Casbee Properties Pty Ltd v Patoka Pty Ltd; Patoka Pty Ltd t/as Rumbel and Co v Casbee Properties Pty Ltd

[2003] NSWSC 284

CITATION:	Casbee Properties Pty Ltd v Patoka Pty Ltd; Patoka Pty Ltd t/as Rumbel & Co v Casbee Properties Pty Ltd [2003] NSWSC 284
HEARING DATE(S):	20/03/03, 21/03/03, 28/03/03
JUDGMENT DATE:	11 April 2003
JURISDICTION:	Equity Division Commercial & Construction List
JUDGMENT OF:	Nicholas J
DECISION:	In 55003/03 Leave to appeal under s 38(4) refused due to Plaintiff's failure to satisfy requirement of s 38(5)(b)(i) of Commercial Arbitration Act 1984 (NSW); Summons dismissed; In 55004/03 Order Defendant's notice of motion of 29 August 2002 be dismissed; Order that Referee's Report be adopted
CATCHWORDS:	PRACTICE AND PROCEDURE - CONTRACT - COMMERCIAL ARBITRATION - Application for leave to appeal Arbitrator's Award - Whether manifest error on face of Award - Whether requirement of s 38(5)(b)(i) met - HELD - Leave refused - Order summons be dismissed - Whether Referee's report should be adopted by Court - HELD - Report adopted Pt 72, r 13(1)(a)
LEGISLATION CITED:	Commercial Arbitration Act 1984 (NSW) s 38(4)(b), (5)(b)(i)
CASES CITED:	Bellgrove v Eldridge (1954) 90 CLR 613 New South Wales v Coya (Constructions) Pty Ltd (NSWCA, 4 August 1995, Unreported) Promenade Investments Pty Ltd v State of New South Wales (1992) 26 NSWLR 203
PARTIES :	Casbee Properties Pty Ltd - Plaintiff/Defendant Patoka Pty Ltd - Defendant/Plaintiff
FILE NUMBER(S):	SC 55003/03; 55004/03
COUNSEL:	G McVay - Casbee Properties Pty Ltd J V Gooley - Patoka Pty Ltd
SOLICITORS:	Spencer Whitby & Co - Casbee Properties Pty Ltd Peter Evans & Associates - Patoka Pty Ltd

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

NICHOLAS J

11 April 2003

55003/03 Casbee Properties Pty Ltd v Patoka Pty Ltd
55004/03 Patoka Pty Ltd t/as Rumbel & Co v Casbee Properties Pty Ltd

JUDGMENT

1 HIS HONOUR: These proceedings concern disputes arising out of a contract between Casbee Properties Pty Ltd (the Principal) and Patoka Pty Ltd (the Contractor) dated 2 August 2000 whereby the Principal engaged the Contractor to carry out the construction of roads, drainage and kerbing in connection with the subdivision of the Principal’s land.

2 The disputes were the subject of arbitral proceedings as well as claims which the Court ordered be referred to a referee for enquiry and report pursuant to Supreme Court Rules Pt 72 r 2(1)(a). Mr A N M Grieve was appointed to be the Arbitrator and the Referee. The arbitration and the reference were heard at the same time on 8 and 9 October 2001 and 18 March and 25 June 2002. Mr Grieve published his report on 21 August 2002 and his award on 4 September 2002. He published a corrected award on 11 December 2002.

3 In his report Mr Grieve determined that the Principal should pay the Contractor the sum of $80,360.80. In the arbitration his corrected award is that the Principal pay the Contractor the sum of $93,837.39, and interest at the rate of 10% from the date of the award until payment.

4 By its notice of motion of 29 August 2002 the Principal seeks an order that the report be rejected in whole other than for items 4 and 5 therein. On the other hand, by its notice of motion filed 2 December 2002, the Contractor seeks orders that the report be adopted, that there be delivered to its solicitors a bank guarantee in the sum of $78,674.59, and ancillary orders.

