Community Corporation 21561 v Pier Apartment Hotel Pty Ltd (No 3) - [2014] SADC 137

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
COMMUNITY CORPORATION 21561 & ANOR v PIER APARTMENT HOTEL PTY LTD & ORS (No 3)
[2014] SADC 137
Judgment of His Honour Judge Slattery
8 August 2014
PROCEDURE - COURTS AND JUDGES GENERALLY - COURTS - OTHER MATTERS
ARBITRATION - THE ARBITRATORS AND UMPIRE - APPOINTMENT
Application by the first and second defendants for the Court to appoint a referee to hear and determine technical building and construction issues involved in the proceedings. The plaintiffs and the third party in the secondary action oppose the application.
Held:-
Application dismissed.
Because of the nature of the proceedings which involve complex legal issues, then any procedure under which a referee may be appointed would become cumbersome, would be difficult to manage, would not add to the efficiency of the court process and would not achieve any cost savings for the parties. The costs to be incurred by the parties in the event that the referee was appointed were substantial and were out of proportion to any benefit that may have been obtained by that appointment.
Observations about the considerations that a court may take into account in reaching a decision about the appointment of a referee under s 33 District Court Act 1991 (SA).
District Court Act 1991 (SA) s 33; Development Act 1993 (SA) s 72; Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA); Supreme Court Rules 1987 (SA); Supreme Court Act 1935 (SA); Commercial Arbitration Act 2011 (SA), referred to.
Owners-Strata Plan 61288 v Brookfield Australia Investments Ltd [2013] NSWCA 317; Leighton Contractors (SA) Pty Ltd v Hazama Corporation (Aust) Pty Ltd (1991) 56 SASR 47; Parletta Constructions Pty Ltd v Prince [2000] SADC 20; Chloride Batteries Australia Ltd v Glendale Chemical Products Pty Ltd (1988) 17 NSWLR 60; Hansen Yuncken (SA) Pty Ltd v Russell (1992) 168 LSJS 101; Buckley v Bennell Design & Constructions Pty Ltd (1978) 140 CLR 1; Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549; Built Environs Pty Ltd v Saunders International Limited (2012) 281 LSJS 183; Kyren Pty Ltd v Wunda Projects Australia Pty Ltd [2008] SADC 161; O'Brien Lovrinov Crafter Pty Ltd v Corradini [1999] SASC 159; Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515, considered.

COMMUNITY CORPORATION 21561 & ANOR v PIER APARTMENT HOTEL PTY LTD & ORS (No 3)
[2014] SADC 137

Following an order made by the Chief Judge on 25 February 2014, this action has been judge managed by me preparatory to a trial which is now to commence on Monday, 13 October 2014. A nine week hearing time has been set aside for this matter.
The first and second defendants apply for orders pursuant to s 33 of the District Court Act 1991 (SA) (‘District Court Act’) for Mr Toby Shnookal QC to be appointed as a referee and for ancillary orders related to such appointment. I have set out in full in paragraph [9] of this decision the orders that are sought in the application. In order to properly understand the reasoning within my decision, it is necessary to also understand some of the background facts and circumstances of this action.
In a previous judgment, I have dealt with the status of a document entitled ‘Fourth Statement of Claim’ delivered by the plaintiffs to the other parties to the proceedings on 16 December 2013 and filed with the Court on 19 December 2013. In my ruling of 23 June 2014[1] I ordered that the document entitled ‘Fourth Statement of Claim’ be removed from the file, I made observations about the content of the document entitled ‘Fourth Statement of Claim’ and I made other ancillary orders.
[1] Community Corporation 21561 v Pier Apartment Hotel Pty Ltd [2014] SADC 111.
