A & P Parkes Constructions Pty Ltd v Como Hotel Holdings

[2004] NSWSC 588

CITATION:	A & P Parkes Constructions Pty Ltd v Como Hotel Holdings [2004] NSWSC 588
HEARING DATE(S):	7 June 2004
JUDGMENT DATE:	8 July 2004
JUDGMENT OF:	McDougall J at 1
DECISION:	See paras [79] to [81] of judgment
CATCHWORDS:	BUILDING AND CONSTRUCTION - where plaintiff claims sums due under building contract - where Court referred proceedings to referee - where plaintiff moves for adoption of referee's report - where defendant moves for rejection of substance of the report - Supreme Court Rules - Pt 72 r 13 - whether referee's report should be adopted, varied or rejected - obligation of referee to give reasons - whether referee gave adequate reasons - whether referee's findings of fact soundly based and explained - whether referee erred in construction of contract - whether interest should be calculated pursuant to contract or s 94 Supreme Court Act 1970
CASES CITED:	Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 White Constructions (NT) Pty Ltd v Commonwealth of Australia (1990) 7 BCL 193 Chloride Batteries Australia Ltd v Glendale Chemical Products Pty Ltd (1988) 17 NSWLR 60 Integer Computing Pty Ltd v Facom Australia Ltd (10 April 1987) Xuereb v Viola (1988) 18 NSWLR 453 Hughes Bros Pty Ltd v Minister for Public Works (55011/1991, 17 August 1994, unreported; BC 9402885) Liebe v Molloy (1906) 4 CLR 347 Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20 NSWLR 251
PARTIES :	A & P Parkes Constructions Pty Limited (Plaintiff) Como Hotel Holdings Pty Limited (Defendant)
FILE NUMBER(S):	SC 55028/02
COUNSEL:	I D Faulkner SC (Plaintiff) R J Webb SC (Defendant)
SOLICITORS:	Cowley Hearne (Plaintiff) Minter Ellison (Defendant)

A & P PARKES CONSTRUCTIONS PTY LTD v COMO HOTEL HOLDINGS PTY LTD

55028/02

INDEX – JUDGMENT 8 JULY 2004

Paragraph

Introduction	1
The relevant principles	7
The obligation to give reasons	11
The relevant factual background	15
Relevant terms of the building contract	25
Challenges to the report	26
The construction of clause 8	28
The role of the experts	34
Analysis: the referee’s findings on the clause 8 variations	36
The construction of clause 6	56
Analysis: the referee’s findings on the clause 6 variation	62
Omissions, Goods and Services Tax and loan interest	67
Interest up to judgment	72
Conclusions and order	79

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

McDOUGALL J

8 July 2004

55028/02 A & P PARKES CONSTRUCTIONS PTY LTD v
COMO HOTEL HOLDINGS PTY LTD

JUDGMENT

HIS HONOUR:

Introduction

1 The defendant (“Como Hotel”) is the proprietor of the Como Hotel, situated at 17 Cremona Road, Como (“the hotel”). The plaintiff (“Parkes Constructions”) is a builder.

2 The hotel was originally constructed in about 1880. It was badly damaged by fire in about November 1996, and remained in that damaged condition until after Como Hotel, by contract for sale dated 1 July 1999, agreed to purchase it.

3 On 22 December 1999 Parkes Constructions agreed with Como Hotel to undertake, in substance, the rebuilding and renovation of the hotel for a contract sum of $2,986,000 (“the building contract”), subject to variation in accordance with the terms of the contract.

4 By its amended summons in these proceedings, Parkes Constructions claims in excess of $3,000,000 pursuant to the building contract, substantially, for variations pursuant to clause 8 or for additional works pursuant to clause 6 (which deals with compliance with requirements arising under legislation and the like). Alternatively, Parkes Constructions claims a greater sum on a quantum meruit basis.

5 By order made on 8 August 2003, the Court referred the proceedings to Mr P R Callahan SC for inquiry and report. After a hearing occupying many days, Mr Callahan furnished to the Court his report dated 14 April 2004 (“the report”). He found that Parkes Constructions was entitled to a total of $1,849,288.10, together with interest. He reserved for the determination of the Court the question, whether interest should be calculated pursuant to clause 17(f) of the building contract – at the rate of 2% per month – or at the rates set out in Schedule J to the Supreme Court Rules.

6 Parkes Constructions moves for adoption of the report (with an uncontroversial amendment to correct an apparent arithmetical error in the referee’s summary of his findings). Como Hotel moves for rejection of the substance of the report, although it concedes that Parkes Constructions is entitled to recover, in respect of a number of items found by the referee, in an amount totalling $407,118.55 before preliminaries, overhead and profit, GST and loan interest. The total amount for which Como Hotel admits liability is $576,737.46. As I understand it, that amount does not include interest pursuant to s 94. Judgment for that sum has been given pursuant to Pt 18 r 3.