5 By its summons filed 11 October 2002, the Principal applies for leave to appeal from the award pursuant to s 38(4)(b) of the Commercial Arbitration Act 1984 (NSW) (the Act).

6 In its application for leave to appeal, the Principal seeks to meet the requirements of s 38(5)(a) and s 38(5)(b)(i) of the Act. These provisions are as follows:

“38(5) The Supreme Court shall not grant leave under subsection (4) (b) unless it considers that:
(a) having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement; and
(b) there is:
(i) a manifest error of law on the face of the award; or“.

7 As to the application of this provision, the observations of Priestley, JA in New South Wales v Coya (Constructions) Pty Ltd, (NSWCA, 4 August 1995, Unreported), are of fundamental importance. His Honour said:

"... the New South Wales Parliament has taken note of the excesses that can grow out of commercial arbitration and passed laws intended to keep it within acceptable bounds. These laws have been directed in particular at narrowing very sharply the ways in which arbitrator's decisions can be challenged in the courts.

ARBITRATIONS AND APPEALS UNDER THE ACT. One object of the Act is to promote the private, prompt and speedy hearing of contractual disputes which the parties to the contract have agreed should be decided by arbitration.

To help achieve this object an appeal against an Arbitrator's award is allowed to the Supreme Court only in restricted circumstances. If all parties to the arbitration consent an appeal is permitted limited to questions of law arising out of the award, (s38(2) and s38(4)(a)). In the absence of such consent, if the Supreme Court grants leave to a party to appeal, then that party may appeal on any question of law arising out of the award, (s38(2) and s38(4)(b)). S38(5) says that the Supreme Court shall not grant leave unless the court considers that one of two sets of two conditions is fulfilled. The first condition is the same in each of the two sets of conditions: that the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement. The second condition of the first set of two conditions is that there is a manifest error of law on the face of the award. The second condition of the second set of two conditions is that there is strong evidence that the Arbitrator made an error of law and that the determination of the question may add or may be likely to add substantially to the certainty of commercial law.

S38(5) took its present form by an amendment to the Act made in 1990. Since then this court has indicated that the restrictions on appeals on questions of law arising out of awards of Arbitrators to the Supreme Court must be adhered to: Promenade Investments Pty Ltd v State of New South Wales (1991) 26 NSWLR 203; Natoli v Walker, 26 May 1994, unreported, Kirby P and Mahoney and Meagher JJA."

8 In particular, as to the meaning of “manifest error of law on the face of the award” in s 38(5)(b)(i) of the Act, in Promenade Investments Pty Ltd v State of New South Wales (1992) 26 NSWLR 203 at 225 Sheller JA said:

“The expression “error of law on the face of the award” is one of a type well-known to courts. The award having been examined the question is whether there is apparent (and such is the denotation of the word “manifest”) an error of law. “Manifest error” is .… used to indicate something evident or obvious rather than arguable: See generally per McHugh JA in Larkin v Parole Board (1987) 10 NSWLR 57 at 70-71”.

He went on, at page 226, to say:

“However as McHugh JA pointed out “manifest”, in the context of the subsection, which contemplates the grant of leave before an appeal can be pursued, connotes an error of law that is more than arguable. There should, in my opinion, before leave is granted be powerful reasons for considering on a preliminary basis, without any prolonged adversarial argument, that there is on the face of the award an error of law”.

Preliminary matters

9 On 2 August 2000 the parties entered into a lump sum contract to carry out construction work in accordance with drawings prepared by Marshall Scott Surveyors and the requirements and specifications of Cessnock City Council (the council). The Contractor’s quotation, reference No. 00-684 dated 1 August 2000, including a revised schedule of quantities, were included in the contract document. The total contract lump sum price was $339,465.30.

