Supreme Court New South Wales Medium Neutral Citation: The Owners Strata Plan No 72381 v Meriton Apartments Pty Limited [2015] NSWSC 442 Hearing dates: 8 April 2015 Decision date: 23 April 2015 Jurisdiction: Equity Division Before: Ball J Decision: See paragraph 34 of this judgment Catchwords: PRACTICE AND PROCEDURE – adoption of referee's report – expert conclave – whether expert under misapprehension that agreement with other expert was required at the expense of his own views – whether in the interests of justice not to adopt referee's report – referee not in error Legislation Cited: Civil Procedure Act 2005 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300 Chocolate Factory Apartments Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784 Coulton v Holcombe (1986) 162 CLR 1 The Owners Strata Plan 57504 v Building Insurers' Guarantee Corporation [2008] NSWSC 1285 Rosniak v Government Insurance Office (1997) 41 NSWLR 608 Super Pty Ltd (formerly known as Leda Constructions Pty Ltd) v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 Category: Procedural and other rulings Parties: The Owners Strata Plan No 72381 (Plaintiff) Meriton Apartments Pty Limited (First Defendant) Karimbla Construction Services Pty Limited (Second Defendant) Representation: Counsel: GA Sirtes SC | J Knackstredt (Plaintiff) F Corsaro SC | L Shipway (Defendants) Solicitors: Doyle Edwards Anderson Lawyers (Plaintiff) Office of the General Counsel - Meriton Group (Defendants) File Number(s): 2011/124985 Publication restriction: Nil Judgment Introduction 1. By two notices of motion the plaintiff (the Owners Corporation) and the first and second defendants (together, Meriton) seek orders concerning the adoption of a report dated 31 October 2014 prepared by Mr Steven Goldstein (the Referee) who was appointed by the Court under Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 20.15 on 7 November 2013 to act as referee to enquire and report on all of the issues raised in these proceedings. 2. The Owners Corporation seeks an order that the whole of the report be adopted and consequential orders including verdict and judgment in the sum of $4,125,005.00 in accordance with the Referee's report together with interest, costs and interest on costs. It also seeks an order that some of its costs be paid on an indemnity basis. Meriton, on the other hand, seeks orders that certain paragraphs of the Referee's report be rejected and directions for the hearing of the issues the subject of the rejected paragraphs. Background 1. The proceedings concern allegations of defects in part of a building containing 235 residential apartments known as "World Tower – Mid Rise". The paragraphs of the Referee's report which Meriton seeks to have rejected set out the Referee's findings on the allowance that should be made for the following items relating to the rectification of those defects: 1. Preliminaries, supervision, temporaries and safety measures; 2. Ground/street level temporaries, gantry hoardings & safety measures; 3. Project management; 4. Consultants' fees. 1. Each of the Owners Corporation and Meriton led expert evidence from a quantity surveyor concerning those matters – Mr Gavahan, in the case of the Owners Corporation, and Mr Gibson, in the case of Meriton – and each expert prepared a report dealing with the amount that should be allowed in respect of each item. 2. In a report dated 5 October 2012, Mr Gavahan expressed the opinion that a reasonable estimate for the items in question was as follows: 1. "Preliminaries [etc]"- $2,465,718.00; 2. "Ground/street level temporaries, gantry hoardings & safety measures" - $1,480,304.00; 3. "Project management" - $985,625.00; 4. "Consultant's fees" - $873,775.00. 1. Mr Gibson responded in a report dated 25 October 2013. He expressed the opinion that a reasonable allowance for the relevant items was $775,782.00 for preliminaries and nothing for the other three items. 2. In accordance with directions given by the Referee, Mr Gibson and Mr Gavahan prepared a joint report consisting of a schedule setting out agreed figures in relation to each of the four items. On 2 September 2014, following a hearing before the Referee, they prepared a supplementary report. In that supplementary report they agreed that the figures for the four items were as follows: a. "preliminaries, supervision, temporaries and & [sic] safety measures" - $520,862 b. "ground/street level temporaries, gantry, hoardings & safety measures" - $559,166 c. "project management" - $273,752 d. "consultants' fees" - $285,400 Consistently with UCPR r 31.26(2), the experts did not give reasons for why they agreed in relation to each of the items. 1. The experts gave concurrent evidence before the Referee and were questioned by counsel representing each of the parties. Relevantly, counsel for Meriton did not ask Mr Gibson to explain why he originally assessed the items for "Hoardings and safety protection at street level, Project management and Consultant's fees" as $nil, but ultimately concluded that the agreed amounts should be allowed in respect of those items. 