The relevant principles

7 The principles to be applied, in exercising the discretion conferred upon the Court by Pt 72 r 13 to adopt, vary or reject in whole or in part the report of a referee, are now well established. In Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549, Gleeson CJ said at 563-564 (omitting citations):

“What is involved in an application under Pt 72, rule 13 is not an appeal, whether by way of a hearing de novo or a more limited re-hearing. This is consistent with the right of the referee to conduct the references as the referee thinks fit and unconstrained by the rules of evidence. Rather, the judge, in reviewing the report and deciding whether to adopt, vary or reject it, has a judicial discretion to exercise in a manner that is consistent both with the object and purpose of the rules and with the wider setting in which they take their place.
That wider setting is a system for the administration of justice according to law. In so far as the subject matter of dissatisfaction with the referee’s report is a question of law, or the application of legal standards to established facts, then a proper exercise of discretion would require a judge to consider and determine that matter afresh. …
Subject to what has just been said, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised … . The nature of the complaints made about the report, the type of litigation involved, and the length and complexity of the proceedings before the referee, may all be relevant considerations. The purpose of Pt 72 is to provide, where the interests of justice so dictate, a form of partial resolution of disputes alternative to orthodox litigation, and it would frustrate that purpose to allow the reference to be treated as some kind of warm-up for the real contest. On the other hand, if the referee’s report reveals some error of principle, some absence or excess of jurisdiction, or some patent misapprehension of the evidence, that would ordinarily be a reason for rejecting it … . So also would perversity or manifest unreasonableness in fact-finding. …
On the particular question, relevant to the present case, of the approach to be taken to disputed findings of fact, where there is shown to be evidence available to support such findings, or the issue involves a choice as between conflicting evidence, I agree with the views of Giles J as expressed in the extracts from his reasons for judgment quoted earlier. I also agree with what was said by Cole J in Chloride Batteries of Australia Ltd v Glendale Chemical Products Pty Ltd.”

8 As appears from the judgment of Gleeson CJ at 553-554, Giles J (from whose decision to adopt the report the appeal was brought) had said:

“For my own part, in the circumstances of this case I do not think that the referee’s findings of fact should be generally re-agitated in the court. As a broad proposition, depending upon the circumstances of each case, the court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he did, particularly where the disputed questions are in a technical area where the referee enjoys an appropriate expertise. …
[His Honour then referred to an unreported judgment of Rolfe J.]
Rolfe J went on to say that he was satisfied from a reading of the report as a whole that it was reasoned and that there was factual material upon which the findings by the referee could properly be made. Noting that it had not been put that there was insufficient evidence to support the findings, but rather that the referee had come to the wrong conclusion, his Honour said that he was not so satisfied, and that to require the court to reconsider disputed questions of fact would render the purpose of the referee reporting to the court futile. It seems to me that is an approach appropriate to this case.”

9 In White Constructions (NT) Pty Ltd v Commonwealth of Australia (1990) 7 BCL 193, 195, Cole J said (in a passage referred to in that part of the judgment of Giles J at first instance in Super that was extracted in the judgment of Gleeson CJ on appeal):

“The purpose of referees reporting to the court on disputed questions of fact is rendered futile if the court is to reconsider disputed questions of fact in circumstances where it is conceded that there is factual material sufficient to enable the referees to reach the findings they did. In circumstances where the court, having scrutinized the referees’ report, has a comfortable feeling of satisfaction that the factual issues have been properly explored and considered, in my view the court should adopt the referees’ report on findings of fact.”

10 In Chloride Batteries Australia Ltd v Glendale Chemical Products Pty Ltd (1988) 17 NSWLR 60, Cole J referred at 68-69 to the unreported judgment of Marks J in the Supreme Court of Victoria, Integer Computing Pty Ltd v Facom Australia Ltd (10 April 1987). Again, as I read the judgment of Gleeson CJ in Super, his Honour accepted as correct what Marks J had said, which included the following:

“The plaintiff had the opportunity and took advantage of it, to put before the special referee all the matters put to me. It would be mischievous and, indeed, wrong to allow, certainly at the great expense which inevitably would be involved, the parties to put at nil so much of the exploration already done. Even if I was persuaded, which I am not, that this Court might well reach a different conclusion in some respects from that of the special referee, it would not be proper to allow territory to be re-explored by qualifying adoption of the reports.”

The obligation to give reasons

11 The principal complaint made by Como Hotel, as to the variations that had not been agreed, was put as follows (T 13.5-.15):

“Could I just say this at this point if one takes away the items we accept as the subject of appropriate determination [ie, the items referred to in para [6] above] which the referee – a [sic : obviously “our”] point in relation to the rest really remains a high level point if you like. When one reads the rest, he does not go the step necessary to set out the fact which it can be said that the Court can conclude that there was a proper inference drawn, that is, an inference available on the evidence that there was an authorised instruction from the defendant agreed to by the plaintiff in the necessary sense as required by clause 8.”

12 The same point was put, slightly differently, at T 5.55-6.5:

“The short point is when one comes to consider a variation, one has to, because of the blurred lines and the different hats people are wearing at different times, one has to [sic] be very certain when they are talking to each other or seeing how things happen, they recognise, both of them that that thing is a variation to the contract between them and a thing which is to be or is the subject of an agreement being made between them.”

13 In Xuereb v Viola (1988) 18 NSWLR 453, Cole J said at 469:

“Quite apart from Pt 72, r 11(c), natural justice requires that a referee give reasons for his opinion. This is not just to permit the court better to exercise its functions under Pt 72 r 13. The deeper reason is that it enables the parties and the disinterested observer to know that the opinion of the referee is not arbitrary, or influenced by improper considerations but is the result of a process of logic and the application of a considered mind to factual circumstances. I adopt, with respect, the passage in the judgment of Samuels JA in Strbak v Newton (Court of Appeal, 18 July 1989, unreported), in speaking of the requirements for reasons in the judgment of a District Court Judge, as being an appropriate statement of principle applicable to the statement of reasons required by a referee:
… “it is going too far to suggest that in every case a judge must submit the material before him or her to the most meticulous analysis and carry into judgment a detailed exposition of every aspect of the evidence and the arguments. What is necessary, it seems to me, is a basic explanation of the fundamental reasons which led the judge to his conclusion. There is no requirement, however, that the reasons must incorporate an extended intellectual dissertation upon the chain of reasoning which authorises the judgment which is given.
In the present case, the reasons are certainly succinct; but that is often to be regarded as a judicial virtue. Trial judges must always endeavour to balance their duty to explain with their duty to be brief”.”