10 Relevant to these proceedings, the contract contained the following provisions:

“1 Interpretation and construction of Contract
In the Contract, except where the context otherwise requires:
…
Date of Practical Completion means:
(a) the date evidenced in a certificate of practical completion as the date upon which practical completion was reached; or
(b) where another date is determined in any arbitration or litigation as the date upon which practical completion was reached, that other date;
…
3 Provisional Sums
A provisional sum included in the Contract shall not itself be payable by the Principal but where pursuant to a direction the work or item to which the provisional sum relates is carried out or supplied by the Contractor, the work or item shall be priced by the Contract Superintendent, and the difference shall be added to or deducted from the contract sum.
…
4 Practical Completion
Ten (10) weeks from excercution (sic) of the comtract (sic). Inclusive of allowance for 10 days wet weather.
NB One week is seven days.
…
31.6 Practical completion
Practical completion is the day in which all WUC have been completed including works as excercuted (sic) drawings to the satisfaction of local council.
The Contractor shall give the Contract Superintendent at least 14 days written notice of the date upon which the Contractor anticipates that practical completion will be reached.
When the Contractor is of the opinion that practical completion has been reached, the Contractor shall in writing request the Contract Superintendent to issue a certificate of practical completion. Within 14 days after receiving the request, the Contract Superintendent shall give the Contractor and the Principal either a certificate of practical completion evidencing the date of practical completion or written reasons for not doing so.
31.7 Liquidated damages
If WUC does not reach practical completion by the date for practical completion, the Contract Superintendent shall certify, as due and payable to the Principal, Liquidated damages at rate of $150.00 per day, for every day after the date for practical completion to and including the earliest of the date of practical completion or termination of the Contract or the Principal taking WUC out of the hands of the Contractor.
…
31.8 Bonus for early practical completion
If the date of practical completion is earlier than the date for practical completion the Contract Superintendent shall certify as due and payable to the Contactor the bonus in the amount of $300.00 per day for every day after the date of practical completion to and including the date for practical completion”.

11 It was common ground that the date for practical completion under the contract was 11 October 2000.

12 On 22 September 2000 a memorandum (Ex 1, p 75) was sent from Mr Nandapalan on behalf of the Principal to Mr Rumbel on behalf of the Contractor which stated, inter alia:

“I wish to confirm our discussion at the site inspection, which was conducted on 21 September as follows,
1. I consider that the works are substantially complete.
…
10. As built drawings to be prepared and submitted to the Council for acceptance as per Clause 31.6 to achieve practical completion”.

13 By letter dated 11 October 2000 (Ex 1, p 79) from the council the Contractor was advised as follows:

“Subdivision Roadworks off Middle Road, Paxton
Further to our recent discussions we confirm that we accept the works as reaching practical completion on 25 September, 2000.
The job has come up well and has been left in a tidy state. I have taken members of Council’s planing staff to the site as an example of what a well finished subdivision should look like, they have all been pleased with the result”.

14 Subsequently a dispute arose as to the payment of a progress claim and the completion of the work. On 1 December 2000 the Contractor served the Principal with a statutory demand claiming $139,582.56 being the sum claimed in its invoice number 1671 (Ex 1, pp 87-88). On 24 January 2001 the Contractor initiated winding-up proceedings pursuant to s 459A of the Corporations Law (Ex 1, pp 89-90).

15 By its memorandum dated 15 February 2001 (Ex 1, p 96) the Principal advised the Contractor that in its view practical completion pursuant to cl 31.6 of the contract had not been reached. It advised as to works which it asserted were yet to be completed. It also advised that it would be seeking liquidated damages calculated from 11 October 2000 being the date for practical completion.

16 On 9 April 2001 the parties settled the winding-up proceedings in accordance with terms of settlement (Ex 1, pp 98-99). As a term of the settlement it was agreed that the Contractor would undertake the work set out in the quotation from Wallis Constructions dated 16 March 2001 (Ex 1, p 100) which work would be regarded as complete when performed within 4 weeks of 11 April 2001, and when the relevant local council certified in writing that the Contractor had completed the work to its satisfaction.

