Banabelle Electrical v State of New South Wales - [2005] NSWSC 714

No judgment structure available for this case.

CITATION:
Banabelle Electrical v State of New South Wales [2005] NSWSC 714

HEARING DATE(S): 5, 6, 7 and 8 July 2005

JUDGMENT DATE :

27 July 2005

JURISDICTION:
Equity Division Technology & Construction List

JUDGMENT OF:
McDougall J at 1

DECISION:
See paras [170] to [172] of judgment

CATCHWORDS:
PRACTICE AND PROCEDURE - reference - whether referee's report should be adopted - whether referee's assessment of compensation and damages so flawed as to require rejection - where referee rejected methods of assessment proposed by experts and adopted "total cost" method without consulting parties - whether defendant denied procedural fairness - TRADE PRACTICES - where referee found representation misleading or deceptive - where representation alleged that no assignment of contract - where no effective assignment - whether representation misleading or deceptive - PRACTICE AND PROCEDURE - application for leave to amend - whether plaintiff entitled to amend statement of claim - whether defendant prejudiced by amendment - whether amendment embarrassing

LEGISLATION CITED:
Fair Trading Act 1987 (NSW)

CASES CITED:
Bellgrove v Eldridge (1954) 90 CLR 613
Bulk Materials (Coal Handling) Pty Ltd v Compressed Air and Packaging Systems (NSW) Pty Ltd (1997) 14 BCL 109
Chloride Batteries Australia Ltd v Glendale Chemical Products (1988) 17 NSWLR 60
Foxman Holdings Pty Ltd v NMBE Pty Ltd (1995) 38 NSWLR 615
Franks & Anor v Berem Constructions Pty Ltd (NSWCA 2/12/98, unrep; BC 9806367)
Hughes Bros Pty Ltd v Minister for Public Works (Rolfe J, 17/8/94, unrep; BC 9402885)
Linden Gardens Trust v Lenesta Sludge Disposals [1994] 1 AC 85
Malec v J C Hutton Pty Ltd (1990) 169 CLR 638
Peninsula Balmain Pty Limited v Abigroup Contractors Pty Limited [2002] NSWCA 211
Seven Sydney v Fuji Xerox [2004] NSWSC 902
State of New South Wales & Ors v Banabelle Electrical Pty Ltd (2002) 54 NSWLR 503
Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549
Thiess Watkins White Construction Ltd v Commonwealth of Australia (1992) 14 BCL 61
White Constructions (NT) Pty Ltd v Commonwealth of Australia (1990) 7 BCL 193
Xuereb v Viola (1989) 18 NSWLR 453

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

FILE NUMBER(S):
SC 55030/01

COUNSEL:
M G Rudge SC/M R Gracie (Banabelle)
B W Walker SC/D D Feller SC/ P F Liney, Solicitor (State)

SOLICITORS:
Crisp & Associates (Banabelle)
Mallesons Stephen Jaques (First and Fourth Defendants)

LOWER COURT JURISDICTION:

Banabelle Electrical v State of New South Wales [2005] NSWSC 714

Index to Judgment

Para

The applicable principles 6

Banabelle’s contract 11

The head contract 22

The representation 26

The referee’s reasoning 32

The parties’ submissions 38

Was the representation misleading or deceptive? 41

The application for leave to amend 52

The claim under GC1.33.1 66

The parties’ submissions 67

Alleged requirement to record resources 70

Compliance with GC1.46 73

Banabelle’s pleaded case under the contract 77

The implied term case is rejected 78

The claim under GC1.33.1 81

First error: multiple causes of delay and disruption 88

Second error: internal inconsistency 91

Third error: inclusion of variations 98

Fourth error: period of delay and disruption; identification of directions 101

Banabelle’s response 109

Denial of natural justice 115

Sufficiency of the contract price 120

Banabelle’s secondary challenges 123

The referee’s approach 125

Treatment of profit 126

Consultants’ fees 129

Supervision costs 134

Conclusion on GC1.33.1 137

The GC1.27.1 assessment 138

Head office overheads and profit 141

The ongoing operation of GC1.27.1 147

Claims in the alternative 155

Quantification of overhead and profit 156

Conclusion on GC1.27.1 159

“Miscellaneous findings”; the case under GC1.23 160

The State’s cross-claim for defective workmanship 163

Conclusions and orders 170

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

McDOUGALL J

Wednesday 27 July 2005

STATE OF NEW SOUTH WALES & ORS

JUDGMENT

1 HIS HONOUR: In 1999, the first defendant (the State) wanted to refurbish and redevelop the Sydney Conservatorium of Music and the Conservatorium High School (together, the Conservatorium). To that end, the Minister for Public Works and Services as “Principal” entered into a Construction Management Agreement with the second defendant (Walter), and a number of “trade contracts” with individual contractors for all the trades required. The trade contractors included the plaintiff (Banabelle). For a number of reasons, the project suffered very substantial delays. In October 2000, the State decided to enter into a “head contract” with Walter whereby, in effect, Walter agreed to take over the works in their then state, and acting as “Principal” under the trade contracts, bring the works to completion. Notice of this head contract was given to trade contractors, in a form that Banabelle contends was misleading or deceptive. In these proceedings, Banabelle claim damages for breach of contract, compensation pursuant to the terms of the contract, damages under s 68 of the Fair Trading Act 1987 (NSW) and relief (including by way of “quantum meruit” compensation) under s 72.

2 The proceedings were referred to a referee, Mr G A Markham, for enquiry and report. The referee reported on 14 January 2005. He concluded that Banabelle had made good its claims. He assessed damages for breach of contract at $272,202.85; compensation pursuant to the contract at $485,060.85; and compensation on a quantum meruit basis in the sum of $2,108,073.55. He concluded that these amounts were alternative rather than cumulative (R62).

3 The State had cross-claimed for damages for defective workmanship. Although the referee found that there had been defective workmanship, and quantified its rectification cost at $35,903.00 excluding GST (R313), he found that the cross-claim failed because, in his view, the State had suffered no loss. He reached this conclusion because of the State’s right, under the Head Contract, to have the defects rectified by Walter (R379).

4 Banabelle now moves for the report to be varied by increasing each of the amounts that the referee found in its favour; for a finding that its claims are not alternative; and otherwise, as between it and the State, for adoption of the report. The State moved for rejection of the report insofar as it found in favour of Banabelle under the Fair Trading Act; for rejection of the recommended dismissal of its cross-claim; for rejection of a number of particular findings; and otherwise for adoption of the report. I will refer to these applications, somewhat inaccurately, as the adoption proceedings.

5 There were originally four defendants to the proceedings. The second defendant was Walter. It has gone into liquidation. The proceedings against it have been permanently stayed. At some stage, the proceedings against the third defendant (Mr Tamone) were disposed of. At the commencement of the adoption proceedings, consent orders were made as between Banabelle and the fourth defendant (Mr Sutherland).

The applicable principles

6 SCR Pt 72 r 13 empowers the Court to adopt, vary or reject a report in whole or in part, and to decide any question for itself either on the evidence taken before the referee or on that and additional evidence. It reads:

13 Proceedings on the report

(2) Evidence additional to the evidence taken before the referee may not be adduced before the Court except with the leave of the Court.”

7 I stated the relevant principles in my judgment in Seven Sydney v Fuji Xerox [2004] NSWSC 902 at paras [11] to [13]. For convenience, I repeat, in a slightly paraphrased and consolidated form, what I there said.

8 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 a report of a referee, are well established. There are a number of cases to which, customarily, reference is made. They include Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549; the unreported proceedings in that case before Giles J (19 May 1992: the relevant considerations referred to by his Honour are sufficiently extracted in the decision of the Court of Appeal); Chloride Batteries Australia Ltd v Glendale Chemical Products Pty Ltd (1988) 17 NSWLR 60; White Constructions (NT) Pty Ltd v Commonwealth of Australia (1990) 7 BCL 193; and Foxman Holdings Pty Ltd v NMBE Pty Ltd (1995) 38 NSWLR 615. As to the nature and content of the referee’s obligation to give reasons, the relevant authorities include Xuereb v Viola (1989) 18 NSWLR 453 and Hughes Bros Pty Ltd v Minister for Public Works (Rolfe J, 17 August 1994, unreported; BC 9402885).

9 The relevant principles, distilled from those decisions, can be stated as follows:

(1) An application under Pt 72 r 13 is not an appeal either by way of hearing de novo or by way of rehearing.

(2) The discretion to adopt, vary or reject the report is to be exercised in a manner consistent with both the object and purpose of the rules and the wider setting in which they take their place. Subject to this, and to what is said in the next two sub paragraphs, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised.

(3) The purpose of Pt 72 is to provide, where the interests of justice so require, a form of partial resolution of disputes alternative to orthodox litigation, that purpose would be frustrated if the reference were to be treated as some kind of warm up for the real contest.

(4) In so far as the subject matter of dissatisfaction with a report is a question of law, or the application of legal standards to established facts, a proper exercise of discretion requires the judge to consider and determine that matter afresh.

(5) Where a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the Court would have a disposition towards acceptance of the report, for to do otherwise would be to negate both the purpose and the facility of referring complex technical issues to independent experts for enquiry and report.

(6) If the referee’s report reveals some error of principle, absence or excessive jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding, that would ordinarily be a reason for rejection. In this context, patent misapprehension of the evidence refers to a lack of understanding of the evidence as distinct from the according to particular aspects of it different weight; and perversity or manifest unreasonableness mean a conclusion that no reasonable tribunal of fact could have reached. The test denoted by these phrases is more stringent than “unsafe and unsatisfactory”.

(7) Generally, the referee’s findings of fact should not be re-agitated in the Court. The Court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he or she did, particularly where the disputed questions are in a technical area in which the referee enjoys an appropriate expertise. Thus, the Court will not ordinarily interfere with findings of fact by a referee where the referee has based his or her findings upon a choice between conflicting evidence.

(8) The purpose of Pt 72 would be frustrated if the Court were required to reconsider disputed questions of fact in circumstances where it is conceded that there was material on which the conclusions could be based.

(9) The Court is entitled to consider the futility and cost of re-litigating an issue determined by the referee where the parties have had ample opportunity to place before the referee such evidence and submissions as they desire.

(10) Even if it were shown that the Court might have reached a different conclusion in some respect from that of the referee, it would not be (in the absence of any of the matters referred to in sub para (6) above) a proper exercise of the discretion conferred by Pt 72 r 13 to allow matters agitated before the referee to be re-explored so as to lead to qualification or rejection of the report.