14 In Hughes Bros Pty Ltd v Minister for Public Works (55011/1991, 17 August 1994, unreported; BC 9402885), Rolfe J said (adopting the BC pagination) at 13-14:

“In my opinion the Court must be able to see and follow a reasoning process. That does not, in my view, impose an unnecessary burden upon the Referee. The nature of what is required is that a reasoning process be disclosed, or sufficiently disclosed, to satisfy the Court that the finding was one based upon such an intellectual exercise. The performance of that task is not fulfilled by ultimate conclusions unsupported by reasoning. …
In the case of reports to the Court where it is necessary for the Court to decide what should be done with the report to give it legal effect, there should be, at least, sufficient reasons indicating what has led the Referee to the conclusion. In the absence of reasons the Court is left to speculate how the Referee arrived at a decision.”

The relevant factual background

15 To understand the challenges that Como Hotel makes to the report, it is necessary to understand a little of the background.

16 Como Hotel was, in effect, a corporate vehicle for a syndicate that was formed for the purpose of purchasing, reconstructing, renovating and leasing or operating the hotel. The members of the syndicate included (through corporate vehicles) Messrs Allan Parkes and Peter Hall, the principals of Parkes Constructions, each of whom held a 10% interest in the syndicate. There were a number of other members, including (either directly or through corporate vehicles) Mr Paul Wilson, a licensed real estate agent who, in substance, conceived the idea of syndicating the acquisition, redevelopment and operation of the hotel and who, through a company known as Tony Hope Management Pty Ltd, became what was known as the “Project Manager”; Mr Denis Young, the managing director of Meinhardt (NSW) Pty Ltd, a firm of consulting structural engineers who performed structural engineering work for the project; Mr John Davies, an architectural draftsman, who prepared many of the plans for the redevelopment until, apparently, he became discontented with the lack of remuneration, and a company known as Bleu Design Pty Ltd took over; and Mr Adrian Guest of G & K Hotels Pty Ltd, the proposed tenant, and later manager, of the hotel upon completion.

17 The first directors of Como Hotel were Messrs Parkes and Hall. On 11 April 2000, Messrs Christopher Rogers, Graham Hare and Young were elected, from 5 nominees, as additional directors. Subsequently Mr Wilson and a Mr Robert Gray were appointed as directors; Mr Gray was chairman of directors, with a casting vote, until 30 October 2001. At some time, Mr Young became chairman of the board’s “building committee”.

18 The overall cost of the project was estimated, at the outset, to be $5,000,000 (including the purchase of the freehold and liquor licence and the cost of the redevelopment). The syndicate members between them contributed $2,000,000 in capital. Most members held 5% each of the shares – ie, a subscription of $100,000; some held 10% each. The balance was to be financed by debt. (I interpolate that the Commonwealth Bank of Australia agreed, after considerable delay, to lend $3,055,000.)

19 When the syndicate was being put together, Messrs Parkes and Hall costed the building works at about $3,000,000. That was done on the basis of relatively sketchy drawings. In October 1999, Mr Davies prepared a set of five drawings, and a specification, to be submitted to Sutherland Shire Council in support of an application to modify the existing development consent (granted to a previous owner in January 1998). On 20 December 1999, Parkes Constructions provided a “fixed price quotation” on the basis of those drawings and that specification. The price quoted was $2,986,000.

20 The building contract was in the BC 3 form, substantially unmodified. It particularised the works by reference to the drawings and specification prepared by Mr Davies and the quotation of 20 December 1999. I will refer later to the relevant terms of the contract.

21 Demolition work started in April 2000, Parkes Constructions having agreed to provide builder’s finance until bank finance was obtained.

22 The building contract was amended in August or September 2000 by a document under seal, the effect of which was to extend the date for commencement of the works from that originally specified, 14 February 2000, to 5 September 2000. The obligation to bring the works to practical completion within 280 (working) days remained the same.

23 On 2 November 2000, the shareholders of Como Hotel agreed to accept the Commonwealth Bank’s offer of finance. Construction work started in earnest thereafter. It is apparent that there were a very large number of variations to the contract works, from those described in the plans and specification to which the building contract referred. Those changes occurred partly because the design evolved, or refined, in accordance with the wishes of the syndicate; and partly to meet requirements of Sutherland Shire Council.

24 It is apparent that numerous changes to the design, and Parkes Constructions’ claims for extra payment for variations, were the subject of frequent discussions both within the board of Como Hotels and among the syndicate members. The referee recounted the relevant facts in detail in paragraphs 18 to 153 of his report. Como Hotel does not challenge anything that is found in those paragraphs. That is to say, it does not challenge the referee’s findings as to the relevant background, the relevant facts or the issues for determination by him.

Relevant terms of the building contract

25 The relevant terms of the building contract, for present purposes, are clauses 6, 8 and (in part) 17 of the conditions of contract. I set them out:

“ Compliance with requirements of local and other authorities
6 (a) The Builder shall comply with and give all notices required by any Act of Parliament or by any regulation or by-law of any local authority or of any public service company or authority which has any jurisdiction with regard to the Works or with whose systems the same are or will be connected, and he shall pay and indemnify the Proprietor against any fees or charges legally demandable under the Act of Parliament, regulation or by-law in respect of the Works provided that the Builder shall not be responsible for any legally demandable fees or charges that are imposed after the date of this Contract.