17 By letter dated 17 May 2001 (Ex 1, p 112) from the council, the Contractor and the Principal were advised as follows:

” Subdivision Roadworks off Middle Road, Paxton
Further to our previous correspondence recent site meetings we confirm that we accept the works being completed satisfactorily on 15 May, 2001.
We note that the batters in the vicinity of the various headwalls are slightly steeper than 4:1, however, this is acceptable to Council in this instance”.

18 By letter dated 30 May 2001 (Ex 1, p 126) the council advised the Principal in the following terms:

“Further to our recent discussions we confirm that the driveways within the access handles were to be constructed as set out in conditions of the consent. Council does not require internal access roads to be constructed to ARRB 41 standards. The conditions required these access roads to be:
(d) “… minimum 3 metres wide. Minimum pavement 200 millimetres compacted thickness and 2 coat hot bitumen seal.
(e) Construct bitumen sealed access crossings to all “battle axe” lots.
This was reflected on the approved drawings and Council is satisfied that these roads have been constructed to this requirement”.

The Award

19 During the course of the hearing the Principal abandoned a number of grounds propounded as errors of law on the face of the award. Those which remained in issue are dealt with seriatim.

Claim No. 2

20 By its invoice No. 1715 dated 16 November 2000 (Ex 1, p 86) the Contractor claimed from the Principal the sum of $4,500.00. The claim was for early completion pursuant to cl 31.8 of the contract calculated at the rate of $300.00 per day for 15 days from the day of practical completion said to be 25 September 2000.

21 The Arbitrator allowed the claim. His reasons are stated in the conclusion (Award p 6) as follows:

“Following Clause 31.6, the work was practically complete on 25 September 2000. The completion date of the Contract in accordance with the tender letter being 10 weeks after 1 August 2000, was 10 October 2000. Since practical completion was achieved on 25 September 2000, certified by the Council in accordance with clause 31.6, this is a difference of 15 days. In my opinion this is a correct claim. Applying Clause 31.8, the value is as follows:
15 days @ $300.00/day
amount allowed $4,500.00”.

22 The Arbitrator’s reasons disclose that he took into account 8 items listed in the Principal’s letter dated 31 October 2000 (Ex 1, pp 84, 85) said not to have been completed as at 25 September 2000. The issue before the Arbitrator was whether the day of practical completion could be determined before completion of these items. As is apparent from his reasons, the Arbitrator considered the question in respect of each item in turn. In respect of each of items 1, 2, 3, 4 and 5 he found that its status had no effect on practical completion. In respect of each of items 6, 7 and 8, although he found the work was incomplete as regards the contract, he found it did not affect practical completion. I took him to mean that it did not affect the day of practical completion determined in accordance with cl 31.6 of the contract.

23 It is plain from his reasons that the Arbitrator accepted that the day of practical completion was the day on which the council was satisfied that all works under the contract had been completed.

24 On behalf of the Principal it was propounded that the Arbitrator erred in law in that he failed to correctly interpret cl 31.6 and concluded that council had power to determine practical completion. It was submitted that on the correct interpretation of cl 31.6 the day of practical completion could not be determined until all the works had been completed and the council had expressed its satisfaction with them. Thus it was submitted that whilst items of work remained incomplete under the contract the question of the council’s satisfaction did not arise.

25 The relevant words of cl 31.6 are:

31.6 Practical Completion
Practical completion is the day in (sic) which all WUC have been completed including works as exercuted (sic) drawings to the satisfaction of local council”.

26 “Satisfaction” means, inter alia, ”the state of being satisfied”. The meanings of the verb “to satisfy” include “to fulfil expectations, needs, or demands” “to fulfil the requirements or conditions of” (Macquarie Dictionary, 3rd edition).

27 In my opinion the ordinary English words of this provision establish that the parties agreed that the extent to which the works have been completed to the stage when it may be said of them that they are practically complete has been left to the judgment of council. That is to say, the day on which council is satisfied that the works have reached the stage of practical completion is the day of practical completion for the purposes of the contract.