(11) Referees should give reasons for their opinion so as to enable the parties, the Court and the disinterested observer to know that the conclusion is not arbitrary, or influenced by improper considerations; but that it is the result of a process of logic and the application of a considered mind to the factual circumstances proved. The reasoning process must be sufficiently disclosed so that the Court can be satisfied that the conclusions are based upon such an intellectual exercise.

(12) The right to be heard does not involve the right to be heard twice.

(13) A question as to whether there was evidence on which the referee, without manifest unreasonableness, could have come to the decision to which he or she did come is not raised “by a mere suggestion of factual error such that, if it were made by a trial judge, an appeal judge would correct it”. The real question is far more limited: ”to the situation where it is seriously and reasonably contended that the referee has reached a decision which no reasonable tribunal of fact could have reached; that is, a decision that any reasonable referee would have known was against the evidence and weight of evidence”.

(14) Where, although the referee’s reasons on their face appear adequate, the party challenging the report contends that they are not adequate because there was very significant evidence against the referee’s findings with which the referee did not at all deal, examination of the evidence may be undertaken to show that the reasons were in fact inadequate because they omitted any reference to significant evidence.

10 The twelfth point restates the aphorism of Mahoney JA in Super at 567. The thirteenth, fourteenth and fifteenth points are drawn (and include direct quotations) from the judgment of Hodgson CJ in Eq (with whom Priestley JA agreed and with whom, as to the relevant principles, Fitzgerald AJ also agreed) in Franks & Anor v Berem Constructions Pty Ltd (NSWCA 2 December 1998, unreported; BC 9806367). If I may say so with respect, I regard what his Honour said as giving content, on the facts of the particular case, to the operation of relevant principles rather than as stating any new principle.

Banabelle’s contract

11 The contract between Banabelle and the Minister is dated 17 February 1999. It was for the provision of electrical work. In the usual way, it included a panopoly of terms and conditions, variously described.

12 Clause 1.9.1 of the general conditions of contract (GC1.9.1) dealt with assignment. It read:

“1.9.1 Assignment

Neither party shall, without the prior written approval of the other and except on such terms and conditions as are determined in writing by the other, assign the Contract or any payment thereunder.”

13 Clause 1.23 of the general conditions of contract (GC1.23) dealt with the role of the Superintendent. It read:

“1.23 SUPERINTENDENT

The Principal shall ensure that at all times there is a Superintendent, and that in the exercise of the functions of the Superintendent under the Contract, the Superintendent -

(a) acts honestly and fairly;

(b) acts within the time prescribed under the Contract or where no time is prescribed, within a reasonable time;

(c) arrives at a reasonable measure or value of work, quantities or time.

If, pursuant to a provision of the Contract enabling the Superintendent to give directions, the Superintendent gives a direction, the Contractor shall comply with the direction.

In Clause 1.23 ‘direction’ includes agreement, approval, authorisation, certificate, decision, demand, determination, explanation, instruction, notice, order, permission, rejection, request or requirement.

Except where the Contract otherwise provides, a direction may be given orally but the Superintendent shall as soon as practicable confirm it in writing.

If the Contractor in writing requests the Superintendent to confirm an oral direction, the Contractor shall not be bound to comply with the direction until the Superintendent confirms it in writing.”

14 Clause 1.27.1 of the general conditions of contract (GC1.27.1) dealt with possession of the Site. It read:

1.27.1 Possession of Site

The Principal shall on or before the expiration of the time stated in the Annexure give the contractor possession of the Site or sufficient of the Site to enable the Contractor to commence work. If the Principal has not given the Contractor possession of the whole Site, the Principal shall from time to time give the Contractor possession of

such further parts of the Site as may be necessary to enable the Contractor to execute the work under the Contract in accordance with the requirements of the Contract. The Principal shall advise the Contractor in writing of the date upon which the Site or any part will be available.

Notwithstanding the provisions of Clause 1.27.1, if the Contractor is in breach of Clause 1.21.1, the Principal may refuse to give the Contractor possession of the Site or any part of the Site until the Contractor has complied with the requirements of Clause 1.21.1.

Possession of the Site shall confer on the Contractor a right to only such use and control as is necessary to enable the Contractor to execute the work under the Contract.”

15 Clause 1.33.1 of the general conditions of contract (GC1.33.1) dealt with rate of progress. It read, relevantly:

“1.33.1 Rate of Progress.

The Contractor shall proceed with the work under the Contract with due expedition and without delay.

The Contractor shall not suspend the progress of the whole or any part of the work under the Contract except where the suspension is under Clause 1.44.9 or is directed or approved by the Superintendent under Clause 1.34.

The Contractor shall give the Superintendent reasonable advance notice of any information, documents or instructions required by the Contractor.

The Principal and the Superintendent shall not be obliged to furnish information, documents or instructions earlier than the Principal or the Superintendent, as the case may be, should reasonably have anticipated at the Date of Acceptance of Tender.

The Superintendent may direct in what order and at what time the various stages or parts of the work under the Contract shall be performed. If the Contractor can reasonably comply with the direction, the Contractor shall do so. If the Contractor cannot reasonably comply, the Contractor shall notify the Superintendent in writing, giving reasons.

If compliance with the direction causes the Contractor to incur more or less cost than otherwise would have been incurred, the difference shall be valued under Clause 1.40.2.”

16 Clause 1.36 of the general condition of contract dealt, according to its heading, with the topic of delay costs. It is marked (“not used)”.

17 Clause 1.40.2 of the general condition of contract (GC1.40.2) read, relevantly, as follows:

“1.40.2 Valuation.

Where the Contract provides that a valuation shall be made under Clause 1.40.2, the Principal shall pay or allow the Contractor or the Contractor shall pay or allow the Principal as the case may require, an amount ascertained, as follows – valuing the Contractor’s profit and attendance.

…

as valued for Daywork under Clause 1.41,

…

(f) If the valuation relates to additional costs incurred by the Contractor for delay or disruption the valuation shall include a reasonable amount for overheads but shall not include profit or loss of profit.

…

(h) Daywork shall be valued in accordance with Clause 1.41.”

18 Clause 1.41 of the general conditions of contract (GC1.41) read:

1.41 DAYWORK

The Superintendent may direct that quantities greater than the upper limit of accuracy referred to in Clause 1.3.2(b) or variations directed by the Superintendent under Clause 1.40.1 shall be carried out as Daywork. The Contractor shall thereafter each day record particulars of all resources used by the Contractor for the execution of the Daywork and each day furnish to the Superintendent the particulars and copies of time sheets, wages sheets, invoices, receipts, and other documents evidencing the cost of the Daywork. The Superintendent may direct the manner in which matters are to be recorded.

In determining the value of Daywork regard shall be had to -

(a) the amount of wages and allowances paid or payable by the Contractor at the rates obtaining on the Site at the time as established by the Contractor to the satisfaction of the Superintendent or at such other rates as may be approved by the Superintendent;

(b) the amount paid or payable by the Contractor in accordance with any statute or award applicable to day labour additional to the wages paid or payable under Clause 1.41(a);

(c) the amount of hire charges in respect of Constructional Plant approved by the Superintendent for use on the work in accordance with such hiring rates and conditions as may be agreed between the Superintendent and the Contractor, in the absence of agreement, in accordance with such rates and conditions as may be determined by the Superintendent;

(d) the amounts paid for services, subcontracts and professional fees;

(e) the actual cost to the Contractor at the Site of all materials supplied and required for the work;

(f) the charge stated in the Annexure or if no charge is stated, a charge agreed between the Superintendent and the Contractor to cover overheads, administrative costs, site supervision, establishment costs, profit and attendance, or, in the absence of agreement, a reasonable charge determined by the Superintendent.

Amounts payable for Daywork shall not be subject to adjustment for rise and fall in costs notwithstanding that the Contract may provide for adjustment for rise and fall in costs.”

19 The reference in GC1.41(f) to “the charge stated in the Annexure” is to a charge of “12% of the sum of the amounts calculated under (a) to (e) of clause 1.41.” (Item A18).

20 Clause 2.5.2 of the contract preliminaries (CP2.5.2) obliged Banabelle, within one week of acceptance of its tender, to supply a program. It read as follows:

2.5.2 PROGRAMMING OF WORK

Requirement

Within one week of the Date of Acceptance of Tender, supply a detailed program detailing construction activities.

Format

Set out the program on a time scale of calendar weeks with individual activity durations not generally exceeding two weeks. The program shall show but not be limited to:

. a project calendar clearly denoting which days are work days (allow for restrictions on working time and contingencies for which the Contractor is responsible under the terms of the Contract. This would include but not be limited to week-ends, holidays, Christmas close-down, union designated and other days off and manufacture and trade delays);

. the inter-relationships between activities;

. the estimated duration of significant activities, the plant and manpower resources and projected productivity rates for each activity;

. the sequence of activities which constitutes the critical path or paths;

. mobilisation to Site;

. appointment of subcontractors and their respective programs;

. order dates, supply lead time and Site delivery dates for all major items, including those to be supplied by the Principal, as well as details of off-site manufacturing and fabrication activities;

. the time allowed for resting and commissioning of major items of plant or equipment;

. the estimated value of work completed for each calendar month for the contract duration;

. the preparation of and approval process for all calculations, designs and documents required;

. the differences or divergences from the tender program.

Format to be in Primavera / Suretrak

Progress

With each payment claim supply a marked-up copy of the program amended to show time extensions granted, and progress achieved against the program and the actual workforce and plant resources utilised on completed Works or engaged upon activities in progress. List all specific actions to correct or address any deviation from the program.

Program update

A revised program may be requested if the Superintendent considers the current program cannot be adhered to. Within 2 weeks of such a request, submit an updated program incorporating changes in methods, times or sequence of activities, and showing the planned progress towards the Date for Practical Completion, to the same detail as specified for the original program.

Failure to comply

If at any time the Contractor has not supplied a program as specified, then notwithstanding Clauses 1.42.1 and 1.42.8 of the General Conditions of Contract no payment will become due to the Contractor before 7 days after the specified action has been carried out.”