It thus became necessary for the plaintiffs to revisit their pleadings. Following further discussions between the parties and hearings before the Court, I delivered a second judgment on 25 July 2014.[2] In that judgment, I gave leave to the second defendant to join Aurecon Australia Pty Ltd (‘Aurecon’) as a third party to the proceedings and I gave leave, by consent, to the plaintiffs to file and deliver a fifth statement of claim. That document is significant because it contains allegations for the first time that the second defendant as a building contractor under a design and construct building contract was vicariously liable for the wrongs committed by subcontractors including the third party, Aurecon. A matter for my consideration in that decision was the application of s 72 of the Development Act 1993 (SA) and the content of the Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) as that Act operated both before and after 1 October 2005. The terms of the leave that I granted to the second defendant to join Aurecon to the proceedings (it having been a party to the proceedings between 2007 and 21 March 2014) included a term that any action to be heard between the second defendant and Aurecon would be heard and determined following the close of the evidence of the action between the plaintiffs and the defendants. I made consequential orders and other ancillary orders in relation to the management and hearing of the secondary action.
[2] Community Corporation 21561 v Pier Apartment Hotel Pty Ltd (No 2) [2014] SADC 130.
From the outset of my involvement in this matter, I have had a number of discussions with counsel concerning the management of the technical aspects of the proceedings. The plaintiffs’ claim is that there are not less than 19 defects identifiable in a building which has, for convenience, been called the Pier Apartments at Glenelg. The detail of those alleged defects are set out in what is now described as the third Scott Schedule. The first and second defendants deny both the existence of the defects, any responsibility in respect of the alleged defects and in turn they allege that if there are any alleged defects, the responsibility for them falls upon other parties, namely Aurecon and/or Woodhead Pty Ltd (‘Woodhead’). I have already identified in an earlier judgment that a complicating feature in this matter is that Woodhead was placed into administration by resolution of its directors, a deed of company arrangement was accepted and the company operates under the terms of the deed of company arrangement. Clause 13 of the deed of company arrangement purports to ‘carve out’ claims against Woodhead that are indemnified under insurance policies. The question of the efficacy of that clause within the deed of company arrangement, the conduct of the directors in proposing that clause to the creditors and whether, and if so to what extent, any existing insurance policy of Woodhead responds to the plaintiffs’ claim are still matters under consideration. I have previously expressed opinions that these matters should have been resolved a long time ago and I maintain that view.
One of the matters to which consideration has been given is the separation out of matters that may be heard and determined by a referee with specialist knowledge in the construction area. Those discussions between bench and bar commenced prior to the time that the plaintiffs filed the fifth statement of claim, after Aurecon had ceased to be a defendant in the proceedings and during the time that the second defendant applied to rejoin Aurecon to the proceedings as a third party. Since my involvement in this matter commenced, a consistent feature has been that the approach of the parties about the claims that they make both in their statements of claim and their defences has changed, and so also now, in the second defendant’s third party statement of claim. The decision that I am called to make in this matter must therefore be seen in the background of the ‘evolution’ of the claim, defences and cross-claims of the parties in this matter. In my opinion that is an important feature to be taken into account by me in the decision that I am required to make in this matter.
The plaintiffs initially made an application for the appointment of an arbitrator to deal with technical issues concerning construction matters. The plaintiffs have now taken the obverse attitude to the matter and contend that because of the changed nature of the cases of the parties, it will be impracticable to now make such orders. None of the parties have sought the referral of the whole action out to a specialist arbitrator. In light of the complex issues involved in the matter I think that is a correct attitude.