28 Having regard to the terms of the whole contract it is evident that by practical completion the parties envisaged that there would be work, including omissions and/or defects, yet to be done under the contract. It seems to me that if the interpretation relied upon by the Principal was correct there could no be practical completion whilst work remained to be done. In my view such an outcome would be inconsistent with the concept of practical completion as it is ordinarily understood, and in particular with cl 34.3 as to the final payment claim and certificate, particularly sub-paras (b) and (d) which contemplate defects, omissions and disputed issues. If the parties really intended that all work under the contract must be completed before the satisfaction of council is sought and obtained it may be expected they would have chosen clear words to give effect to such intention. The words of cl 31.6 do not do so.

29 The conclusion that this construction of the provision is correct and reflects the intention of the parties derives support from its compatibility with the contract considered as a whole. For example, it is plain from cl 2.1 that to the obligation to carry out the works in accordance with the drawings of the surveyors therein detailed there was the additional obligation to carry them out in accordance with the requirements and specifications of the council. It seems to me entirely consistent with such an obligation that the parties would agree to be bound by the judgment of the council as to the date on which, for practical purposes, the works had been completed to its satisfaction, and to accept that date as the date of practical completion under the contract.

30 In my opinion, therefore, the Arbitrator was correct in his interpretation of cl 36.1 upon which he found the date of practical completion was 25 September 2000. He was thus correct in upholding the Contractor’s claim. Accordingly, I hold that, in respect of claim No. 2 the Principal has not demonstrated an error of law, manifest or otherwise, on the face of the award and has not met the requirement of s 38(5)(b)(i) of the Act.

Cross-claim No. 1

Liquidated damages

31 The Arbitrator also determined the Principal’s cross-claim No. 1, being a claim for liquidated damages made under cl 31.7 of the contract. It was the Principal’s contention that the correct date of practical completion was 15 May 2001 (Ex 1, p 112). The amount claimed was the sum $32,400.00 calculated at the rate of $150.00 per day for the period 11 October 2000 to 9 May 2001. Consistent with his finding that the date of practical completion was 25 September 2000, he rejected this claim and allowed no amount for it.

32 Before this Court the Principal accepted that if it failed to show manifest error in respect of the date of practical completion, it would necessarily fail to establish relevant error on the face of the award in respect of cross-claim No. 1. My conclusion is that there was no such error.

Cross-claim No. 3

Rutting to roads

33 Cross-claim No. 3 was a claim for the cost of rectification of rutting in driveways for the sum of $5,400.00. The claim was rejected and no amount was allowed for it.

34 The Arbitrator’s reasons are as follows:

“It is clear that the driveway roads were a prescriptive design of the Principal’s designer. There was no breach of the council specifications since there was no requirement for an engineered design. The condition of the roads was not a matter under the control of the Contractor since the roads had been constructed in accordance with the designer’s drawings. There would have been no alteration to the condition of the roads by placing the drain at the lower side. I therefore consider that the condition of the roads is not a defect in the Contractor’s work.
I therefore find that the Contractor has constructed these driveways in accordance with the designer’s drawings and that the rutting which has occurred is a result of inadequate design”.

35 The Principal contends that the Arbitrator erred in law in that: (a) he found there was no requirement for an engineered design, and (b) he found that acceptance of the work was sufficient notwithstanding non-compliance of the contract.

36 On behalf of the Principal it was submitted that the Contractor was required to comply with the engineering design (Ex 1, p 52) which included as a requirement under the heading “GENERAL NOTES” the following:

“9 All pavement construction and testing shall be in accordance with ARRB special report No. 41”.

37 It was further submitted that the statement in the award “.… since there was no requirement for an engineered design” evidences in error in that the Arbitrator failed to take into account the requirement of the engineering design in terms of note 9 referred to above. It was said that the failure to refer to this requirement in his reasons indicates that it was overlooked. It was suggested that he should have made a specific finding that the Contractor had complied with ARRB 41.