21 Clause 3.4.3.3 of the project specific preliminaries (PSP 3.4.3.3) read as follows:

“3.4.3.3 The Contractor shall constantly use his best endeavours to avoid delay in the progress of the execution of the Contract Works and shall do all that may be reasonably required by the Superintendent to expedite completion of the Contract Works including steps to overcome or minimise the extent and effects of any delays or disruptions which may occur in the execution of the Contract Works according to the rate of progress therefor designed by the Contractor’s Program and/or to achieve completion by the Date for Practical Completion. For these purposes and without limiting the generality of the foregoing the Contractor shall be obliged, in consultation with Superintendent, to take positive steps to re-schedule, re-program, expedite and adjust activities, sequences and the carrying out and execution of the Contract Works generally so as to accommodate the effects and consequences of delays affecting progress of execution of the Contract Works and the Contractor shall be obliged where instructed by the Superintendent to work overtime hours outside and notwithstanding the days and hours of work stipulated by this Contract. The obligations of the Contractor under this shall not be in replacement of but in addition to the Contractor’s obligations generally under this Contract.”

The head contract

22 The head contract was made on 13 October 2000. Clause 1 sets out the background:

“1. The Works and the Contract Sum

The Works are the construction/redevelopment of the Sydney Conservatorium of Music and the Conservatorium of Music High School at the Greenway Site, Macquarie Street, Sydney. Until commencement of this Contract, the Contractor has been Construction Manager for the project under the Construction Management Agreement with the Principal dated 20 February 1998. On the commencement of this Contract, the Construction Management Agreement terminates. In place of acting as Construction Manager, the Contractor will construct the Works as head contractor for a lump sum of $81,573,079.00 (excluding GST) [the Contract Sum] on the terms contained in this Contract. It is agreed between the parties that the Principal shall pay GST in addition to the Contract Sum.”

23 Clause 3 showed what the work under the head contract included. It read, relevantly:

3. Work under the Contract

The work under the Contract includes but is not limited to:

3.1 taking over the Works in their existing state and bringing them to completion, including rectifying defects;

3.2 the work (at the date of this Contract) comprised in the contracts listed in Schedules 1 and 2 hereto. [These are referred to as “Trade Contracts” and the particular contractors are referred to as “Trade Contractors”];

3.3 all work comprised in the specifications and drawings issued to the Trade Contractors as detailed in the Trade Contractors’ letter of acceptance issued by the Principal to each respective Trade Contractor and includes all variation instructions, responses to RFI’s and Site Advice Notices issued after the Trade Contractor’s letter of acceptance;

…

3.6 fulfilling all the obligations of the Principal under the Trade Contracts listed in Schedule 1;

… “.

24 Clause 4 dealt with the position of the trade contracts. It read:

4. Trade Contracts, Local Office Purchase Orders and Indemnities

4.1 With the limitations contained in Clauses 4.5 to enable the Contractor to carry out the work under the Contract, the Principal:

(a) will give to the Contractor the benefit of each of the Trade Contracts listed in Schedules 1 and 2 and each Local Office Purchase Order identified in Schedule 13; and

(b) appoints the Contractor the agent of the Principal to exercise all rights and powers of the Principal, the Superintendent and the Superintendent’s Representative with respect to all the Principal’s and the Superintendent’s and the Superintendent’s Representative’s rights and powers under the Trade Contracts and each Local Office Purchase order identified in Schedule 13. The Principal irrevocably authorises the Contractor to exercise all rights and powers of the Principal under the Trade Contracts and the Local Office Purchase Orders in the Contractor’s absolute discretion.

4.2 Without limiting the rights under clause 4.1 the Contractor’s rights and authority to be exercised in the Contractor’s absolute discretion include but are not limited to:

…

( c) Assessment and payment of all claims under the respective Trade Contracts;

…

4.3 The Principal warrants that it has the right, the power and the authority to permit the Contractor to have the benefit of the Trade Contracts with the limitations contained in Clause 4.5. The Principal also warrants that it has the right, the power and the authority to appoint the Contractor as the Principal’s agent to exercise the Principal’s powers in the Contractor’s absolute discretion under the Trade Contracts and the Local Office Purchase Orders. The Principal also warrants that the Principal will not wrongfully terminate the Contractor’s agency.

4.4 With the exceptions contained in Clause 6 the Contractor will:

(a) meet all the obligations and liabilities (whether existing at the commencement of this Contract or coming into existence thereafter) of the Principal under the Trade Contracts and Local Office Purchase Orders;

(b) indemnify the Principal against and take over the conduct, on behalf of the Principal, of the defence of any claim (whether existing at the commencement of this Contract or coming into existence thereafter and whether in contract, tort or restitution, under statute or otherwise) under or in connection with the Trade Contracts and Local Office Purchase Order; and

(c) if the Principal incurs expenses (including legal expenses but not expense of internal administration or salaries of in-house lawyers) in defending or dealing with any claim referred to in clause 4.4(b), reimburse those expenses.

4.5 Notwithstanding anything in clause 4.1 or elsewhere in the Contract, the Contractor (which includes any Superintendent appointed by the Contractor) has no authority to incur on behalf of or to commit the Principal to any liability which the Contractor is not ready, willing and able to meet, on the Principal’s behalf, out of the Contractor’s own moneys. …

4.6 Except where, after a request by the Principal, the Contractor fails or refuses to indemnify the Principal pursuant to clause 4.4 or take over the conduct of the defence of any claim as required by clause 4.4, or a claim is one in respect of which the Contractor is not required to indemnify the Principal, the Principal will not:

(a) Revoke the agency granted by this Contract or;

(b) In respect of or in connection with their respective Trade contracts:

(i) issue any directions or instructions or make any commitment to any Trade Contractor in Schedule 1; or

(ii) enter any agreement with or make any payment to any Trade Contractor in Schedule 1.

If

(A) a Trade Contractor or a contractor under any Local Office Purchase Order fails to fulfil an obligation (including a liability) to the Principal;

(B) the obligation or liability is one which the Contractor has undertaken to the Principal to be responsible for; and

(C) the Contractor breaches the undertaking,

nothing in this clause will prevent the Principal from pursuing a claim directly against the Trade Contractor or other contractor.

The Principal warrants that the Principal will not breach any provision of this clause 4.6.

4.7 The Contractor will use the Contractor’s best endeavours to promptly arrange for the novation to the Contractor of each Trade Contract in Schedule 1. If the Contractor furnishes to the Principal a novation agreement in a form which is satisfactory to the Principal and includes a release by the particular Trade Contractor of all claims whatsoever against the Principal under or in any way whatsoever connected with the Trade Contract, the Principal will execute the novation agreement. The Contractor must bear all the costs of novation including stamp duty and any taxes (including GST). The form of novation agreement in Schedule 7 is satisfactory to the Principal.”

25 Schedule 1 makes it clear that the trade contract between Banabelle and the Minister was one of those to which cl 4.1 applied.

The representation

26 The representation on which the referee found in favour of Banabelle was made, on Banabelle’s case, by a letter to it from the Department of Public Works and Services (the Department) dated 13 October 2000. Omitting formal parts, that letter read:

“On the 13th October 2000 the Minister for Public Works and Services the Principal under your Company’s Trade Contract entered a lump sum contract with Walter Construction Group Pty Ltd ACN 008 390 074 (WCG) [in place of the pre-existing Construction Management Contract] for the completion of the Conservatorium Project. Your Company’s Contract continues unaltered by the change in the role of WCG but henceforth WCG will be exercising the powers of the Principal and is obliged to deal with all claims by your Company. WCG will be paying your Company directly.

WCG will be contacting you about changes in the Superintendent and the Superintendent’s Representative and addresses for notices. Henceforth all communications between your Company and the Principal should be addressed to the address provided by WCG.”

27 In para 47 of the Statement of Contentions in its second further amended summons, Banabelle “pleaded” the following representation:

“(a) That the Contract had not been assigned”.

28 Other representations were pleaded, but the referee found that none of them was made good; and this finding is not challenged.

29 In its defence to the second amended summons, the State said that the letter “advised the Plaintiff, as was the fact, that the Plaintiff’s Contract continued unaltered by the change in the role of [Walter], which would be exercising the powers of the Principal.” However, in its statement given to the referee under SCR Pt 72 r 8 (annexure “B1” to the report), the State said:

“ …

21 The representations alleged in paragraph C47 of the Second Further Amended Summons were not made (other than the representation that the Contract had not been assigned).

22 The representation that there had been no assignment was not misleading or deceptive.

23 The First Defendant’s letter of 13 October 2000 made full material disclosure to the Plaintiff.

… ”

30 In para 49.1 of its contentions, Banabelle pleaded that the representation was made without reasonable grounds and was misleading and deceptive because “the Contract had been assigned by way of the 13 October 2000 Agreement.”

31 In the course of submission on the adoption application, Banabelle sought leave to amend to allege another representation arising out of the 13 October letter, and breach thereof. I deal with that in paras [52] to [65] below.

The referee’s reasoning

32 The referee dealt with this aspect of the case in two places, Firstly, at R329-347 he dealt with the terms of the 13 October Agreement, including the following:

“”Effecting an assignment of a contract would involve the transfer of either the benefit or burden of the contract to a third party. In this Contract, pursuant of GC1.9.1, the assignor requires the written approval of the other party to effect a lawful assignment.”

33 At R348-396, the referee dealt with the parties’ submissions on the effect of the head contract on the contractual relationship between Banabelle and the Minister. He commenced by stating the following:

“348. Banabelle’s fundamental contention is that the October Agreement created an unlawful assignment of Banabelle’s Trade Contract and all rights and obligations thereto including claims and entitlements which Banabelle had or may have had against the Principal.

Linden Gardens

“Therefore the existing authorities establish that an attempted assignment of contractual rights in breach of a contractual prohibition is ineffective to transfer such contractual rights.””

34 At R401-410, the referee dealt with what he called “breach of GC1.9.1”. He said, at R401:

“401. In my opinion, therefore, as a matter of construction, the appointment of Walter as Head Contractor to Banabelle and taking over the rights and responsibilities for that Trade Contract constitutes an assignment. As this was done without Banabelle’s written consent, the Principal is in breach of GC1.9.1, and the assignment was not lawful.”

35 The referee then dealt with the effect of that conclusion at R407-410:

“407. By not providing Banabelle with the terms of the October Agreement, I agree that the Principal’s repudiatory conduct was concealed from Banabelle. Further, as later discussed, Banabelle was misled and deceived by the representation of the Principal and Walter as to the effect of the agreement.

408. Notwithstanding this and absent supporting authority, I agree with the effect of the Defendants’ submission that the breach of GC1.9.1 does not render the Contract void ab initio and there can be no claim for a restitutionary quantum meruit while the Contract remains on foot.