There is another layer of complexity involved in the action because of the appeal which has now been heard in the High Court from a decision of the Court of Appeal of New South Wales in Owners-Strata Plan 61288 v Brookfield Australia Investments Ltd (‘Brookfield’).[3] In my judgment of 23 June 2014,[4] I discussed the decision of the Court of Appeal of New South Wales at length at paragraphs [64] et seq. As the name suggests, this was a claim by a strata corporation company under the equivalent legislation in New South Wales against a builder concerning defects in the common property of a building. A question before the Court of Appeal was whether the builder owed a duty of care to the strata corporation company as alleged in the proceedings. That claim was dismissed at first instance by McDougall J but the Court of Appeal reversed the decision of McDougall J. The Court of Appeal found that despite there being no contractual relationship between the strata company and the builder (because the strata company did not come into existence until after the registration of a relevant strata plan – and this was largely at the end of the building contract) there was no basis within the contract between the developer and the builder to exclude a general duty of care in tort (towards the plaintiffs). I am informed by counsel that the appeal from this decision was heard before the High Court on 18 June 2014. As yet, there has been no decision handed down by that Court. As I said in my judgment of 23 June 2014, I will proceed on the basis that the decision of the Court of Appeal of New South Wales relevantly states the law on this topic. That may change after the decision of the High Court but it is necessary that I proceed in the manner in which I have described.
[3] [2013] NSWCA 317.
[4] Community Corporation 21561 v Pier Apartment Hotel Pty Ltd [2014] SADC 111.
By interlocutory application dated 17 July 2014,[5] the first and second defendants sought an order pursuant to s 33 of the District Court Act in the following terms:-
1. That issues relating to alleged defects referred to in the attached Schedule be referred for trial by an arbitrator pursuant to s 33 of the District Court Act 1991.
2.   The scope of the reference to the arbitrator is to be determined by the Court having heard submissions from each of the parties, including any third party served with a third party notice.
3.   That the arbitrator be such person as the parties shall agree, and notify to the Court within seven (7) days, alternatively, in the absence of such agreement, such person as the Court may direct.
4.   That, subject to any modifications as may be made by the Court, the arbitrator has, for the purposes of the reference, the sale powers in the conduct of the arbitration as an arbitrator under the Commercial Arbitration Act 2011.
5.   That the arbitrator deliver his or her award to the Court and the parties by 24 November 2014 or such later date as the Court may order.
6.   Liberty to the arbitrator and the parties to apply for directions.
7.   ...[6]
[5]    FDN 127.
[6]    Exhibit “JPM10” to the fourth affidavit of Jonathon Peter McRostie sworn 17 July 2014 (FDN 128).
Attached to the draft order was a schedule in the following terms:-
Schedule
The alleged defects to be determined by the arbitrator are the 6^th, 7^th, 8^th, 11^th, 16^th, 20^th, 21^st, 22^nd, 23^rd, 24^th, 25^th, 26^th, 27^th, 28^th, 29^th, 30^th, 31^st, 32^nd and 33^rd alleged defects appearing in the Fifth Statement of Claim filed on 1 July 2014.[7]
[7] Ibid.
Section 33 of the District Court Act reads as follows:-
33—Trial of issues by arbitrator
(1)The Court may refer an action or any issues arising in an action for trial by an arbitrator.
(2)The arbitrator may be appointed either by the parties to the action or by the Court.
(3)The arbitrator becomes for the purposes of the reference an officer of the Court and may exercise such of the powers of the Court as the Court delegates to the arbitrator.
(4)The Court will, unless good reason is shown to the contrary, adopt the award of the arbitrator as its judgment on the action or issues referred.
(5)The costs of the arbitrator will be borne, in the first instance, equally by the parties or in such other proportions as the Court may direct, but the Court may subsequently order that a party be reimbursed wholly or in part by another party for costs incurred under this subsection.
In this application, the first and second defendants read the fourth affidavit of Jonathon Peter McRostie sworn 17 July 2014[8] and the fifth affidavit of Jonathon Charles Clarke sworn 1 August 2014.[9] In his affidavit, Mr Clarke refers to the fifth statement of claim of 1 July 2014 and the 19 alleged defects which are the subject of the claim and which, in turn, were referred to in the schedule above described. Mr Clarke avers in his affidavit[10] that the plaintiff’s statement of claim does not specify with any particularity the nature and extent of these defects but only some further particularity is provided in the third Scott Schedule. Mr Clarke also avers, in turn, that the third Scott Schedule does not give (sufficient) particularity about the location, nature and extent of the alleged defects. This is not an application concerning the content of pleadings. The significance of the matters indentified by Mr Clarke is that from the outset, it will be necessary to identify with greater clarity the issues arising from a consideration of the alleged defects and that task will be facilitated if it is undertaken by a person with technical expertise such as Mr Shnookal QC.