38 In my opinion the Principal’s submissions are without substance. It is perfectly plain that the Arbitrator found that the roads had been constructed in accordance with the Principal’s designer’s drawings and that the rutting was the result of inadequate design. As I read the phrase “…. since there was no requirement for an engineered design” in its proper context it is tolerably clear that he is making the observation that the Contractor was not in breach of the council’s specifications as those included no such requirement, thus distinguishing between council’s requirements and those pursuant to what he described as the prescriptive design of the Principal’s designer.

So understood, and in light of his finding as to compliance with the requirements of the design, it simply cannot be said that he overlooked the Contractor’s obligations with regard to the drawing (Ex 1, p 52). To the contrary, his finding is that the Contractor did comply with the requirements of the contract.

39 In my opinion, his reasons do not disclose findings as alleged in para 35 above and relied upon for this challenge to the award. Accordingly the Principal has failed to demonstrate error, manifest or otherwise, on the face of the award in respect of this cross-claim and does not meet the requirement of s 38(5)(b)(i) of the Act.

Cross-claim No. 6

Hourly hire

40 Cross-claim No. 6 was for the cost of hire by the Contractor of heavy machinery for clearing up after a fire in the subdivision. The amount claimed was $3,830.00. The Arbitrator rejected the claim and allowed no amount for it.

41 The Principal asserted that he erred in law in that he failed to treat the item as a provisional item under cl 3 of the contract and as there was no direction for it to be done there was no entitlement to payment for it.

42 The reasons indicate that the Arbitrator found the work had been done and that the amount claimed for the hire was reasonable. He noted that Mr Nandapalan did not deny that the work was necessary. He also noted that the Contractor said that it was necessary. It appears clear that he dealt with the item on a quantum meruit basis.

43 In my opinion, the Principal’s challenge must fail. There is no basis for the contention that the item was a provisional item to which cl 3 applied. No error, manifest or otherwise, on the face of the award has been demonstrated in respect of this cross-claim.

Cross-claim No. 7

Provisional items

44 Cross-claim No. 7 was in respect of a number of items, said to have been provisional items, for which the sum of $32,839.83 was claimed.

45 The error of law propounded by the Principal is that the Arbitrator allowed payment for these items notwithstanding there was no direction from the Superintendent and no pricing as required by cl 3 of the contract.

46 At the outset a number of matters should be noted. Clause 3 does not require that the relevant direction be given only by the contract Superintendent, although he is required to price the work thereupon carried out. In cl 1 “Direction” is defined to include “authorisation, instruction, notice, request or requirement”.

47 Furthermore, it became common ground during these proceedings that the letter of 1 August 2000 with enclosures (Ex 1, pp 10-13) were part of the contract. Relevantly, the letter provides:

“After receiving stamped approved construction drawings for Stanford Estate Middle Rd Paxton Subdivision Lot 7, DP 714067, we are happy to supply you with the revised schedule of quantities due to the changes required by Cessnock Council.
The additional quantities have been listed in the provisional items section of the schedule of quantities attached. These will be checked by survey and charged if and when they are completed. Additional work has been asked for on driveway entrances and also extra trees which may have to be removed to accommodate the flatter batters requested. These items can be adjusted at unit rates on-site with your site superintendent.
We have included an additional bill of quantities supplied by Mark Scott, surveyor, which outlines his estimation of addition work required”.

48 The reasons disclose that the Arbitrator gave detailed consideration to each claim. In respect of item 12 he found that the work was subject to a direction. In respect of the other items he made findings that they were included in the additional bill of quantities which had been determined by the Principal’s designer. He found that the Principal had notice that each item needed to be performed. At the hearing before me it was not denied that the work had been performed. From the Arbitrator’s acceptance of the claim it may be inferred that he found that the work had, in fact, been performed.