409. Further, the Defendants say, and I concur, that, if Banabelle claims that there was a repudiation which was concealed from it, then it is upon its misleading conduct case that it must rely.

410. As Banabelle did not terminate, it is left with an entitlement to damages for breach of contract or its misleading conduct case.”

36 Then, at R414, the referee returned to the question. The topics that he considered included, at R430–452, whether the State was bound by the FTA.

37 The referee summarised his views on the question of liability. He said at R453:

“453. Banabelle has established that:

(a) the Principal through its agent DPWS was carrying on a business within the meaning of s3(1) of the FTA. Walter was also carrying on a business within the meaning of s3(1) of the FTA and s2A of the TPA;

(b) the provisions of the October Agreement constitute an assignment to Walter of the Principal’s rights and responsibilities;

(c) the assignment was unlawful as Banabelle’s written consent had not been obtained. As a consequence, the Principal is in breach of GC 1.9.1;

(d) the Principal made representations to the effect that the Contract had not been assigned. This representation was false and the conduct was in contravention of s42(1) of the FTA;

(e) Walter made representations to the effect that the Contract had not been assigned and that Walter was merely acting as the agent of the Principal. These representations were also false and the conduct was in contravention of s 42(1) of the FTA and s52(1) of the TPA;

(f) in reliance of the misleading and deceptive conduct, Banabelle refrained from terminating the Contract, as it would otherwise have been entitled to do, and was mislead [sic] and deceived into performing a contract which had been unlawfully assigned.”

The parties’ submissions

38 The State submitted that there was a fundamental error in the referee’s approach, of a kind (involving errors of law) that entitled this Court to reconsider the matter, and required the rejection of the relevant conclusions. It submitted that:

(1) The State was not bound by the Fair Trading Act for the purpose of the Banabelle trade contract, because it was not relevantly carrying on any business (see s 3(1)).

(2) The head contract did not effect any assignment of Banabelle’s trade contract with the State, so that the representation was not misleading or deceptive.

39 Banabelle submitted that:

(1) The State was relevantly carrying on a business.

(2) The substance and effect of the head contract was that it “in effect constituted an assignment of” the trade contract to Walter. By the terms of the head contract, the State “was removed entirely from the contractual regime” (presumably, with Banabelle under the trade contract): relying on R363; which proposition, Banabelle said, “cannot be denied as a matter of fact”. Banabelle referred to what it said was the change in the role of Walter: calling in aid R351, 361 and 390.

(3) The representations were misleading and deceptive in that there was an entirely new regime after October 2000 “by reason of the terms and effect of [the head contract] … contrary to what Banabelle was told by” the State.

(4) Banabelle’s contract “had in effect been assigned whether or not the assignment would otherwise have been effective as a matter of law and in that sense, the representations made by [the State] … were misleading and deceptive.”

(5) “It is not necessary to determine whether or not the assignment was effective as a matter of law because each of the relevant parties conducted themselves on the basis that it was effective, and it is in that context in [sic] which the representations must be construed, and to that extent, they were false.”

40 The quotations are taken from Banabelle’s Response dated 27 June 2005 to the State’s Outline Submissions.

Was the representation misleading or deceptive?

41 In my judgment, this question must be answered in the first instance according to the pleaded case. I have referred to that. In respect of the only representation that the referee found was made out – that Banabelle’s trade contract with the State had not been assigned – the only pleaded basis for the allegation that it was misleading or deceptive was that set out in para 49.1 of Banabelle’s contentions. That asserts, I repeat, that the trade contract “had been assigned by way of” the head contract.

42 It follows that many of the submissions for Banabelle, as to why the representation was misleading or deceptive, were outside the pleaded case. There was no pleaded case that there was no change in the role of Walter; or that the statement, that the contract continued unaltered by the change in the role of Walter, was misleading or deceptive having regard to the substance and effect of the head contract; or that the representation was misleading or deceptive because of the “entirely new regime … by reason of the terms and effect of” the head contract; or that there was “in effect an assignment whether or not the assignment would otherwise have been effective as a matter of law”; or that the representation was misleading or deceptive “because each of the relevant parties conducted themselves on the basis that [the alleged assignment] was effective”.

43 Thus, in my judgment, it is a complete answer to this aspect of Banabelle’s claim that, as it correctly acknowledged before the referee (R348, 349) and as the referee apparently found (R337), there was no assignment.

44 The agreed position recorded by the referee at R349 was correct. It is clear, including from the case to which the referee referred (see para [33] above) (Linden Gardens Trust v Lenesta Sludge Disposals [1994] 1 AC 85) that an attempted assignment of contractual rights in breach of a term such as GC1.9.1, or without the consent called for in such a term as GC1.9.1, is ineffective.

45 It may be that the 13 October letter, read as a whole and in context, misrepresented the substance and effect of the head contract in so far as it bore on Banabelle’s contract with the Minister. I express no view on this. But even if that were so, it would not make good the pleaded case, namely that the only representation that the referee found had been made was misleading or deceptive because the head contract “assigned” Banabelle’s contract with the State.

46 Further, and putting to one side the absence of consent, I do not think that the Head Contract as a matter of construction amounts to, or seeks to effect, an assignment from the Minister to Walter of the benefit of the Minister’s trade contract with Banabelle. Certainly, it was agreed that Walter “would have the benefit of” that contract (among others); and that Walter would undertake the obligations, perform the role, and exercise the powers of the Minister as Principal under that contract. None of that, however, deprived the Minister of any right that he had against Banabelle, or (more importantly) deprived Banabelle of any right that it had against the Minister.

47 That the head contract was not intended to effect an assignment from the Minister to Walter of Banabelle’s trade contract is confirmed by cl 4.7. Under that clause, Walter was obliged to use its best endeavours to arrange for the trade contracts to be novated to it. That is inconsistent with the concept of assignment; and would be unnecessary if there had been an assignment.

48 In considering whether conduct has been misleading or deceptive, it is necessary to have regard to the conduct according to its legal incidents, or correct legal characterisation. Further, the case must be one that is made out in the pleadings. See Peninsula Balmain Pty Limited v Abigroup Contractors Pty Limited [2002] NSWCA 211 at paras [51] to [55] (Hodgson JA, with whom Mason P and Stein JA agreed). Thus, as Hodgson JA pointed out at para [51], it was necessary to ascertain the correct legal construction of the agreement there under consideration as part of the process of determining whether there had been misleading or deceptive conduct. Further, as his Honour pointed out at paras [54] and [55], in ascertaining whether there was non-disclosure of what could be read by commercial people as being “the relevant effect” of that agreement, it was necessary to consider whether any such case is made out on the pleadings.

49 If it were correct, as Banabelle submitted, to have regard to the way in which commercial people, rather than lawyers, might regard a document creating legal rights and obligations, in determining whether or not a statement about that document was misleading or deceptive, then a person who stated accurately the legal effect of the document could be liable for misleading or deceptive conduct if, in the commercial community, it might have been regarded as having a different effect. Although, as always, a consideration of whether there has been misleading or deceptive conduct requires an examination of the totality of the circumstances in which the relevant conduct occurred, it would be surprising if a person could be liable for misleading or deceptive conduct simply because he or she stated, in an accurate way, the legal effect of a document.

50 In the present case, the representation alleged used the language of assignment. In context, the representation alleged was as to the legal effect of the Head Contract. In ascertaining whether the representation was misleading or deceptive, the first issue is whether it was an accurate statement as to the legal effect of the document to which it referred. Where (as I have concluded is the case) the representation was relevantly accurate then, unless there is something more in the circumstances, the making of the statement should not be regarded as misleading or deceptive.

51 For reasons that I have given, the referee erred in his approach to this fundamental point. It would follow that his conclusion, that the representation was misleading or deceptive, should be rejected. This makes it necessary to consider the proposed amendment.

The application for leave to amend

52 When these matters were raised in the course of argument, Mr M G Rudge SC, who appeared with Mr M R Gracie of Counsel for Banabelle, sought leave for Banabelle further to amend its summons. The amendments proposed were as follows:

“47(aa) That there was no change to the operation of Banabelle’s contract by reason of the first and second defendants entering into the lump sum agreement dated 13 October 2000.

Particulars

(a) The representation was made in a letter from the first defendant to the plaintiffs dated 13 October 2000.

contract by reason of the 13 October 2000 agreement.

Particulars

(a) The first defendant transferred all responsibility for dealing with the plaintiff’s claims to the second defendant.

(b) The first defendant made the second defendant solely responsible as the head contractor for the construction of the project and works including defects, acts or omissions of the plaintiff.

(c) The first defendant permitted the second defendant to treat the plaintiff as if it were a sub-contractor to the second defendant rather than a contractor to the first defendant.

(d) The first defendant terminated the construction management agreement.

(e) The first defendant effectively contracted with the second defendant for it to undertake the construction of the same works which the first defendant had already contracted to the plaintiff.

(f) The 13 October 2000 agreement created for the second defendant a direct financial interest in the plaintiff’s contract.”

53 Mr Rudge said that Banabelle would rely on the evidence given to the referee, and that it would not seek to lead further evidence of (for example) reliance.

54 Mr B W Walker SC, who appeared with Mr D D Feller SC and Mr P F Liney for the State, submitted that the amendment should not be allowed. He said, among other things, that the cross-examination of the relevant witnesses had not been focused on a case such as that now sought to be made out; and that it was now too late to permit the amendment to be made. Mr Walker also attacked the form of the amendment.

55 I do not think that the amendment should be allowed. The phrase “the operation of Banabelle’s contract” is imprecise, and is capable of covering both the operation of the contract in law (ie, according to its terms) and what might be understood as its operation in practice. It may be contrasted with the statement in the 13 October letter (which, I suspect, was carefully drafted) that:

“Your Company’s Contract continues unaltered by the change in the role of WCG but henceforth WCG will be exercising the power of the Principal and is obliged to deal with all claims by your Company. WCG will be paying your Company directly.”

56 The proposed particulars of what may conveniently, although with some imprecision, be called falsity appear to fluctuate between operation in law and operation in fact. However, the latter case runs into the difficulty that the 13 October letter expressly informed Banabelle of the matters proposed to be particularised as (a) and (b), and may have put Banabelle on notice of other matters. Banabelle should have appreciated from what the letter said as to the future role of Walter that Walter would be standing in the place of the Principal, and might have inferred from that something to the effect of what is proposed to be particularised as (c) and (e). Further, the statement in the letter that the Head Contract was entered into “in place of the pre-existing Constructions Management Contract” might have conveyed to Banabelle the matter proposed to be particularised as (d).