[8] FDN 128.
[9] FDN 135.
[10] There was no cross examination on this affidavit.
There have been two inspections of the site by counsel, solicitors and some expert witnesses and both of those inspections have lasted for in excess of two hours. After Mr Clarke considered the content of the alleged defects,[11] he sent a letter of 20 June 2014[12] to the solicitors for the plaintiffs, FBR Law Pty Ltd (‘FBR Law’), which relevantly reads as follows:-
[11] A summary of which is exhibit “JCC11” to the affidavit.
[12] Exhibit “JCC12” to the fifth affidavit of Jonathon Charles Clarke sworn 1 August 2014 (FDN 135).
1.   An arbitrator, we suggest a suitably qualified engineer, by reference to each of the alleged numbered defects would determine whether each alleged defect is:
(a)a defect, and if so;
(b)something which maintenance would have prevented; or
(c)a construction defect; or
(d)a design defect; or
(e)a mixed design and construct defect[;] or
(f)a latent defect at all in the sense that it would have occurred irrespective of maintenance carried out.
In our view this process could probably occur with an allowance of say 3 weeks from the commencement of the trial process and the arbitrator could be requested to make a ruling in the 4 weeks after that.
2.   Once the Court has received the arbitrator’s award it would adopt it, and then receive evidence and hear submissions as to factual matters outside of the questions as to each alleged defect (such as to the legal relationship between the various parties) and would hear final addresses as to the applicable law in light of the arbitrator’s award and the issue of liability. The time would also be taken up hearing some brief evidence. It seems that there could be an allowance of a week’s break and then 1-2 weeks spent on hearing process before the Judge.
3.   The Judge could then deliver reasons as to the question whether there are any applicable duties, and if so, whether they are delegable and if so as to who is responsible in whole or in part for the various defects (to the extent there are any defects found to exist) as a matter of law.
4.   Once the Judge has handed down his decision on these points, then the arbitrator could be given a second appointment to determine, in light of the findings, the monetary responsibility of the various defendants (if any) for the repair costs. It is at this time that the quantity surveyor experts would give their evidence.
5.   This would lead to a final award or quantum being adopted and taking effect as a judgment of the Court.[13]
[13] Ibid [1] – [5].
The exhibit “JCC13” to the same affidavit of Mr Clarke is a letter from FBR Law to Cowell Clarke Commercial Lawyers (‘Cowell Clarke’) dated 21 July 2014, the relevant portions of which read as follows:-
As the matter has now been listed for argument, could you please provide as a matter of urgency the following further information:
1.   As to [1] can you identify what “issues” relating to the alleged defects your clients propose should be part of the reference. In this regard so that there is a clear demarcation of the issues can you refer to the allegations by paragraph number in the Fifth Claim and the Second Defence that you contend should be referred? Do you contend[...] that the reference should include consideration of the quantum of our clients’ claim?
2.   As to [2] can you identify in detail the proposed scope of the reference?
3.   As to [3] can you identify the arbitrator you propose with his or her curriculum vitae?
Could you please provide these details at your earliest convenience so that we may consider them as part of the preparation of submissions for the hearing on 4 August 2014.
Can you please advise if either Woodhead or Aurecon have indicated a view to you in respect of the application?
Mr Clarke avers in his affidavit that there has been no further correspondence between the parties concerning the subject raised in the letter of Cowell Clarke to FBR Law of 20 June 2014.
