work after 10 January 2000, and that the approach for which it now contends does not seek to disentangle (for example) damages caused by breach of GC1.27.1 from damages or loss arising (for example) from directions given under GC1.33.1. 18 I am conscious that the referee concluded in para 38 of his second report that "[o]n the balance of probabilities … Banabelle did not have possession of such further parts of the site as were necessary for it to execute the work under the Contract in accordance with the requirements of the Contract" from 11 January 2000 until the conclusion of what he called Phase 2. I am also conscious that he concluded in para 41 of the second report that the State "was in breach of GC1.27.1 for seventy per cent of the duration of" what he called Phase 3. 19 I have not decided whether, and if so to what extent, to adopt the second report. It is, accordingly, inadvisable that I say too much about those findings. I will, however, observe firstly that the finding in para 41 as to a breach of GC1.27.1 for 70% of the duration of Phase 3 is a little difficult to follow; and secondly that the finding in para 38 of a breach of GC1.27.1 for the whole of Phase 2 is considerably more difficult to understand given that on any view Banabelle carried out substantial (and not what the referee appears in relation to the first Phase to have considered merely de minimis) works during Phase 2. 20 A third reason why I do not accept Mr Gracie's submission is that Mr Holland - the expert whose methodology Banabelle now wishes to adopt - has not had the opportunity of giving evidence on the applicability of his methodology after 10 January 2000. All we know, from the passage of his earlier report to which I have referred, is that he did not think that there was any additional time related cost during that period. Whether he would revise that view (or whether, for example, in the conclave process undertaken by the referee with Messrs Holland and Byford he did revise that view) is something that I do not know. But regardless of this, I think that it is fundamentally unfair to the State to permit Banabelle now to seek to change, in the way that I have identified, the basis on which it seeks to assess damages, and to do so by relying on the State's expert when that expert has not been examined or cross-examined on the applicability of his methodology for that purpose. 21 Another problem with Banabelle's approach, although not by itself of dispositive significance, is the apparent lack of enthusiasm shown by the referee for Mr Byford's approach to the question of quantification. It may be that that, by itself, is something that could be resolved. 22 For these reasons alone, I conclude that the further remitter to the referee should be terminated. I conclude that because, as I have indicated, I think it would be unjust to the State to permit a significant question - the quantification of damages for breach of GC1.27.1 - to proceed only on the basis of the evidence taken in the first reference, but by permitting Banabelle, in the manner that I have outlined, to change its approach to the question of quantification. 23 The State took other objections. In case what I have said to date should be considered by others to be incorrect, I will indicate briefly my reasons on those other objections. 24 The second objection related to Banabelle's invitation to the referee to reconsider matters that had been dealt with either by the referee or by me on the adoption hearing. Banabelle has accepted that by indicating, both in its written submissions and in Court, that it does not press the matter; and I need not take it any further. 25 The third objection relates to the basis on which Banabelle seeks to prove the breach of GC1.27.1. It was this that initially inspired the referee to ask for further submissions. What Banabelle wishes to do, as I understand it, is to go to its site diaries relating to the project and to extract from those the dates when, it said, it was able to work in any particular area for a number of days consecutively. It seeks to ask the referee to draw the inference from that material that the day on which any given run of consecutive days started was the day when it was given possession of the relevant area sufficient to enable it to carry out works. 26 I am not sure that I understand the logic of this approach. It does not follow, simply because a contractor chooses to work on a particular area commencing on a particular date, that it could not have done so before that date. But that may perhaps be a matter for the referee. 27 Another objection taken to this approach related to Banabelle's use of the term "unencumbered possession". On the basis that this was intended to denote, although perhaps in unnecessarily evocative words, sufficient possession for the purposes of clause GC1.27.1, that would not again of itself be a sufficient reason to prevent the matter from continuing. 28 Nonetheless, I think, there is a real danger, in the approach that Banabelle seeks to take on this particular issue, of permitting unfairness to occur. It is apparent from the referee's second report that he took into account, in coming to the views in paras 38 and 41 to which I have referred, a programme analysis by Mr Byford for each of the phases that showed (according to the referee) that access to work areas had not been provided as programmed, that work activities were significantly extended in duration when compared to an earlier programme, and that work activities were subjected to a high level of interruption. It is difficult for me to know whether that is the basis on which the referee came to the conclusions to which I have referred, or whether (as Mr Gracie submitted) he was merely reciting the evidence before coming to his conclusion. In any event that particular problem could perhaps be cured by modifying the directions given, although I suspect that there would still be some problem, from the State's point of view, in confining the area of inquiry in an appropriate way. 29 Before I leave this area of the dispute, I should note that if the referee were to accept the analyses of Mr Byford to which I have referred, those analyses would confirm that the failure to give possession in accordance with GC1.27.1 could not have been the only cause of loss during Phases 2 and 3. In other words those analyses, if accepted, would confirm that not all the loss recorded by a global assessment over that period could be said to flow from GC1.27.1 or its breach. 30 The fourth objection taken by the State was that Banabelle's submissions were attempting what it called a "new programming analysis". It is apparent from the oral submissions that the relevant portion of Banabelle's submissions to the referee were prepared either by or in conjunction with a programming expert. Nonetheless, what the expert (or Banabelle) invites the referee to do is to compare two (or perhaps three) programmes and draw inferences as to the extent to which a later programme does or does not cover activities that are covered in an earlier programme. In my view, that does not amount to the introduction of new programming evidence. It is clearly an exercise founded on the evidence that was before the referee in the first hearing, and is, therefore, within the ambit of the directions that I gave. To the extent that there were some residual unfairness to the State, that matter could have been covered by permitting it to put in submissions in reply (which submissions, no doubt, would have been informed by assistance from its programming expert). 31 As I have said, I think that the first matter that I have discussed provides a sufficient reason for terminating the further remitter to the referee and, accordingly, as I have indicated I will do, I terminate the remitter pursuant to the orders of 9 December 2005 as varied on 2 February and 11 May 2006. 32 It will be necessary for the parties to address the consequences. That will include both the orders to be made following upon my first judgment (as varied in the second and third judgments) and what should be done about the costs of the further references. I think that the appropriate way to deal with that is to direct each party within a convenient time to submit a draft of the orders that it seeks to bring these proceedings to an end and submissions in support of those orders, and to direct each party to put in submissions in reply. I will hear counsel on the appropriate times to be permitted. 33 COUNSEL ADDRESSED 34 I direct each party to deliver to my associate and serve upon the other by 5 p.m. on Friday 1 September 2006 a draft minute of all the orders that it seeks to give effect to my various judgments and to bring these proceedings to conclusion together with an outline of submissions in support of the orders sought. I direct each party to deliver to my associate and serve by 5 p.m. on Friday 15 September 2006 any reply to the orders sought and submissions by the other party. I fix the further hearing of this matter for 10 a.m. on Wednesday 27 September 2006 before me subject to vacation should the exigencies of other business require it. *****