57 These are all matters on which the State would have been entitled to cross-examine the relevant witnesses for Banabelle; and I have no doubt that, having regard to the way in which this litigation has been fought, that cross-examination would have been undertaken had the relevant issue been raised when it should have been raised.

58 Further, the statement of the role of Walter might have given Banabelle cause to question the nature of the arrangements between Walter and the State, and the implications of those arrangements for its own contract; and to contrast that with the situation that had hitherto existed. Thus, even if Banabelle might not have appreciated from the terms of the 13 October letter the matter proposed to be particularised as (f), it might have been given reason to undertake a process of contemplation that might have led it to a not dissimilar conclusion. Again, I have no doubt, this is something on which the State would have cross-examined the relevant witnesses.

59 It would be possible in principle for that cross-examination to occur now. However, devoid of context and limited in ambit, it would be an extremely artificial exercise; and even if it were possible to recreate the context, that would be a lengthy and expensive exercise. Further, it would require the referee to put himself back in the position he was in when the witnesses originally gave evidence – more than two years ago – so as to try and summon to mind his contemporaneous views on their credibility. Conversely, if the exercise were to take place before someone other than the referee (including, in this Court), the tribunal of fact would not have the benefit of the evidentiary context in making the assessment of credibility that would no doubt be required.

60 I therefore think that it would be impracticable to conduct the exercise of a further hearing on the new issues. I think that to permit that course would cause significant prejudice to the State, because of the difficulty and artificiality of the process of conducting a limited hearing directed to testing Banabelle’s evidence on the matters in question.

61 Further, Walter has gone into liquidation. No doubt, its relevant employees have sought other employment. They may be dispersed. In any event, both their willingness to assist and, depending on where they are now employed, their actual ability to assist is open to question. On any view, their recollection of relevant events (including, for example, conversations they may have had with representatives of Banabelle concerning the impact of the changes) will have dimmed further with the passage of time and with the change in employment. That is a further source of prejudice to the State.

62 Further, I think, the diffuse form and uncertain meaning of the representations are in themselves a source of prejudice, as is the way that the case on breach is put. The case on breach assumes that there has been a fundamental change in the relationship between the State and Banabelle, in a way that is inconsistent with Banabelle’s continued reliance on the terms of the contract (for example, in its claims under GC1.23, 1.27.1 and 1.33.1). The s 42 claim is not expressed to be a claim in the alternative. Thus, I think, it is embarrassing and, therefore, that there is a further source of prejudice to the State.

63 There can be no doubt that Banabelle was aware of the attitude that the State (and Walter) took to its representation case. If it were not clear from the pleadings, it was made abundantly clear by the opening submissions for the defendants before the referee that the case as pleaded was hopeless, and doomed to fail; and that one of the reasons for this was that, by reason of GC1.9.1 and the absence of consent from Banabelle, there had not been (and could not have been) any assignment. Banabelle chose to run its case knowing of the defendants’ attitude to this aspect of its case. The views that I expressed in the course of argument (see para [52] above) could not have come as a surprise to Banabelle, having regard to the way that the State and Walter had consistently put their cases before the referee. Banabelle chose to run its case in the form that it did knowing of the legal arguments that were to be deployed against it. I see no reason why it should now be permitted to run a different case, simply because on my analysis those legal arguments have been given the weight that they should have been given by the referee, but were not.

64 As I have said, leave to amend should be refused. I dismiss the application for leave to amend accordingly. The conclusion stated in para [51] above stands.

65 In the circumstances, I do not propose to consider the other reasons by which the State sought to impugn this aspect of the referee’s findings.

The claim under GC1.33.1

66 Relevantly, this clause entitled the Superintendent to direct the order and timing of the performance of various stages or parts of the work; but entitled Banabelle to compensation for any increase in costs incurred by reason of compliance with such directions. The increase was to be valued in accordance with GC1.40.2. In the circumstances of this case, the parties agreed that the relevant measure was that found in subclause (c) – valuing “by the application of reasonable rates or prices, as valued for Daywork under Clause 1.41.”

The parties’ submissions

67 There were a number of reasons why, the State submitted, the claim under GC1.33.1 must fail. They included:

(1) The referee rejected Banabelle’s claim as it was advanced, based on analyses by Mr Byford of Evans and Peck Management called “the benchmark productivity analysis” (which was said to prove lost productivity) and “the open work area analysis” (which was said to prove additional supervision). The State submitted that, having rejected those analyses, the referee should have dismissed the claim.

(2) However, the referee made an alternative “total cost”, or global finding: by comparing costs actually incurred to the contract price. The State submitted that it was not open to the referee to do so in circumstances where neither party had advocated that analysis; neither party had had an opportunity of testing it or the evidence in support, or of leading further evidence on the point; and neither party had addressed it in submissions. Thus, the State submitted, it had been denied elementary procedural fairness.

· Inherent in the analysis was the assumption that the work under the contract (excluding variations) could have been done (including, the State submitted, at a reasonable margin to Banabelle) for the contract price; but there was no proof of this essential requirement, and the referee did not even address it.

· It was also inherent in the analysis that every cent of the additional contract cost was compensable under GC1.33.1. However, on the referee’s findings, there were many causes of delay and disruption, not all of which were compensable under GC1.33.1, and some of which (such as variations) were compensable under other provisions of the contract.

· Further, both in supplementation of and the alternative to the preceding point, the referee never identified the directions under GC1.33.1 that were said to have caused Banabelle to incur increased costs, so that he had not shown that the amount calculated by him was referable to directions under GC1.33.1.

(4) The referee’s assessment was fundamentally flawed also because he assessed the claim over the entire duration of the contract from 17 February 1999 until the completion of work in late July 2001, whereas for the initial period, from February 1999 up until 10 January 2000, Banabelle claimed and was awarded damages for breach of GC1.27.1 (because it was kept out of possession of the relevant parts of the Site) so that, by definition, there could have been no direction under GC1.33.1 (because such a direction could only be operative if Banabelle were in possession of the relevant part or parts of the Site or otherwise able to comply with it).

68 Banabelle submitted as its “primary contention” that the approach taken by the State was “in reality seeking to challenge each and every matter on which [it was] unsuccessful and … seeking a re-hearing and a re-agitation of all issues and all factual matters in contention before the Referee.” Banabelle submitted that the State’s submissions “have not established any manifest unreasonableness of fact finding or perversity … sufficient to warrant this Court’s intervention on findings of fact made by the referee which were within his expertise and based on the evidence before him.”

69 Alternatively to this primary submission, Banabelle submitted that it was open to the referee to find as he did; that his report demonstrates his reasoning process; that the reasoning process was supported by evidence reasonably capable of leading to the conclusions expressed; and that the ultimate conclusion was available on all of the evidence, even if (as I understood the submission) the referee’s methodology had not been advanced by any party. In particular, Banabelle submitted that:

(1) The approach taken by the referee was consistent with that adopted by the State’s relevant expert, Mr Holland.

(2) Whether or not the precise causal links had been established, each and every element of delay and disruption found by the referee was one for which the State was responsible; and the referee in any event considered, in an appropriate manner, all relevant depreciatory factors.

(3) It was entitled to succeed notwithstanding that it may not have complied with its programming obligations; and, in any event, there was ample other evidence, including from other programs, that enabled the impact of delay to be assessed.

(4) In any event, the State had waived compliance with the requirements of CP2.5.2, or had acted in such a way as to lead Banabelle to believe that compliance was not required.

(5) Further, the methodology adopted by the referee had been discussed by him with the parties’ experts, so that the parties had had an opportunity to consider it; and the application of that methodology utilised only matters that were in evidence (including by reason of the process of conferencing and conclaving, and to some extent agreement, between the relevant experts).

(6) The State’s contravention of GC1.27.1 did not come to an end (as the referee had found it did) after 10 January 2000; it was a continuing breach; and the consequences of that continuing breach were appropriately quantified by the referee’s methodology.

(7) Further, the assessment under GC1.27.1 did not include any allowance for loss of productivity or supervision (the elements of the GC1.33.1 compensation) so that it was appropriate for the referee to do as he did in considering the question of compensation over the entire period of the contract.

Alleged requirement to record resources

70 There was a separate dispute between the parties, both before the referee and before me, as to whether the reference in GC1.40(c) to GC1.41 meant that Banabelle was required, in support of any claim under GC1.33.1, to “record particulars of all resources used” by it in respect of the relevant works and “furnish to the Superintendent the particulars and copies of time sheets, wages sheets…. evidencing the cost of the Daywork”. The referee determined this issue in favour of Banabelle. I think that he was right to do so.

71 GC1.40(c) requires the use of “reasonable rates or prices, as valued for Daywork under Clause 1.4”. That is a reference to sub-paras (a) to (f) of GC1.41, which determine how the rates for Daywork are to be ascertained. The requirement earlier in GC1.41 to record resources and furnish records is an incident of the entitlement to be paid for Daywork where Daywork is directed. It has nothing to do with the rates, or sources or means of derivation of rates, set out in the following sub-paras.

72 If the alternative construction were correct, it would in practice be necessary for a sub-contractor such as Banabelle to record the relevant details and furnish the relevant records in accordance with the introductory words of GC1.41 whenever a direction under GC1.33.1 was given, in case it later proved that compliance with the direction caused it to incur more (or, I would add, less) cost. It might not always have been obvious, at the time a direction was given under GC1.33.1, that compliance would cause Banabelle to incur more or less cost. Thus, unless it were completely sure that there could be no cost impact from compliance, it would be required to act in the manner indicated. The construction advocated by the State means that both contractors in the position of Banabelle and the Superintendent would be deluged with paperwork whenever a direction was given under GC1.33.1, in case it became apparent subsequently that compliance had cost consequences. I do not regard that as a commercially realistic interpretation; nor do I regard the language of the relevant provisions as so intractable, that, regardless of commerciality, the result must follow.

Compliance with GC1.46

73 There was a further separate issue between the parties as to compliance with GC1.46. That clause, which is far too lengthy to set out in these reasons, dealt with “claims generally and disputes”. GC1.46.1 provided for notification of claims within prescribed time limits. GC1.46.2 to 1.4.6.4 contained an escalating procedure of assessment: by the Superintendent’s Representative; by the A5.2 Superintendent; and by the A5.1 Superintendent. (The A5.1 Superintendent was defined in the Annexure as “the Superintendent for the purposes of clauses 1.4.4.6 and 1.4.6.4 of the General Conditions of Contract”; and the A5.2 Superintendent was the Superintendent for all other matters. They were originally different officers of the Department. After the Head Contract was made, they were employees of Walter).