(b) The Builder, before making any variation from the contract Drawings or Specification necessary for compliance with sub-clause 6(a), shall give to the Proprietor written notice specifying and giving the reason for the variation and applying for instructions in reference thereto.
(c) If the Builder within five days of having applied for the instruction referred to in sub-clause 6(b) does not receive those instructions, he shall proceed with the work conforming to the provision, regulation or by-law in question and any variation thereby necessitated shall be deemed to be a variation under Clause 8 of these conditions.
(d) (i) The Builder shall not be required to provide the written notice pursuant to sub-clause 6(b) whenever the work necessary to be carried out is, in the opinion of the Builder, urgently necessary in order to prevent loss of or damage to the Works or to any property or to prevent personal injury to or the death of any person.
(ii) The Builder shall give to the Proprietor written notice (as soon as practicable after the work has been commenced) specifying the reasons for not giving the notice in writing required by sub-clause 6(b) and also giving the reason for the variation.
(e) If compliance with the requirements of this clause shall involve the Builder in loss or expense beyond that provided for in or reasonably contemplated by this Contract, the amount of that loss or expense shall be added to the Contract sum.
…
Variations
8 (a) This Contract may be varied by omissions from the Works or by the performance of extra work, and no variation shall vitiate the contract.

(b) This Clause 8 shall be read subject to the provision that the Builder shall be under no obligation whatsoever to carry out any extra work or to vary the Contract without the Builder’s agreement.

(c) If the Builder agrees to undertake the variation, the Builder may require the Proprietor to issue his instructions (as to his requirements for any variation) in writing. The Builder also may require that, prior to the execution of any variation, the Proprietor shall produce evidence of his capacity to pay any extra amount to cover the variation.
(d) The cost of all omissions from the Works shall be deducted from the Contract Sum. In determining the cost of omissions the Builder shall be entitled to retain a reasonable allowance for overhead and profit.
(e) The price payable by the Proprietor for all extra work shall be added to the Contract Sum and where a price shall not have been previously agreed the Builder may proceed with any extra work and the price to be paid for the extra work shall be the actual cost to the Builder together with a reasonable allowance for overhead and profit.
…
Progress Payments
17 (a) The Contract sum shall be paid to the Builder by payments made progressively during the execution of the Works. The Builder shall be entitled to the payments upon request which shall not be made more frequently than every two weeks.
…
(f) Should any progress payment or the final payment not be made within twenty days after request then the Builder shall be entitled to interest thereon at the rate of two per centum per month.”

Challenges to the report

26 Como Hotel advanced five grounds of challenge. As the argument was put, the second, third and fourth grounds were argued together and the first and fifth grounds were argued together. Expressed compendiously, the challenges are:

(1) Second, third and fourth grounds: clause 8 of the building contract, on its proper construction, required there to be an express agreement for a variation to be performed if Parkes Constructions was entitled to be paid for the variation, so that:

· the referee erred in proceeding, as he did (report para 164) on the basis that agreement could be implied or inferred;

· the referee did not adequately expose the process whereby, in particular cases, he concluded that there was sufficient evidence of agreement (whether by the process of inferring an express agreement or finding an implied agreement);

· the referee did not find or articulate the facts from which he inferred, or found that there was implied, an agreement; and

· more specifically, the referee erred in finding agreement (either through inference or by implication) where there were discussions with directors of Como Hotel, or directions from its consultants, or the changes were “obvious”. It was said that the referee was required to find, but did not find (and did not set out any basis for finding) that the relevant director or consultant had authority to bind Como Hotels, and did not find (or set out the facts on which it could be found) that Como Hotel itself had actual or constructive knowledge of changes to the contractual design.

(2) First and fifth grounds: the referee concluded (report paragraph 167) that clause 6 “would not apply to work outside the contract drawings (and specification) which was called for by the council after the contract as a condition of giving a construction certificate or otherwise”. Como Hotel submits that the referee fell into error in this construction of clause 6. Accordingly, it submits, he should have found that the relevant variations, being within clause 6, were required to be the subject of written notice pursuant to clause 6(b) and, since they were not (and because clause 6(d) did not apply), Parkes Constructions was not entitled to be paid.

As part of this challenge, Como Hotel submitted (by reference to its first articulated ground of challenge) that the referee had erred in his identification of the scope of work to be undertaken by Parkes Constructions under the contract.

27 As I have said, the first of the aggregated grounds of challenge referred to in the preceding paragraph was advanced at “a high level”: see paras [11] and [12] above. Como Hotel did not submit, in respect of those findings of the referee as to clause 8 variations that remained in dispute, that there was no evidence to support the findings. As I have said, it criticised the referee’s construction of clause 8, and what it said was the inadequate exposition of the reasons whereby he was satisfied, in each disputed case, that the requirements of clause 8 were met.

The construction of clause 8

28 Clause 8(a) is permissive: the building contract “may be varied by omissions … or by the performance of extra work”. The permissive character of the clause is made clear by paragraph (b): the builder cannot be required to carry out extra work, or to vary the building contract, without its agreement.

29 It is apparent from paragraph (c) that an instruction in writing is not required. The entitlement of the builder to demand a written instruction is for the builder’s protection. Presumably, if the instruction in writing is not given, the builder cannot be required to undertake the variation. In this context, if it matters, I think that the word “agrees” in paragraph (c) must mean something such as “is willing” or “agrees in principle”.

30 It follows that all that is necessary for the clause to operate is a request from the proprietor to the builder to carry out extra work, and an agreement (either unqualified or conditioned upon receipt of instructions in writing) from the builder to do so. (Omissions may be disregarded. There were some omissions in this case, but no issue is raised to the referee’s findings in respect of them.)