2. The Referee accepted the agreed amounts set out in the supplementary joint report dated 2 September 2014 in respect of each item. Meriton had submitted that the Referee should reject that joint report and make his own assessment of the amount to be allowed in respect of each item. That submission was put in these terms: There is one further point which the Defendants wish to make. It goes without saying that the Referee is not bound by the experts' opinion as to matters they address. The Defendants submit that the experts have erred as to the amount to be allowed for preliminaries and overheads. The Referee is entitled to rely on his own expertise and experience in concluding that a substantially lower amount ought to be allowed for these items. The Referee did not accept that submission. It is not suggested that the Referee made an error in doing so. 1. Following completion of the Referee's report, Ms Malouf, a solicitor employed by Meriton, wrote to Mr Gibson on 10 November 2014 in the following terms: We are concerned that you may have misunderstood your role in the conclave process. In particular, we think that you may have incorrectly thought that you and Mr Gavahan were required to reach agreement. Please confirm what you regarded your role to be, and whether or not you understood that you and Mr Gavahan were required to reach agreement. We are concerned that, for the purposes of the conclave, no conferral or inadequate conferral took place between you and Mr Gavahan prior to the completion of your joint reports. We request you please provide the following information with respect to face-to-face meetings with Mr Gavahan: 1. The dates and times in which you conferred with Mr Gavahan; 2 The time spent on each occasion conferring with Mr Gavahan; 3. How the conferral took place. For example, was it face-to-face, over the telephone or another form of electronic communication; 4. Where the conferral took place; and 5. Whether, in your opinion, a conferral took place at all. Could you also provide the same information in relation to other communication with Mr Gavahan (including by telephone, email, fax and any other electronic means). Could you please provide a response to this request as a matter of urgency and no later than 5.00 pm Tuesday 11 November 2014. 1. Mr Gibson responded to that letter by email on 11 November 2014. In that response he said: The dates and time I conferred face to face with Brian Gavahan were: 22/7/14 – 6 hours 24/7/14 – 6 hours 29/7/14 – 4 hours 12/8/14 – 6 hours 13/8/14 – 6 hours Total 28 hours There were numerous telephone discussions and emails between us discussing the joint report. I have no written record of the dates and times of the telephone conferences. The above dates are those that are noted in my diary as meeting with Mr Gavahan. There may be times noted in my diary as working on the World Tower dispute that I may have been conferring face to face with Mr Gavahan, but were not specifically noted as such. It was not necessary for me to record what I was specifically doing as I invoiced by the day, not the hour or job. All the face to face meetings took place in Napier and Blakeley's office in Kent Street, Sydney. I understood the role I had was to prepare a joint report with the [sic] Mr Brian Gavahan of Napier and Blakeley. This joint report was to be as I had prepared on other joint reports I have prepared, wherein the two parties agreed and prepared one report. I was not under the impression that I had to prepare a report and Mr Gavahan a report. If we were not to prepare one report, why then did we confer? Your letter to me refers dated 10 to joint reports [sic]. I have no record of the telephone conversations with Mr Gavahan. There were no facsimile correspondence between us. I have provided you with all the email correspondence. 1. Meriton submits that it is apparent from Mr Gibson's response that he laboured under a misunderstanding of what his role as an expert was and, in particular, what his obligations in participating in a conclave with Mr Gavahan were. Meriton submits that, for that reason, the Court should not accept the conclusions of the Referee insofar as they were based on the joint report of Mr Gibson and Mr Gavahan following that conclave. It is not suggested that the Referee made any error of a kind that would cause the Court not to adopt his report. Rather, what it submitted is that it has become apparent since the report was finalised that it was based on evidence that itself was flawed and, in those circumstances, it would not be in the interests of justice for the Court to adopt that aspect of the report. Adoption of the report 1. UCPR r 20.24 gives the Court a wide discretion to deal with reports prepared by referees appointed under UCPR r 20.23. It provides: (1) If a report is made under rule 20.23, the court may on a matter of fact or law, or both, do any of the following: (a) it may adopt, vary or reject the report in whole or in part, (b) it may require an explanation by way of report from the referee, (c) it may, on any ground, remit for further consideration by the referee the whole or any part of the matter referred for a further report, (d) it may decide any matter on the evidence taken before the referee, with or without additional evidence, and must, in any event, give such judgment or make such order as the court thinks fit. (2) Evidence additional to the evidence taken before the referee may not be adduced before the court except by leave of the court. 