74 There then followed, in clause 1.46.5, a requirement for submission to expert determination if the claim remained contested. Clause 1.46.6 dealt with the process for expert determination. If there were no resolution following that process, then the claim was to be submitted to arbitration.

75 The referee concluded that the State had waived compliance with clause 1.46; alternatively, that it was invalid. The asserted invalidity arises out of the judgment of Einstein J in State of New South Wales & Ors v Banabelle Electrical Pty Ltd (2002) 54 NSWLR 503. His Honour held at 528 [70] that “clause 46.5 is uncertain and the uncertainty infects the entire clause.” I take his Honour’s reference to “the entire clause” to be a reference to GC1.46.5. However, this may be wrong: his Honour’s conclusion was that the State’s application for a stay, pending the working out of the clause 1.46 procedure, should fail; and it appears that the essential part of his reasoning on this point was the invalidity of GC1.46.5.

76 In any event, I think, it is simply not possible to say that one part of the process – expert determination – can be excised, leaving the remainder of the process available (and binding). The parties contracted for a stepped procedure, starting with the submission of a claim and finishing (if every intermediate step had failed to produce resolution) with arbitration. Expert determination, with all its advantages of speed, relative cheapness and informality, was a fundamental part of that process. To remove it from the stepped procedure is to make that procedure something different in substance to what it was intend to be. Thus, I think, this issue should be answered in favour of Banabelle.

Banabelle’s pleaded case under the contract

77 An analysis of the primary position of the State must start with the second further amended summons, in which Banabelle sets out its case. The statement of contentions takes the following form:

(1) Paras 1-6 set out the parties and the trade contract between Banabelle and the Minister.

(2) Paras 7-10 describe the contract works.

(3) Paras 11-16 refer to various provisions of the contract.

(4) Paras 17 and 18 allege instructions given by the Superintendent pursuant to GC1.33.1; a number of directions are particularised (although not in a way that readily enables the content of the directions to be understood) under para 18; and para 19 alleges that Banabelle incurred extra costing complying with those directions, which it is entitled to recover, valued in accordance with GC1.40.2.

(5) Paras 20-23 allege, in the alternative, an implied term of the contract that the State would do all things necessary to ensure that Banabelle could proceed with the execution of the works consistently with any applicable program, in a sequential and consistent manner, and otherwise in a timely and efficient manner; and breach of that allegation. Para 24 alleges either the entitlement under GC1.33.1 or damages for breach of the alleged implied term.

(6) Paras 25-31 allege a case based on an asserted obligation of the State to appoint (among others) a Superintendent; on the alleged breach of that by means of the head contract; and on breach of an alleged obligation on the first defendant to ensure that the Superintendent acted fairly etc. The amount claimed in para 24 is claimed (apparently in the alternative) by reason of those matters.

(7) Paras 32-35 allege the claim under GC1.27.1, again claiming the same damages as those claimed in respect of the earlier causes of action.

(8) Paras 36-41 allege a claim for extensions of time and acceleration.

(9) Paras 42-44 allege a case of repudiation based on the terms of the head contract.

(10) The representation case commences at para 47. The case against the State occupies paras 47-53; the case against Walter occupies paras 54-57; and the case against Mr Sutherland occupies paras 58 and 59.

The implied term case is rejected

78 Banabelle’s statement given to the referee pursuant to SCR Pt 72 r 8 appears to narrow the issues. Specifically, in respect of delay and disruption, it asserts that the relevant issues are:

“(a) the Principal’s and Walter’s instructions to Banabelle including as to the order and sequence of works and/or;

(b) the Principal’s various breaches of contract, variations to the work, and the delay, disruption and acceleration to the progress of the work which occurred.”

79 The statement does not make any reference to the alternative case based on existence and breach of an implied term (paras 20-23 of the contentions). No doubt for this reason, the referee referred to this aspect of the case as follows:

“39. This first set of claims is advanced as global claims where Banabelle does not seek to attribute specific costs or losses to alleged specific acts or omissions of the Principal or Walter.

…

45. Alternatively, Banabelle claims for additional costs incurred under the Contract relating to directions issued by the Superintendent on behalf of the Principal.

46. It submits that the Principal breached GC 1.33.1 by failing to properly value the work in accordance with the requirements of GC 1.40.2.

47. Banabelle, in the alternative, claims the sum of $1,640,179 assessed in accordance with the contractual provisions.”

80 The referee dealt with the implied term case at R591 to 594. He concluded that the terms alleged should not be implied into the trade contract. Banabelle does not challenge this aspect of the report. Accordingly, this aspect of the claim stands or falls under GC1.33.1.

The claim under GC1.33.1

81 The referee dealt with this aspect of the claim at R528 and following, under the heading “delay, disruption and loss of opportunity.” He set out, by way of recapitulation, some matters at R528, and recorded at R534 “that the landscape of the project was painted with delay and related problems.” At R536 he pointed out that: “[d]isruption invariably impacts adversely on efficiency and productivity. …In the fog of a busy construction project, loss of productivity is often difficult to identify at the time of the event and often the indication will be delay.”

82 At R543, the referee said that “Banabelle must establish, on the balance of probabilities that, firstly, the events which it asserts caused its global loss actually occurred and, secondly, that the Principal is responsible for such events.”

83 At R552, the referee confirmed that Banabelle’s case was put under GC1.33.1. He said:

“Banabelle submitted that an entitlement to costs under GC1.33.1, which is based on a valuation under GC40.2(c) and which in turn refers to GC1.41, has no requirement for “particulars and copies of time sheets, wage sheets, invoices, receipts and other documents evidencing the cost of the Daywork”.

84 As I have said, the referee rejected Mr Byford’s analysis: see R571-579. It is convenient to set out some of the matters which the referee indicated as bearing on delay:

“528. At this juncture, it is useful to recapitulate on the following facts:

…

(b) Banabelle was on site until the end of July 2001 which was approximately 52 weeks after the original DFPC. It has been found that Banabelle is entitled to a total EOT of 54 weeks.

…

(d) During the course of the work variations were directed. It has been found that the amount payable for variations is $1,164,123. This sum is 27% of the original Contract Sum and represents a significant change in the scope of work (refer Paragraph 266).

…

(f) From February 1999 until October 2000, the project was in serious delay as measured against a succession of the Principal’s Construction Programmes.

(g) In October 2000, programme Q83Z was issued. It was a compression programme and was effective in bringing the project to completion (refer Paragraphs 504 and 505).

(h) …

(i) Any inefficiencies for which Banabelle is responsible probably fall within the level of general industry practice and are not material to the claims being considered here (refer Paragraph 186).

529. As Banabelle submits, the project was replete with problems caused by the following:

(a) delays in issuing tender documents;

(b) delay in releasing trade packages;

(c) late and ongoing design changes;

(d) delays in approving variations;

(e) low productivity by certain other Trade Contractors;

(f) lack of instructions and issue of drawings for services;

(g) ever increasing number of RFI’s (requests for further information by Contractors);

(h) areas of work not being available to Trade Contractors and in particular Banabelle;

(i) lack of performance by formworkers;

(j) documentation delays;

(k) archaeological issues which hampered critical works.

…

543. Having regard to what his Lordship said and the circumstances here, Banabelle must establish, on the balance of probabilities, that, firstly, the events which it asserts caused its global loss actually occurred and, secondly, that the Principal is responsible for such events. Events for which Banabelle contends include:

(a) out of sequence work;

(b) not being able to work continuously in a particular work area until it had completed a particular phase of its electrical work (eg first fix, second fix or fit-off);

(c) having to work on a room by room basis;

(d) delayed commencement of activities and constant changes to the Principal’s Programme;

(e) poor performance from the Formwork Contractor;

(f) having to simultaneously work in an increased number of work areas.”

85 The referee summarised his findings on this at R609:

“In summary:

(a) Banabelle was on site for about a year longer than its original contract of 75 weeks.

(b) The project was subjected to continuing delays until October 2000.

(c) For the first 11 months of the project, Banabelle did not have sufficient possession of the site to execute its work under the Contract.

(d) There was no effective Principal’s Programme until Q83Z was issued about 20 months into Banabelle’s Contract. It was a compression programme to bring the project to completion.

(e) Banabelle was probably directed to work in sequences other than as scheduled in accordance with the current Principal’s Construction Programme and otherwise.

(f) Banabelle’s work was varied and increased by a significant quantum of some 27%. Some variations involved design changes and re-work.

(g) Banabelle was probably not able to work continuously in particular work areas until it had completed a particular phase of its work and, at times, was probably required to work on a room by room basis.

121 This, I think, should be taken as a finding that the works could have been performed (except for variations) for the contract sum. The referee did not appear to consider this point in the context to which I have referred; but he does refer to it in his consideration of the general topic “delay, disruption and loss of opportunity”.

122 The State said that the conclusion was so perverse or unreasonable as not to be capable of adoption. Although there is force in the State’s submissions, I do not need to express a concluded view. The views that I have expressed are sufficient to cause me to reject entirely the referee’s conclusions on GC1.33.1, to the extent that these are considered under the heading “delay, disruption and loss of opportunity”; and, indeed, all his conclusions under that heading.

Banabelle’s secondary challenges

123 Banabelle challenged some aspects of the referee’s quantification of its claim under GC1.33.1. Those challenges related to:

(1) The way in which the referee dealt with the profit component of Banabelle’s recovery;

(2) The referee’s exclusion of an amount of $210,000.00 for consultants’ fees from the total project costs; and

124 On the view to which I have come, it is not necessary to decide those issues. However, in case that view is found to be wrong, I will set out brief conclusions on these challenges.

The referee’s approach

125 The referee quantified Banabelle’s entitlement under GC1.33.1 “by comparing Banabelle’s financial recovery (absent claims) against its costs, which …excludes the cost of defect rectification together with the cost of Banabelle’s head office overheads” and making “an adjustment for supervision” (R631). Thus, the referee deducted Banabelle’s theoretical contractual recovery (including adjustments for provisional sums and variations) from its adjusted total direct project costs less the cost of supervision. He then applied the margin of 12% under GC1.41(f) (see R632-634). As I have already pointed out, this methodology necessarily assumes that every item of the adjusted total direct project costs is attributable either to performance of the contract as from time to time varied or to delay and disruption for which the State alone is responsible.