49 The reasons make plain to me that the Arbitrator interpreted these documents as containing a contractual requirement for the carrying out of these items of work, the necessity for which had been recognised by the Principal. The passage in the letter of 1 August 2000 cited by the Arbitrator evidenced agreement that the items would be charged for if and when they were completed. His reasons and findings support the inference that, having regard to the particular contractual arrangement in respect of these items, he took the view that the scheme provided for under cl 3 was inapplicable.

50 In my opinion the Arbitrator correctly gave effect to the contractual intention of the parties that this work be done. There was evidence upon which he properly assessed quantum. As the Arbitrator correctly proceeded on the basis that these items did not attract the application of cl 3, the Principal’s submissions, in my opinion, were misconceived and must fail. No error, manifest or otherwise, on the face of the award in respect of this cross-claim was demonstrated.

Conclusion as to the summons

51 For the reasons given the Principal has failed to satisfy the requirements of s 38(5)(b)(i) of the Act. In the circumstances it is unnecessary to decide the question raised under s 38(5)(a) of the Act.

The Report

Cross-claim No. 1

Table drains on high side

52 Cross-claim No. 1 was the Principal’s claim for $10,280.00 being the cost of construction of drains for the driveways in accordance with the contract drawings. The Referee rejected the claim and allowed no amount for it.

53 The Principal’s case was that the drawing (Ex 1, p 53) specified the construction of table drains on the low side of the driveway. In building the drains on the high side the Contractor departed from this requirement. The claim was for the cost said to be necessary to remedy this departure so as to have drains built according to contract.

54 It was contended that in rejecting the cross-claim the Referee erred in failing to hold that the Principal was entitled to insist upon construction in accordance with the drawing and that it should recover from the Contractor the cost of building drains as specified. Bellgrove v Eldridge (1954) 90 CLR 613 was cited as authority for the proposition that an owner is entitled to have construction in accordance with contract specifications subject only to the question of reasonableness and/or necessity.

55 On behalf of the Principal it was put that the question the Referee wrongly failed to address was whether it was unreasonable for the Principal to insist upon compliance in the circumstances. It was put that he should have found that the Principal was not acting unreasonably in insisting upon compliance and was therefore entitled to succeed on its cross-claim.

56 It is apparent from the report that the Referee gave careful consideration to all the evidence on this issue which included the report dated 7 December 2001 of the expert, Ms Vella. He stated the reasons for rejecting the claim in these terms:

“I accept the evidence of Ms Vella and Mr Rumbel that it was good engineering practice to place the drain on the high side. I can understand Mr Rumbel’s concern on returning to the project and noting that, although he had constructed the driveways to the detail, that is with no drain on the high side, they were actually saturated. Furthermore, the drains being put on the high side has eased this problem according to my observations made during the view held on 8 October 2001. Mr Nandapalan accepted that the drain was to be put on the high side of driveway 3 in his negotiations with Mr Wallis. I therefore conclude that the drains should have been designed and constructed on the high side and that the Contractor’s action, in placing the drains on the high side, was not defective”.

57 Clearly, it was the Referee’s finding that it was good engineering practice to place the drain on the high side and that, in the circumstances of the case, there was good cause to do so. He observed that the saturation problem which the Contractor sought to overcome had been eased as a result. His opinion, based on the evidence, was that the design should have specified construction on the high side.

58 The Referee came to the conclusion that, in the circumstances, it was not reasonable for the Principal to insist upon compliance, and the facts found by him provide ample support for it. His conclusion establishes the qualification to the Principal’s prima facie entitlement to the cost of rectifying a departure from a contract as discussed in Bellgrove v Eldridge at 618.

59 In my opinion the Principal has failed to demonstrate any basis for disturbing the factual findings of the Referee or that his conclusion, either as a matter of fact and/or of law, was wrong. The report on this cross-claim should be adopted by the Court.