1. In Chocolate Factory Apartments Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784, McDougall J summarised the principles the Court will generally apply in exercising the discretion conferred by UCPR r 20.24. The Owners Corporation relies on those principles to submit in this case that the Court should adopt the whole of the Referee's report. 2. It is not necessary to set out those principles in this case. It is obvious that they are directed at cases where it is alleged the referee has made some error. They are not concerned with a case where it is alleged that, although the referee did not make an error, it would not be in the interests of justice for some other reason for the Court to accept the referee's report without qualification; and I do not think his Honour's judgment should be read as ruling out such a possibility. To take an obvious example, if it emerged after the referee had delivered his or her report that a witness's evidence had been procured through a bribe, and that evidence was critical to the referee's conclusion, it may well be appropriate for the Court to refuse to adopt the relevant part of the report, even if the referee made no error at the time in accepting that witness's evidence. 3. I do not think it is desirable to try to set out all the circumstances in which it may be appropriate not to accept a referee's report even though the referee committed no error in producing it. In circumstances where the discretion granted by UCPR r 20.24 is not confined by the terms of the rule, it seems to me that, subject to any binding authority, the question must ultimately be answered by asking what is in the interests of justice having regard to all the relevant facts and the object and purpose of the rules: see Super Pty Ltd (formerly known as Leda Constructions Pty Ltd) v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 at 563 per Gleeson CJ. In the present case, Meriton submits that its own expert proceeded on a misunderstanding of his role as an expert and that, in those circumstances, it would not be in the interests of justice for the Court to accept that part of the Referee's report which is based on that witness's evidence. That submission raises two questions. The first is whether Mr Gibson was labouring under a misunderstanding. The second is, if he was, whether it would be in the interest of justice for the Court to refuse to adopt the relevant part of the Referee's report. 4. In my opinion, the answer to both questions is "no". 5. As to the first, Meriton relies on Mr Gibson's response to the questions asked by Ms Malouf. It places particular emphasis on the words "I understood the role I had was to prepare a joint report … wherein the two parties agreed and prepared one report. I was not under the impression that I had to prepare a report and Mr Gavahan a report" (emphasis added). 6. Read literally, the emphasised words may be interpreted as meaning that Mr Gibson understood that the two experts had to agree. However, read in context, I do not think that that is what Mr Gibson meant. When Mr Gibson said that his role was that "the two parties agreed and prepared one report" what he meant was that the two parties had to agree on the content of their joint report. That does not mean that he understood that they necessarily had to agree on the conclusions set out in the report. Rather, in my opinion, Mr Gibson is to be understood as saying, for example, that if they could not reach agreement on the amount to be allowed for a particular item, they had to reach agreement on how their disagreement was to be expressed. That was part of the process of preparing one report. 7. It is inherently improbable that Mr Gibson was labouring under the misunderstanding that Meriton says he was. On a number of occasions, Mr Gibson signed an acknowledgement that he had read the Expert Witness Code of Conduct and agreed to be bound by it. It is plain from that Code that Mr Gibson's obligation was "to endeavour to reach agreement on any matters in issue". In the light of Mr Gibson's signed acknowledgements, there is no reason to doubt that he read and understood the Code and that obligation in particular. 8. Moreover, the joint report with which Meriton takes issue contains the following statement: We confirm that: (a) … (b) … (c) The opinions stated in this Joint Report are genuinely held by us (d) … (e) We understand our obligations as Experts regarding the preparation of this Report and have complied with our duty That confirmation was signed by Mr Gibson. Whatever Mr Gibson's precise understanding of the process, he could not have given that confirmation unless the agreement he reached genuinely reflected his views. Meriton's case, on the other hand, is that Mr Gibson, driven by a misunderstanding, believed that he had to reach an agreement with Mr Gavahan, even at the expense of his own views. It follows that, on Meriton's case, the confirmation Mr Gibson gave was false. I am not prepared to draw that conclusion simply on the basis of Mr Gibson's response to Ms Malouf's email. 