31 Because clause 8(a) uses the language of variation, it follows that the request to carry out extra work must be a request given, or ratified, by Como Hotel. Otherwise, there could be no variation of the contract of which clause 8(a) forms part. But no particular formality is specified. The only formality to which reference is made – writing – is optional.

32 It seems to me to follow almost inevitably that clause 8 is engaged if, in the case of any particular variation, there is evidence of an agreement to execute it.

33 I do not think that consideration of the application of clause 8 is aided by the use of terminology such as “clear” or “express” agreement. What is required is proof, on the balance of probabilities, that there was an agreement to execute any particular variation. Where there is some evidence of such an agreement, it is a matter for the tribunal of fact to decide whether it is persuaded, to the requisite degree, by that evidence.

The role of the experts

34 Each of the parties retained an expert quantity surveyor. Parkes Constructions retained Mr George Zakos and Como Hotel retained Mr Steven Batger. Those gentlemen conferred at the direction of the referee and produced a number of joint reports. Items covered in those joint reports were discussed in conclave sessions. The basis on which the experts sought to reach agreement was identified by the referee in paragraph 170 of his report as follows:

“(a) The experts were to assume that all the claimed extra work had been done.
(b) When they agreed that a claimed item was a variation they should indicate the facts on which that agreement was based. The right of the Defendant to argue that the requirements of general conditions 6 or 8 of the Contract had not been satisfied was reserved.
(c) For each item, they were to agree quantum or to explain why they could not agree.
(d) The figures agreed upon would be deemed to be the actual costs for the purposes of General Condition 8.”

35 It is clear that the agreement of the experts, that something was a variation, was not binding on Como Hotel. However, in a number of cases, the referee took into account, in support of his conclusion that a particular item was a valid variation, the agreement of the experts to that effect. Given that in those cases the experts were required to (and presumably did) set out the facts on which their agreement was based, and given that it must have been open to the parties to challenge those facts if they wished to do so, I think it was open to the referee to take into account, as from time to time he did, the agreement of the experts. The referee was not bound by the rules of evidence and was entitled to inform himself as he saw fit (Pt 72 r 8(2)(b)).

Analysis: the referee’s findings on the clause 8 variations

36 Como Hotel does not suggest that there was no evidence on which the referee could find that the disputed clause 8 variations were agreed between it and Parkes Constructions. It therefore follows that it was a matter for the referee to decide whether he was satisfied, on the balance of probabilities, that in each case such an agreement had been made out. This invokes the principle enunciated by Cole J in White Constructions, to which I have referred in para [9] above: that if, having closely scrutinised the report, I have a comfortable feeling of satisfaction that the factual issues have been properly explored and considered, then (to the extent that the challenge to the report is limited to those factual issues) the report should be adopted on those findings of fact. As I have noted in that paragraph, that statement of principle was adopted by Giles J at first instance in Super; and his Honour’s reasons in that case were explicitly approved by Gleeson CJ.

37 In the present case, the referee’s reasoning process is clear. He set out the relevant facts in detail. No challenge is made to those findings. He then referred at paragraph 156 of the report to what Como Hotel submitted was the relevant factual matrix. He commented upon that matrix at paragraphs 157 to 160. In his consideration of the matrix, the referee considered some of the relationships that, as he later found, were relevant to his findings of agreement in respect of individual variations.

38 The referee considered the operation of clause 8 at paragraphs 163 to 166. He said, at paragraph 164, that he was not persuaded that express, let alone explicit, agreement alone would suffice to engage clause 8. For the reasons that I have given, I think that he was correct in this. He said that “obviously there would have to be some request, direction or authorisation by the defendant on the one hand or, on the other, acceptance by the defendant of the subject work itself … as extra work”. He qualified this by saying that, in his opinion, “such a situation could still be implied or inferred”.

39 In my judgment, this approach by the referee involves no misdirection. He was saying, in substance, that he could be satisfied, to the requisite degree, that there was an agreement to vary:

(1) where there was evidence of a request or direction by Como Hotel to perform the variation, or some authorisation by Como Hotel of the variation (I would only add, in each case, that the word “by” should be taken to mean “by or on behalf of“; or

(2) even where there was no direct evidence of request, direction or authorisation, if it were shown that Como Hotel had accepted work knowing that it was a variation, then he could infer the existence of an agreement, sufficient to satisfy clause 8, for the performance of that variation.

40 Put shortly, the referee was saying that either direct evidence of an agreement, or evidence from which the existence of agreement could be inferred, could prove, on the balance of probabilities, an agreement pursuant to clause 8 to vary the works. This approach seems to me to be consistent with the reasoning of the High Court of Australia in Liebe v Molloy (1906) 4 CLR 347. That was a case of a building contract under which no claim for extra work would be recognised unless it were directed in writing, signed by the architect and endorsed by the proprietor. There was a claim for extras which were not so directed. Griffith CJ, who gave the judgment of the Court, said at 353-354:

“… The question therefore is whether, notwithstanding the absence of written orders, the contractor is entitled to recover these sums, or in other words, whether under the circumstances of the case an implied contract to pay for them is to be inferred. That is an inference of fact to be drawn by the tribunal which is called upon to determine the matter, that is, the umpire. Now, the only fact found is that the employer had such knowledge as to these works as may be fairly inferred from the fact that he was constantly on the work, and taking an active interest therein. But a further inference must be drawn before a liability to pay arises, namely, that there was an implied contract to pay. It might be inferred, on the one hand, that, having regard to the nature of the works, the fact of the owner’s presence, and the nature of the interest he took, he knew that they were outside the contract, and knew that the contractor expected to be paid for them as extras. On the other hand, it might be inferred as to all or some of them that he did not know that they were extras, or did not know or believe that the contractor expected to be paid for them. … An implied contract may be proved in various ways. When a man does work for another without any express contract relating to the matter, an implied contract arises to pay for it at its fair value. Such an implication of course arises from an express request to do work made under such circumstances as to exclude the idea that the work was covered by a written contract. So it would arise from the owner standing by and seeing the work done by the other party, knowing that the other party, in this case the contractor, was doing the work in the belief that he would be paid for it as extra work. If the umpire was of opinion that any of this work was done under such circumstances that the owner knew or understood that the contractor was doing the work in the belief that he would be paid for it as extra work, then the umpire might, and probably would, infer that there was an implied promise to pay for it.”