Treatment of profit

126 As will be seen from the previous paragraph, the referee’s methodology deducted deduced recovery from adjusted cost. Banabelle submitted that the deduced recovery included a profit element, and that this should not be deducted, because to do so “was not deducting “apples from apples”.” (written submissions in chief, para 35).

127 I do not accept this submission. If some notional figure for profit is deducted from the deduced recovery then the effect is to increase, by the amount of that notional profit, the compensation under GC1.33.1. There is then applied to the base figure so calculated (including that element of notional profit) the allowance of 12% for (among other things) profit under GC1.41(f). The effect is to give Banabelle profit on profit. I do not think that this is the proper construction of GC1.33.1, or of the valuation methodology set out in GC1.41.

128 Further, it is not possible to say what, if any, margin should have been adopted as representing the notional profit element of the deduced recovery. None of the alternatives advanced by Banabelle have any real air of plausibility about them. For this reason too, I think that this challenge should be rejected.

Consultants’ fees

129 In table 5, the referee calculated adjusted direct total project costs. He then added a number of other items to arrive at what he called the “QMT” (his finding of the amount to which Banabelle was entitled on a quantum meruit basis). One of the items added to the adjusted total direct project costs was an amount of $210,000.00 found by the referee as fees payable to EPM.

130 GC1.41 (which relates to Daywork, but which is applicable because of GC1.40.2(c)) requires regard to be had to “the amounts paid for services, subcontracts and professional fees”. The referee referred to this (with an immaterial mistake as to the particular sub-paragraph of GC1.41) at R206. He concluded at R207 “that reasonable professional fees associated with claims preparation” should, having regard to the circumstances of delay, “form part of the value of the work received [by the] Principal”. He considered the competing evidence of the amount to be allowed for EPM’s fees at R208-210 and concluded, at R210, that a reasonable amount would be $210,000.00.

131 Then, in a way seemingly inconsistent with the conclusion at R207, the referee did not add that amount to the total direct project cost. It may be that he misled himself by his choice of the description “adjusted total direct project cost”. Thus, regardless of the semantics of the description, the finding at R207 would seem to require the total adjusted project cost incurred by Banabelle (which, after all, is what was intended to be calculated) to be increased by the sum of $210,000.00.

132 Whatever the theoretical attractions of this position, it was not the way that the case was run. The experts agreed that no allowance should be made for EPM’s fees under the cl 1.33.1 assessment. Thus, the parties having put their case on this agreed basis, I think that the referee was correct to proceed as he did, and that it is not now open to Banabelle, in the light of that agreed basis, to challenge this aspect of the referee’s methodology.

133 Thus, because of the way in which the referee dealt with this issue, I would not uphold this aspect of the challenge.

Supervision costs

134 The referee does not explain why he deducted supervision costs. That, I think, is an unfortunate consequence of his adoption of a methodology that the parties were not given a chance to address in submissions. Presumably, the referee recognised that under GC1.33.1, his task was to identify the extra costs incurred by Banabelle in complying with the directions that, by hypothesis, had been given. Under the concluding words of that sub-clause, what is to be valued is the difference between the cost actually incurred by reason of compliance and the cost that “otherwise would have been incurred”. Presumably, the referee reasoned that the supervision costs referable to the delay and disruption were in the nature of costs that would not otherwise have been incurred, so that they should be deducted from the actual adjusted project costs.

135 However, if this were the referee’s reasoning, it would have required the like adjustment to be made for the supervision costs that would have been incurred in any event, but for the directions. The referee did not attempt to do this.

136 It may be that Banabelle’s complaint is justified, and that the inconsistency to which I have referred in the preceding paragraph could be corrected simply by reversing the deduction made by the referee for supervision costs. However, in the absence of any explanation, I do not think that I can be confident that this is the correct approach.

Conclusion on GC1.33.1

137 The reasons that I have given in paras [88] to [119] above, in which I deal with four identified errors and denial of natural justice, require that the referee’s conclusions on the GC1.33.1 claim be rejected. I have not addressed all the arguments directed by the parties to other issues relating to the GC1.33.1 claim, because I think that, for the multiple reasons I have identified, the referee’s conclusions on it cannot stand.

The GC1.27.1 assessment

138 The State attacked two items in this assessment. They were:

(1) The inclusion of an amount of $25,165.00 for head office overheads (item 10 in table 11 at R267); and

139 The State submitted that, as a matter principle, these amounts should not be allowed where it had not been shown that Banabelle lost the opportunity to do other profitable work, so as to defray overheads and achieve a profit. In this context, the State pointed to the referee’s conclusions at R624-626 that Banabelle’s “claim for loss of opportunity must … fail for lack of evidence.”

140 Banabelle, too, challenged the referee’s findings on GC1.27.1. It raised three issues:

(1) The referee misconstrued the clause by holding it ceased to operate once Banabelle was given possession on 11 January 2000, whereas on its proper construction the clause imposed a continuing obligation on the Principal to give Banabelle possession of such parts of the site as it required from time to time.

(2) The referee erred in finding that Banabelle’s claim under GC1.27.1 was in the alternative to its claim under GC1.33.1.

Head office overheads and profit

141 There is an element of unreality in the State’s submissions on this point, given that (as the referee found) Banabelle was delayed by some eleven months from February 1999 to January 2000, during which time it was able to undertake only 5% of the contract works. Further, a comparison of the value of the contract with Banabelle’s total turnover for the years in question (and the years preceding and succeeding them) indicates that the contract, to the extent that it was performed, was the major contributor to turnover.

142 Nonetheless, I think, it is in principle wrong to make an allowance for recovery of an offsite (or head office, or fixed) overhead, or of loss of profit, unless there is a basis for concluding that they could have been recovered or earned through the performance of other profitable work. Giles CJ Comm D so held in Bulk Materials (Coal Handling) Pty Ltd v Compressed Air and Packaging Systems (NSW) Pty Ltd (1997) 14 BCL 109 at 133-135 (in which his Honour adopted what he had said on the same point in Thiess Watkins White Construction Ltd v Commonwealth of Australia (1992) 14 BCL 61). I think that his Honour’s reasoning is equally applicable to a claim for loss of profit by reason of delay, where the effect of that delay is to prevent the contractor from undertaking other profitable work.

143 His Honour referred to “the difficulties of proof”, and cited with approval a text referring to the “difficulty” of establishing “the real facts”.

144 In the present case, it appears that Banabelle mounted a loss of opportunity claim, based on the delay. As I have noted, the referee recorded that the claim was but faintly pressed (R624), and concluded that it was not made out (R626). The findings made in the latter paragraph show, I think, that the State’s challenge to the allowance of the profit and overhead recovery items of the assessment under GC1.27.1 must succeed:

“From the financial figures, I think it is reasonable to draw the inference that the initial 11 month delay did not adversely affect Banabelle’s FY’s 1999 and 2000 turnover. Further, there was no lay evidence available of Banabelle’s tendering record in the relevant period. This claim for loss of opportunity must therefore fail for lack of evidence.”

145 The inference that the initial delay did not adversely affect turnover, and the absence of evidence of “Banabelle’s tendering record”, between them show that the factual basis necessary for recovery – loss of other profitable work – has not been made out.

146 I therefore conclude that the referee’s finding of the amount payable by way of damages for breach of GC1.27.1 should be reduced by $73,641.00 (the total of the allowances for overhead recovery of $25,165.00 and profit of $48,476.00).

The ongoing operation of GC1.27.1

147 The referee appears to have construed GC1.27.1 as ceasing to have effect once Banabelle was given possession of the site (or of sufficient of the site to commence work) on 11 January 2000. However, GC1.27.1 is not so limited. Where a contractor is given possession of part only of the site (as was Banabelle), there is an obligation on the principal “from time to time to give the Contractor possession of such further parts of the Site as may be necessary to enable the Contractor to execute the work under the Contract in accordance with the requirements of the Contract.”

148 Under PSP2.5.1, Banabelle was required to complete each “Zone” in accordance with an identified construction program. Clause 1.27.1 would require the Principal to give Banabelle possession of each zone as required to enable Banabelle to execute its work in accordance with the requirements of PSP2.5.1 and the contract program.

149 It follows, to the extent that the Principal did not do so, and on each occasion when the Principal did not do so (but subject to the existence and effect of any relevant direction under GC1.33.1) there was a breach of GC1.27.1.

150 In R468, the referee stated that after 10 January 2000 (on his view, the last day on which cl 1.27.1 was applicable) “the Principal provided access but not generally in accordance with the sequencing and timing provisions of the Principal’s Construction Program.”

151 No doubt, the referee did not give further consideration to this because of the global nature of his assessment of what he thought was compensation under GC1.33.1, including in that assessment, as he sought to do, all manner of things for which he thought the Principal was responsible.

152 The State submits that this was not the way in which Banabelle pleaded or ran its case. It points to the circumstances that in para 79 of the statement of contentions in the second further amended summons, Banabelle’s relevant claim was “for delay, disruption, acceleration costs” or “in the alternative, breach of Contract”.

153 It is apparent from the report that Banabelle put its case for the period commencing on 11 January 2000 on the basis of GC1.33.1. During that period, the order and timing of stages and parts of the work was susceptible to directions from the Superintendent; and directions from time to time given would bear on the obligation of the Principal to give possession of part of the Site under GC1.27.1. None of this appears to have been disentangled in the evidence.

154 Accordingly, whilst I think that in principle GC1.27.1 does have continuing operation after 10 January 2000 (more accurately, it operates for the life of the contract), the apparent failure of the referee to consider the ongoing operation of the clause does not of itself, and having regard to the way in which the case appears to have been run, provide a ground for interference in his conclusion on the claim under GC1.27.1.

Claims in the alternative

155 Both for the reasons that I have given in para [101] above, and because of the way in which Banabelle pleaded its claim for damages (see para [152] above), I think that this challenge to the report should be rejected. It is one thing to say that there may have been, in the period from January 2000 to July 2001, both claims for damages for breach of GC1.27.1 and for compensation under GC1 33.1. It another thing to say that the two claims may arise, cumulatively, for the same period of time out of the same events. The former proposition may be accepted. The latter, I think, should not.

Quantification of overhead and profit

156 My conclusion in para [146] above that the allowances for overhead recovery and profit foregone should be rejected makes it unnecessary to consider this aspect of Banabelle’s challenge.