1. Meriton submits that Mr Gibson must have misunderstood his role, since there can be no other explanation for the radical change in his opinion. I do not accept that submission. The mere fact that an expert changes his or her view as a result of a conclave does not mean the expert has misunderstood his or her role, even if the change is substantial. The change in view is equally explicable on the basis that one expert persuaded the other that the other's original opinion was mistaken. Mr Gavahan also changed his views substantially. It may be that both experts were willing to compromise in order to reach an agreement on questions that required some element of judgment. But if that is what happened, that was part of their role, provided the compromise genuinely reflected each expert's views. 2. As to the second question, even if Mr Gibson did alter his views because he wrongly believed that he was required to reach agreement with Mr Gavahan, even at the expense of his own opinions, I do not accept that it would be in the interests of justice to permit Meriton to re-agitate the issue now. Meriton's submission amounts to a submission that Mr Gibson made an error when he gave the evidence he did, Meriton has now discovered that error and as a consequence should be permitted to reargue the issue to which the evidence went. In my opinion, the interests of justice do not require that it be able to do so. On the contrary, the principle in favour of the finality of litigation suggests that it should not be permitted to do so in the circumstances of this case. That principle manifests itself in various ways, including in the doctrine of res judicata and other principles of estoppel arising from judgments, as well as the principle that a party should on appeal be bound by the way it conducted the case at first instance (see Coulton v Holcombe (1986) 162 CLR 1 at 6-11 (per Gibbs CJ, Wilson, Brennan and Dawson JJ)) and the principles that apply where an application is made to reopen a judgment: see Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300. In my opinion, the principle applies in this case. 3. In the present case, it was apparent from the joint report that Mr Gibson had changed his mind. Meriton was given an opportunity to investigate why he did so during the course of the hearings conducted by the Referee. It did ask some questions of Mr Gibson concerning the need to provide street level hoardings and gantry as a safety measure while the defects were being rectified. However, it chose not to ask Mr Gibson for an explanation of why he changed his mind and agreed that some allowance should be made in relation to each of the three items in respect of which he had originally expressed the opinion that no allowance was necessary. There is no suggestion that Meriton was not given ample opportunity to explore those issues before the Referee. The whole of the proceedings were referred to the Referee for report. Although Meriton may not have been aware (on the current hypothesis) of the precise error under which Mr Gibson was labouring, it knew the facts which caused it to believe that he was labouring under an error and it was a matter that it could have investigated before the Referee. For whatever reason, it did not do so. The order that Meriton seeks would require the Court to re-investigate matters considered by the Referee in circumstances where the matter about which it now complains could have been investigated at that time. In my opinion, it would not be in the interests of justice to permit it to do so. 4. Meriton takes issue with the conclusions of the previous paragraph. It submits that UCPR r 31.24(6) prevented it from asking Mr Gibson questions about what occurred during the joint conclave. That rule provides: Unless the parties affected agree, the content of the conference between the expert witnesses must not be referred to at any hearing. However, there is no evidence that Meriton sought and was refused the Owners Corporation's consent under the rule. In any event, the rule simply prevents the adducing of evidence concerning what occurred at the conclave. It did not prevent Meriton from asking Mr Gibson questions concerning the reasoning process he adopted to reach the conclusion that he should accept the figures in the joint report and how that conclusion was to be reconciled with the conclusions he expressed in his original report. 1. Meriton seeks to attach some significance to the fact that the error said to have been made by Mr Gibson was an error concerning the process that he should follow in the joint conclave. However, it does not seem to me that that is sufficient to set the error apart from any other an expert may make. From time to time, expert witnesses make errors which may affect the outcome of the case in which the witness gives evidence. It does not seem to me to matter whether the error relates to the witness's area of expertise or the process by which expert evidence is given. If a party is put on notice of the possible error and given an opportunity to question the witness concerning it, it would not be in the interests of justice to permit the party to raise the issue subsequently. To do so would increase costs and uncertainty. It would also undermine the referral process because it would provide a possible benefit to parties who did not explore their case fully before a referee and who were dissatisfied with the referee's conclusion. 