41 However, the referee went further. He reminded himself in paragraph 164 of the relevant circumstances. They included the involvement of “numerous of the Defendant’s consultants”, and to the circumstance that “the Defendant’s directors and shareholders [had] assorted types of participation”. For those reasons, he said, “there would need, I think, to be “clear” agreement in respect of extra work.” However, in saying this, the referee was directing himself to the quality of the proof that would be required to satisfy him. In other words, he was saying simply that, having regard to all the circumstances (including, prominently, the multiplicity or confusion of roles), he would need clear evidence to be satisfied in any given case that there was an agreement to vary. He was not, however, saying either that, as a matter of the construction of clause 8, “clear” agreement was needed; or that, contrary to the general rule, proof other than on the balance of probabilities was needed. Indeed, he made this clear when he said that the need for “clear” agreement “would involve, however, more the application, than the construction, of the condition.”

42 In my judgment, the referee’s analysis of clause 8, and his direction to himself as to the approach that he should take in considering, for each variation, whether there was sufficient evidence of agreement, were correct.

43 The referee further reminded himself of the need to take care in assessing the evidence when he said (again in paragraph 164) that he should see whether there was any conflict of interest arising because Messrs Hall and Parkes were directors of both the builder and the proprietor; and he concluded that there was no such situation.

44 In paragraph 165, the referee indicated the kinds of “clear indicia” from which he could infer agreement:

“165. I should, on this approach, be looking at situations involving extra work for clear indicia of the Defendant’s involvement in any extra work such as changes called for by the construction certificate drawings when read against the Contract drawings, discussions with directors of the Defendant, directions from the Defendant’s consultants or changes that were significant and obvious to persons connected with the Defendant on the site at the time.”

45 In paragraph 166, the referee referred, in summary form, to features of the evidence (already detailed by him) that showed the extent of Como Hotel’s awareness and acknowledgment “that significant extra work and extra costs were involved in the project”.

46 Against that background, the referee turned (after considering other matters) to each disputed variation. In a number of cases, he indicated what it was that led him to find, either expressly or by inference, that there was agreement. In some cases, where variations were connected (so that the work comprised in one was, as the referee found, a necessary consequence of work comprised in another), the relevant finding was made only once.

47 In a number of cases, the referee indicated why he did not find that there was agreement. For example, in paragraph 192, he was not satisfied “that there was any involvement of any representative of the Defendant or any consultant in the decision” to carry out the work in question. Thus, even though the experts agreed that there had been a variation in the scope of work and on the cost thereof, he disallowed the claim. The same approach may be found (for example) in paragraph 212, where the referee did “not feel a sufficient persuasion on the material before [him] that there was an appropriate authorisation”. On other occasions, the referee referred to disputed discussions, and failed to be satisfied, having regard to the dispute and his inability to resolve it, that there was authorisation: see, for example, paragraph 227.

48 In general, I am satisfied that the referee approached the problem in an appropriate and methodical way. It may very well be that, in any given variation, his statement of the evidence on which he found, or from which he inferred, agreement was brief. However, there were some forty two disputed variations to the scope of works and a further sixteen disputed variations relating to fit-out. (It may be noted that many of the disputed variations, in both categories, included numerous sub items.) The oral evidence occupied some fourteen days. I was informed from the Bar table, without dissent, that the documentary evidence was “voluminous”. It would have been burdensome in the extreme for the referee to set out, in detail, the evidence that he relied upon to find agreement for each of the forty seven (out of fifty eight) variations that he found was justified. Given that his methodology was sound, and given that (as is conceded) there was evidence to support his conclusion of agreement in each case, it does not seem to me that the requirement to give reasons obliged the referee to set out, in minute detail, the totality of the evidence on which he relied in each case.

49 In a number of cases, the referee relied on the involvement of consultants to find that a particular variation had been requested, directed or authorised by Como Hotel. Como Hotel submits that the basis on which the referee found that the consultants were authorised to bind it is not made clear. However, at a number of places, the referee made it clear how, on his view of the evidence, the consultants were working together with representatives (usually directors) of Como Hotel: see, for example, paragraphs 265, 269, 277, 281 and 300 of the report. Further, as the referee made clear, the syndicate members were (not unnaturally) concerned at the claims for variations and at the resultant cost overruns. The topic was addressed at board meetings, meetings of syndicate members, and in correspondence. It is apparent that, on those occasions, the role of the consultants was mentioned. It may have been desirable for the referee to set out in more detail the basis upon which he was satisfied that directions from consultants were (or became) binding upon Como Hotel. However, I think, it is clear enough that the referee was prepared to infer agreement on the basis of the totality of the facts: including, as I have indicated, the relationship between consultants and representatives of Como Hotel and the apparent acceptance, by directors or by syndicate members as a body, of the fact that variations (including those directed by consultants) had been accepted. I therefore do not regard this as a sufficient reason for rejecting those paragraphs of the report where the only evidence of express authorisation is direction by a consultant.