157 However, if it were necessary to do so, I would not accept Banabelle’s submissions. There is no inconsistency in this aspect of the referee’s reasons. His findings in other contexts on overhead recovery and profit percentage do not necessarily translate to the actual position experienced by Banabelle (or this position that would have been experienced but for the breach) during the period in question.

158 Indeed, if I were otherwise minded to intervene in this aspect of the referee’s findings, I would feel some attraction to the State’s submission that there is probably an implicit error in the referee’s adoption of Mr Holland’s figure of $7,547.00 for disruption costs for the period in question (February 1999 to January 2000). That is because Mr Holland used a margin of 8.5%, whereas the referee in R140 found that the correction margin was 6.7%. However, in the circumstances, and given that the State did not challenge this aspect of the referee’s quantification of damages for breach of GC1.27.1 in its submissions in chief (see para 204), I do not propose to carry out the adjustment that might, if the submission put in reply were accepted, be required.

Conclusion on GC1.27.1

159 The referee’s quantification of damages should be adjusted in the manner set out in para [146] above. The “Total Entitlement”, calculated by the referee in this context at R627 (table 11) should accordingly be varied to $264.894.00. That correction should be carried forward to R672, so that the “net amount due” stated in that paragraph should be reduced from $272,202.85 to $198,564.85. The same figure should be substituted at R675(a) for the figure of $272,202.85 there set out.

“Miscellaneous findings”; the case under GC1.23

160 The first part of this heading refers to a number of findings made by the referee against Mr Tamone and Mr Sutherland. The State submitted that those findings went nowhere and that, because they were serious findings against both men, they should be rejected. The State did not submit that it was not open to the referee to reach those findings; nor, as I understood its submissions, did it submit that they should be rejected simply because the proceedings had been resolved as against both men.

161 Banabelle submitted that the findings should be adopted because they were integral to its case under GC1.23. Indeed, one of its complaints was that the referee, having made the findings of fact, had not dealt with that case. It submitted that, if I were minded to reject the referee’s findings on the claim under the Fair Trading Act (as I have indicated I will do), then it is entitled to have the proceedings remitted to the referee for a consideration of its claim for damages for breach of GC1.23.

162 It therefore seems that there may be continuing utility in the findings. On that basis, I do not propose to accede to the State’s request to reject them. Further, there being (as I have said) no submission that it was not open to the referee to reach those findings, I think that they should be adopted. Where they go is a matter to be determined; and my present view is that it should be determined by the referee.

The State’s cross claim for defective workmanship

163 I referred to this cross-claim, and the referee’s reasons for rejecting it, in para [3] above. The referee found at R279 that “Walter … had rectified the defects at its cost” and that “Walter has discharged its obligations [under the Head Contract] by rectifying the defects at its cost”.

164 The case pleaded by the State in its cross-claim is that:

(1) GC1.37 required Banabelle to rectify any defects or omissions in the work existing at Practical Completion (Statement of Contentions, para 14).

(2) Banabelle breached that obligation by failing to rectify specified defects (para 15).

165 The loss and damage is particularised in para 16 as “[t]he cost of rectifying the defects … set out in the Schedule hereto”. As might be expected, the Schedule specifies a number of alleged defects and the alleged cost of rectification of each. Of the thirteen defects specified, the referee found some four to have been made out (R281) and quantified their value individually (R283-312), leading to the summary and total to which I have referred (R313).

166 The State did not contest the referee’s finding (twice made) at R279 that Walter had rectified the defects at its own cost. However, it submitted, it had suffered loss because it had “paid the Plaintiff more than [it] should have, to the extent of the value of the defective work” (written submissions in chief, para 210). I do not think that this is consistent with the way in which the claim for defects was pleaded in the cross-claim.

167 If the quantification of the claim for defects were being undertaken at the date of Practical Completion, or at whatever date subsequently was the date of breach (perhaps at a time when Banabelle had been requested to rectify the defects but had not done so), then, prima facie, the quantification would look to the reasonable cost of rectification, on the assumptions that rectification was reasonable in the circumstances and necessary to ensure that the State got what it contracted to receive: Bellgrove v Eldridge (1954) 90 CLR 613.

168 However, the quantification is being carried out at a later date; and in my view it is appropriate, both in the task of quantification and in ascertaining whether in fact any damage has been suffered, to have regard to what has happened between the date of breach and the date of hearing: Malec v J C Hutton Pty Ltd (1990) 169 CLR 638. In the present case, on the referee’s findings, the defective workmanship has been rectified and the State has received that for which it contracted. To give it damages as well as performance would be to overcompensate it (more accurately, to give compensation in the absence of loss). In this context, I do not think that it matters that the performance came from two sources, with that from one (Walter), being necessary because of defects in that of the other (Banabelle).

169 It may very well be that Walter has some claim, either based on the terms of the head contract or in the nature of subrogation, to recover the cost of rectification from Banabelle. But I do not need to concern myself with that. The question for me is whether the referee erred in dismissing the State’s cross-claim. On the basis of his finding that Walter had rectified the defects, I do not think that he did.

Conclusions and orders

170 For the reasons that I have given:

(1) The referee’s findings and conclusion on Banabelle’s claim against the State under the Fair Trading Act must be rejected.

(2) The referee’s findings and conclusion on Banabelle’s claim against the State under GC1.33.1 must be rejected.

(3) The referee’s conclusions on Banabelle’s claim against the State for damages for breach of GC1.27.1 should be varied in the manner indicated in para [146] above, and, so varied, adopted.

(4) Banabelle’s claim under GC1.23 should be remitted to the referee for consideration and further report.

171 I direct the parties within fourteen days to bring in short minutes of order to give effect to these reasons except on the question of costs.

172 My present view is that costs should be reserved, pending the referee’s further report dealing with the claim under GC1.23. If the parties do not agree, I shall hear argument on the point. In that case, the short minutes of order should provide for a timetable for exchange of the costs orders which each party seeks, and of the evidence (if any) relied upon in support of those orders; and for written submissions in support of each party’s proposed costs order. The parties may approach my associate for a date for the hearing of the costs application.

******

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Citations

Banabelle Electrical v State of New South Wales [2005] NSWSC 714

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CITATION:	Banabelle Electrical v State of New South Wales [2005] NSWSC 714
HEARING DATE(S):	5, 6, 7 and 8 July 2005
JUDGMENT DATE :	27 July 2005
JURISDICTION:	Equity Division Technology & Construction List
JUDGMENT OF:	McDougall J at 1
DECISION:	See paras [170] to [172] of judgment

CATCHWORDS:	PRACTICE AND PROCEDURE - reference - whether referee's report should be adopted - whether referee's assessment of compensation and damages so flawed as to require rejection - where referee rejected methods of assessment proposed by experts and adopted "total cost" method without consulting parties - whether defendant denied procedural fairness - TRADE PRACTICES - where referee found representation misleading or deceptive - where representation alleged that no assignment of contract - where no effective assignment - whether representation misleading or deceptive - PRACTICE AND PROCEDURE - application for leave to amend - whether plaintiff entitled to amend statement of claim - whether defendant prejudiced by amendment - whether amendment embarrassing
LEGISLATION CITED:	Fair Trading Act 1987 (NSW)
CASES CITED:	Bellgrove v Eldridge (1954) 90 CLR 613 Bulk Materials (Coal Handling) Pty Ltd v Compressed Air and Packaging Systems (NSW) Pty Ltd (1997) 14 BCL 109 Chloride Batteries Australia Ltd v Glendale Chemical Products (1988) 17 NSWLR 60 Foxman Holdings Pty Ltd v NMBE Pty Ltd (1995) 38 NSWLR 615 Franks & Anor v Berem Constructions Pty Ltd (NSWCA 2/12/98, unrep; BC 9806367) Hughes Bros Pty Ltd v Minister for Public Works (Rolfe J, 17/8/94, unrep; BC 9402885) Linden Gardens Trust v Lenesta Sludge Disposals [1994] 1 AC 85 Malec v J C Hutton Pty Ltd (1990) 169 CLR 638 Peninsula Balmain Pty Limited v Abigroup Contractors Pty Limited [2002] NSWCA 211 Seven Sydney v Fuji Xerox [2004] NSWSC 902 State of New South Wales & Ors v Banabelle Electrical Pty Ltd (2002) 54 NSWLR 503 Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 Thiess Watkins White Construction Ltd v Commonwealth of Australia (1992) 14 BCL 61 White Constructions (NT) Pty Ltd v Commonwealth of Australia (1990) 7 BCL 193 Xuereb v Viola (1989) 18 NSWLR 453
PARTIES:	Banabelle Electrical Pty Limited (Plaintiff) State of New South Wales (First Defendant) Walter Construction Group Ltd (Second Defendant) Stephen Tamone (Third Defendant) Doug Sutherland (Fourth Defendant)
FILE NUMBER(S):	SC 55030/01
COUNSEL:	M G Rudge SC/M R Gracie (Banabelle) B W Walker SC/D D Feller SC/ P F Liney, Solicitor (State)
SOLICITORS:	Crisp & Associates (Banabelle) Mallesons Stephen Jaques (First and Fourth Defendants)

The applicable principles	6
Banabelle’s contract	11
The head contract	22
The representation	26
The referee’s reasoning	32
The parties’ submissions	38
Was the representation misleading or deceptive?	41
The application for leave to amend	52
The claim under GC1.33.1	66
The parties’ submissions	67
Alleged requirement to record resources	70
Compliance with GC1.46	73
Banabelle’s pleaded case under the contract	77
The implied term case is rejected	78
The claim under GC1.33.1	81
First error: multiple causes of delay and disruption	88
Second error: internal inconsistency	91
Third error: inclusion of variations	98
Fourth error: period of delay and disruption; identification of directions	101
Banabelle’s response	109
Denial of natural justice	115
Sufficiency of the contract price	120
Banabelle’s secondary challenges	123
The referee’s approach	125
Treatment of profit	126
Consultants’ fees	129
Supervision costs	134
Conclusion on GC1.33.1	137
The GC1.27.1 assessment	138
Head office overheads and profit	141
The ongoing operation of GC1.27.1	147
Claims in the alternative	155
Quantification of overhead and profit	156
Conclusion on GC1.27.1	159
“Miscellaneous findings”; the case under GC1.23	160
The State’s cross-claim for defective workmanship	163
Conclusions and orders	170