2. It follows that the Referee's report should be adopted in whole. Costs and interest 1. The Owners Corporation submits that it should recover two categories of costs on an indemnity basis. 2. First, it submits that it should recover on an indemnity basis wasted costs incurred by its expert arising from Meriton's failure to discover schematic hydraulic drawings until the hearing. Relying on Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at 615-6 (Mason P, Clarke AJA agreeing), it submits that it is entitled to costs on that basis because of Meriton's unreasonable and delinquent conduct in failing to provide the drawings when requested. The Owners Corporation had asked for all drawings. It was told that they had all been produced. In fact, however, Meriton had only given its own expert the drawings in question. The Owners Corporation did not become aware of the additional drawings until the hearing before the Referee. As a result, its expert was required to reconsider his opinion in light of the additional evidence. 3. It is not clear what the purpose of an indemnity costs order would be. The Owners Corporation does not claim any legal costs on an indemnity basis. The likelihood is that the costs of its expert will be allowed if those costs were reasonable. In any event, I am not satisfied that it is appropriate to make an order for indemnity costs. It is apparent that Meriton failed to produce the relevant drawings due to an oversight. An oversight in giving discovery is not conduct which would justify an indemnity costs order. 4. Second, the Owners Corporation seeks an order that the costs of attendance by Mr Russell, one of its experts, at the hearing before the Referee and his costs of preparing for cross-examination be paid on an indemnity basis. Mr Russell had been required to attend for cross-examination and charged a fee for his attendance and preparation but ultimately was not required. Again, it is not clear that there would be any difference between an order for costs on the ordinary basis and an order for costs on an indemnity basis. In any event, I do not think that it is appropriate to make an order for costs on an indemnity basis. It appears that Meriton initially took the position that it may require Mr Russell for cross-examination because he had not signed a declaration that he agreed to be bound by the Expert Code of Conduct. Subsequently, its counsel were considering whether he would need to be cross-examined in light of a supplementary report that had been served the day before he was due to give evidence. Again, Meriton's conduct does not involve a degree of fault sufficient to attract an indemnity costs order. 5. The Owners Corporation has already incurred some costs in rectifying defects totalling $11,144.00. It claims interest on those amounts from the time they were paid. There is no reason why the Owners Corporation should not have interest on those amounts from that time: see, eg, The Owners Strata Plan 57504 v Building Insurers' Guarantee Corporation [2008] NSWSC 1285. The interest on that amount up until the date of the Referee's decision (31 October 2014) is $2,571.42. The interest on $11,144.00 from 31 October 2014 to the date of this judgment is $347.30. It follows that the Owners Corporation is entitled to interest in the amount of $2,918.72. Consequently, it is entitled to judgment for the total amount of $4,127,923.72. 6. There is no reason why the Owners Corporation should not have interest on costs. Orders 1. The orders of the Court are: 1. The whole report of Steven Goldstein dated 31 October 2014 be adopted by the Court pursuant to UCPR r 20.24. 2. Verdict and judgment for the plaintiff in the amount of $4,127,923.72. 3. The defendants to pay the plaintiff's costs of the motion filed 27 February 2015. 4. The defendants to pay the plaintiff's costs of the proceedings. 5. The defendants to pay the plaintiff interest on costs and disbursements, at the rates set out in UCPR r 36.7 on the Allowed Percentage of each amount of costs and disbursements actually paid by the plaintiff, from the date of payment by the plaintiff of each such amount of costs and disbursements until such time as the defendants have paid the costs due to the plaintiff under any order made in these proceedings where: 1. X – equals the total amount of costs and disbursements which the plaintiff has paid or is liable to pay in connection with these proceedings; and 2. Y – equals the total amount of costs and disbursements agreed or allowed on assessment to the plaintiff in connection with these proceedings; 3. the Allowed Percentage equals (Y/X x 100)%. ********** 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. Decision last updated: 24 April 2015