50 A similar submission was put in relation to the referee’s findings on requests, directions or authorisations by directors of Como Hotel. In this case, the referee’s reasoning process is more apparent. It is clear that again he relied upon the entirety of the evidence, including the reports to and discussions among the board of Como Hotel and the syndicate members and the circumstance that, to the knowledge of the board and syndicate members, a number of directors were actively involved in giving instructions, to found his conclusions. I do not think that he erred in doing so.

51 In relation to both these matters, it is necessary to make particular reference to the role of Mr Young. He was a director of Como Hotel and the chairman of the building committee of the board. He was also the managing director of one of the principal consultants. The referee found that, when Mr Young through his firm gave instructions, he was not simply acting on behalf of that firm, but was also acting in his role as a director: see paragraphs 198 and 206. In my judgment, it was open to the referee so to find.

52 In summary, as to the challenges to the referee’s findings and conclusions in respect of the clause 8 variations, I think that the referee properly directed himself as to the task that he had to carry out. I am comfortably satisfied that he properly explored and considered the factual issues. Accordingly, and in particular because it was not said that there was no evidence to support his conclusion, in respect of any given variation, that there was an agreement to vary, I think that this aspect of the report – paragraphs 154 to 166 and 174 to 242 – should be adopted.

53 For the same reasons, I think that the referee’s conclusions in respect of the fit-out variations – contained in paragraphs 258 to 290 – should be adopted.

54 The referee also considered claims made by Parkes Constructions for fees payable to consultants (paragraphs 243 to 246) and fees paid to authorities (paragraphs 247 to 257). There was no challenge to those paragraphs of the report and they too should be adopted.

55 Finally, and arising from what I have said in the last two paragraphs, the referee’s summary paragraph 291 should also be adopted.

The construction of clause 6

56 The referee held (report paragraph 167) that clause 6 “would not apply to work outside the contract drawing (and specification) which was called for by the Council, after the Contract, as a condition of giving a construction certificate or otherwise.” Como Hotel submitted that the referee erred in law, saying (outline of submissions dated 6 March 2004, para 29):

“The very purpose of condition 6 is to provide a regime where work outside the contract scope is required by some regulatory body. The construction certificate was necessary before the work depicted in the contract drawings (which were the DA drawings) could be carried out. To the extent that they (like the DA itself) imposed requirements for additional work as a condition of the reconstruction of the Como Hotel, they triggered the operation of condition 6.”

57 The referee’s approach to the construction of clause 6 was based on the judgment of Priestley JA (with whom Samuels JA agreed) in Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20 NSWLR 251. That case concerned either the same or an earlier form of the BC3 contract that was used in the present case. Clause 6 of the two forms of the contract appears to be identical.

58 Priestley JA dealt with clause 6 at 273-274. First, he contrasted it with clause 8 (which again seems to have been identical to the present clause 8). He then said:

“By contrast with the consensual character of cl 8 variations, cl 6 was a clause under which obligations could be imposed on the builder. Clause 6(a) imposed upon the builder the obligation to comply with and give all notices required by any Act of Parliament or by any regulation or by law of any local authority or authority with jurisdiction with regard to the works, and also to bear any charges payable under such provisions, except those imposed after the date of contract. Presumably this sub clause dealt with matters bound to arise under such Acts and regulations and with such authorities from the actual work shown upon the contract drawings and described by or referred to in the specification and conditions referred to art 1. This subcl thus operated, for practical purposes, to make the builder allow in the agreed price for any costs of matters, within cl 6(a), arising from carrying out the unvaried contract. Clause 6(b) then turned to the possibility that compliance with subcl (a) might require variation from the contract drawings or specification and required the builder before making any such variation, to give written notice to the proprietor; subcll (c), (d) and (e) then spelt out procedures to be followed in cases where cl 6(b) applied. If the builder followed the procedures, extra cost under cl 6(b) would become payable by the proprietor.
Clause 6 thus dealt with the cost of what might be called for short, public authority requirements, imposed the cost of compliance with subcl (a) requirements upon the builder, and of compliance with other such requirements upon the proprietor, if certain conditions were fulfilled.”

59 In my judgment, the question of construction of clause 6 is settled by the judgment of Priestley JA in Update. It is clear, from the passage that I have quoted, that his Honour regarded clause 6(a) as dealing with the impact of requirements of the relevant kinds on “the actual work shown upon the contract drawings and described by or referred to in the specifications and conditions …”. Where compliance with those requirements did not require variation from the contract drawings or specification, then it was to be effected at the cost of the builder. Where it did require variation then, as long as the other provisions of clause 6 were satisfied, compliance might be at the cost of the proprietor. But in either case the question, as Priestley JA made clear, related to “the cost of compliance with subcl (a) requirements”: ie, requirements imposed by an Act of Parliament, or by an applicable regulation or by law, on the actual work shown in the drawings and described in the specification and conditions.

60 Further, I think, the submission for Como Hotel is based upon a misreading of clause 6(a). Clause 6 does not apply “where work outside the contract scope is required by some regulatory body”. It does not speak at all of the requirements of regulatory bodies. Clause 6 is concerned only with requirements of Acts of Parliament or applicable regulations or by laws. A regulation or by law will be applicable if it is one “of any local authority or of any public service company or authority which has any jurisdiction with regard to the Works or with whose systems the same are or will be connected”. This does not mean that a requirement of such a regulation or by law is a requirement of the relevant local authority or public service company or authority. A requirement imposed by an Act of Parliament is not the same as a requirement imposed, by someone authorised so to do, under authority of that Act of Parliament. There is good reason why this distinction might be of importance. The requirements of legislation may be objectively ascertained and their operation and impact may be understood. The requirements of authorities acting pursuant to some legislative or quasi legislative power will often involve the exercise of discretions, which in turn will require the analysis and balancing of competing rights and interests. The former category of requirements is foreseeable; the latter may not be.