Cross-claim No. 2

Sealing of drains

60 Cross-claim No. 2 was the Principal’s claim for the sum of $29,930.00 for the cost of sealing the drains to achieve compliance with the requirement of the contract drawing at Ex 1, p 53. The Referee rejected the claim and allowed no amount for it.

61 The Contractor had not sealed the drains and contended that the drawing did not require it to do so.

62 The Referee’s report discloses that he considered the details of the relevant contract drawings together with the evidence of Mr Rumbel, Mr Nandapalan and Ms Vella. The following passages from the report are relevant:

“The typical cross-section on sheet 4 much argued about in the hearing showed a 3 m pavement and a 1 m table drain. The table drain contained lateral falls of 1:4 on each side. The black line carried on from the bitumen through the area of the table drain. However, in my opinion the thickness of the line cannot be taken as evidence that the bitumen seal was to continue on to the table drain”.

(Report p 7)

“Taking into account this evidence, in my opinion the typical cross-section on sheet 4 does not specify a bitumen seal for the lining of the drain. Certainly the sealing of the road pavement is specified but in a number of locations a width of 3 m only is referred to and there is no reference to bitumen sealing of the drains. Furthermore, there is no reference to any treatment of the table drains in the drawings. There is certainly no reference to concrete lining on the drawings. This is an omission from the design. The design has been carried out by Marshall Scott under the direction of the Principal. Item 29(a) of the Bill of Quantities only says to shape the table drain. I therefore conclude that, since there is no reference on the drawing to the treatment for the table drains, there is no allowance to be made for the cross-claim”.

63 The Principal submitted that the Referee erred in that he failed to hold that the design specified a bitumen seal for the lining of the drain and was wrong in his interpretation of the drawing. It was put that to any reasonable person the plan would convey the requirement that the drain was to be sealed in the same way as the road.

64 The Referee had the task of resolving the dispute as to whether the drawing conveyed the requirement for which the Principal contends. The conduct of the reference was pursuant to SCR Pt 72, r 8 so that, pursuant to sub r (2)(b), the Referee was not bound by the rules of evidence and might inform himself in relation to any matter in such manner as he thought fit. There can be no complaint that he took into account the evidence of Ms Vella in reaching the opinion that the typical cross-section on the drawing does not specify a bitumen seal for the lining of the drain and that the design omitted any treatment of them.

65 I am not satisfied that the Principal has demonstrated any ground for rejecting the Referee’s findings or conclusion in respect of this issue. The report on this cross-claim should be adopted by the Court.

Cross-claim No. 7

Liquidated damages

66 The referee considered the Principal’s cross-claim No. 7 for liquidated damages made under cl 31.7 of the contract. The amount claimed was the sum of $18,900.00.

67 Before the Court it was accepted by the Principal that the outcome of this claim would be similar to the outcome of the claim for liquidated damages in the arbitration proceedings, both claims turning on the decision as to the date of practical completion. The claim under the reference was a substantial duplication of that in the arbitration proceedings. Consistent with the finding that the challenge to the award in respect of the claim for liquidated damages was unsuccessful I find that there is no basis for rejection of the report in respect of cross-claim No. 7.

Conclusion

The summons

68 The Principal (the Plaintiff in the summons) has failed to satisfy the requirement of s 38(5)(b)(i) of the Act and, accordingly, leave to appeal under s 38(4)(b) is refused. I would order that the summons be dismissed.

The motions

69 For the reasons given the Principal (the Defendant in the motions) has failed to establish any ground upon which the report should be rejected. I would order that the Principal’s notice of motion of 29 August 2002 be dismissed.

70 I would also order that, in accordance with the Contractor’s notice of motion filed 2 December 2002, the report be adopted.

71 In the circumstances it is appropriate that I direct the Contractor to bring in short minutes of orders which give effect to the reasons for decision. The parties may also address me in relation to costs.

72 Arrangements should be made with my Associate by 17 April 2003 for the relisting of this matter.

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Last Modified: 04/15/2003