61 In my judgment, the referee directed himself accurately in his construction and application of clause 6.

Analysis: the referee’s findings on the clause 6 variation

62 There were seven variations to which, Como Hotel submitted, the clause 6 regime was applicable. The referee rejected two of those claims for reasons other than non compliance with clause 6. As to a third claim (which comprised three components), the referee rejected two components because the evidence did not “persuade” him that they were valid variations; and in one case he found that “it may also have problems with condition 6”.

63 The referee allowed the other claims in this category. He found that they did not come within clause 6 as he had construed it. As I understand the case for Como Hotel, it is not submitted that clause 6 would still be relevant if the referee’s construction of it were correct.

64 It followed, on the referee’s analysis, that the remaining claims fell to be considered as clause 8 variations. There was therefore only the necessity to prove, either expressly or by implication, an agreement for the work to be done. In each case, the referee found that there was such an agreement. In doing so, he followed the methodology that I have already described above in my analysis of his findings on the clause 8 variations.

65 In my judgment, the referee approached the correct question in an appropriate way. Since it was not submitted that there was no evidence of agreement (ie, it was not submitted that his conclusions as to agreement were not open to him on the evidence), I see no basis remaining to reject his findings. Indeed, even if the referee’s (and my) construction of clause 6 were wrong, and the variations in question were caught by clause 6, the referee’s conclusion on the agreements (although not his reasoning leading to that conclusion) would be supported by the decision of the High Court in Liebe (see para [40] above).

66 The result is that the relevant paragraphs of the report, namely paragraphs 292 to 303, should be adopted.

Omissions, Goods and Services Tax and loan interest

67 The referee considered these topics at paragraphs 305 to 308 of his report. There is an agreed arithmetical error in paragraph 305. That paragraph should be varied by substituting the figure “$49,471.50” for the figure “$55,862.50”. There is no dispute as to that paragraph as varied, or as to paragraphs 306 to 308. They should be adopted (in the case of paragraph 305, as varied).

68 The mistake in paragraph 305 flows through into the summary paragraphs, 309 and 310. It is accepted that the item for “omissions” in paragraph 309 should be amended from $55,862.50 to $49,471.50. This flows through into the calculation of preliminaries, profit margin and GST. The figure for preliminaries should be amended from $193,936.65 to $194,895.35. The profit figure should be amended from $148,684.80 to $149,417.77. The GST figure should be amended from $163,553.28 to $164,361.74. The total should be amended from $1,809,318.10 to $1,818,211.23.

69 Paragraph 309, so varied, should be adopted.

70 The amendments to paragraph 309 flow through into paragraph 310. The amount for variations and loan interest should be amended from $1,809,318.10 to $1,818,211.23. The following sub total should be amended from $5,093,918.10 to $5,102,811.23. The total amount owing should be amended from $1,849,288.10 to $1,858,181.23.

71 Paragraph 310, so varied, should be adopted.

Interest up to judgment

72 The referee dealt with this question in paragraph 311 of the report. He referred to clause 17(f) of the building contract. He noted that none of the variations had been included in a progress claim during the currency of the project. He said that they were included in progress claims 8, 9, 10 and 11 and the final claim “to an incomplete extent”. He doubted “that a situation exists where there were unpaid progress claims or an unpaid final claim in respect of those claims of Parkes Construction [sic] that were referred to him for enquiry and report.”

73 The referee commented that “[t]his issue was not fully addressed before me”. Nor was it before me. If the variations in question were not included in progress claims, so that (as the referee thought might be the case) there were no unpaid progress claims, and was no unpaid final claim, in respect of the amounts of those variations, then clause 17(f) would not apply.

74 I was not taken to any material that would demonstrate error in the conclusions, or tentative conclusions, to which I have referred. The issue was not specifically addressed in either parties’ written submissions. It was addressed, briefly, in oral submissions.

75 Mr Faulkner SC, who appeared for Parkes Constructions, submitted that there had been a progress claim, within clause 17(a), that comprehended the variations that were the subject of the order for reference. He referred to a document, somewhat incongruously entitled “Final Claim” and dated 16 October 2001, that was part of the material tendered by consent before me. It is not apparent on the face of that document that it included the subject claims. It is, however, apparent that the document could not have been what it was described to be, namely a final claim. That is because, under clause 23, the final claim is to be made once the defects liability period has expired, and any defects notified during the course of, or at the end of that period have been rectified: something that, on any view, had not occurred by 16 October 2001.

76 Mr Webb SC, who appeared for Como Hotel, submitted that clause 17(f) of the contract was not applicable because there was not, in terms of clause 17(a), a claim for a payment “made progressively during the execution of the Works”.

77 The referee’s finding in paragraph 311 supports Mr Webb’s submission. It follows that there is no entitlement to interest under clause 17(f).

78 In the circumstances, interest on the amounts outstanding should be calculated under s 94 of the Supreme Court Act in accordance with the rates specified in Schedule J to the Supreme Court Rules.

Conclusions and order

79 The report, varied in the manner referred to above in relation to paragraphs 305, 309 and 310, should be adopted. Como Hotel is liable to the plaintiff in an amount of $1,858,181.23, together with interest at Schedule J rates, and less the conceded amount of $576737.46 for which there has already been judgment pursuant to Pt 18 r 3.

80 I direct the parties to bring in short minutes of order to give effect to these reasons.

81 I will hear the parties on costs.

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Last Modified: 07/08/2004