Mr Clarke also informs the Court that his firm has identified Mr Toby Shnookal QC, a barrister of the Victorian Bar who is an experienced counsel with qualifications in engineering. A copy of the personal details relating to Mr Shnookal QC are annexed and exhibited as “JCC14” to the affidavit of Mr Clarke[14] and this discloses that Mr Shnookal QC first qualified and gained experience as an engineer in both the oil industry and then in civil construction. He then undertook a law degree and his practice is predominantly in arbitrations and dispute resolution that involve complex engineering failures or designs. The rates charged by Mr Shnookal QC are $550 per hour inclusive of GST with a daily rate of $5,500 inclusive of GST.
[14] FDN 135.
Mr O’Sullivan QC made submissions in support of the application under s 33 of the District Court Act for the appointment of Mr Shnookal QC as a referee in this matter. After identifying the relevant defects involved in the claims against the first and second defendants, Mr O’Sullivan QC emphasised the technical nature of the breaches alleged. It is not necessary or helpful here to describe in any detail the types of defects that are alleged as they are specifically set out in the fifth statement of claim and the third Scott Schedule. However, Mr O’Sullivan QC emphasised that the question for consideration is more than merely to identify whether a particular complaint relates to a defect. It is necessary to identify whether (for example) the issue which is the subject of the complaint arises out of a lack of maintenance and if so to what extent the lack of maintenance has impacted upon the identified problem. If it is the case that despite any lack of maintenance a defect exists, it is then necessary to identify whether it is a construction issue or an engineering or an architectural issue or any combination of all or any of those matters. In deciding those questions it would be of benefit to have the technical expertise of a person such as Mr Shnookal QC who has both an engineering and legal background to conduct an arbitration in the matter. Mr O’Sullivan QC conceded the greater cost by the use of Mr Shnookal QC but submitted that notwithstanding that matter, there would ultimately be a time and cost saving because of the ability of Mr Shnookal QC to deal with the issues in a more streamlined way.

Mr O’Sullivan QC also addressed procedural matters including how the action would proceed with the involvement of Mr Shnookal QC. He proposed that once Mr Shnookal QC had made his findings, the matter could be referred back to me as the trial judge on questions of liability to determine who has responsibility for the defects. Once that determination had been made, the matter would then be referred back to Mr Shnookal QC to determine the question of quantum. That could be done on two bases. Either Mr Shnookal QC could assess the matter on a global basis and the matter would be referred back to me for an apportionment depending upon my findings or alternatively Mr Shnookal QC may make an assessment of quantum upon which I may express my own opinion. Mr O’Sullivan QC expressed this process as coming into ‘... some sort of uneasy alliance...’.[15] Mr O’Sullivan QC contended that it was appropriate for Mr Shnookal QC to make a finding that particular parties contributed to the defect and then to be in a position to apportion the percentage of the contribution of those parties so that any reference to Mr Shnookal QC may also need to consider those separate but ultimately interrelated questions.
[15] Transcript of Proceedings, Community Corporation No 21561 Inc & Anor v Pier Apartment Hotel Pty Ltd & Ors (District Court of South Australia, DCCIV No. 2075 of 2007, Judge Slattery, 4 August 2014) T13.2 (‘Transcript of Proceedings’).
Mr O’Sullivan QC relied upon the decision of Debelle J in Leighton Contractors (SA) Pty Ltd v Hazama Corporation (Aust) Pty Ltd (‘Leighton Contractors’)[16] as well as the decision of Judge Sulan as his Honour then was in Parletta Constructions Pty Ltd v Prince (‘Parletta’)[17] in which Judge Sulan, in the absence of any particular rule in the state of South Australia, adopted the approach used in New South Wales.
[16] (1991) 56 SASR 47, 53, 55-56.
[17] [2000] SADC 20.
In summary, the position of the first and second defendants was that the action involves a series of technical disputes and the arbitrator would not be asked to determine questions of legal responsibility but only to determine whether a particular complaint made constitutes a defect. In that determination, the arbitrator would be asked to look at the question of maintenance and whether any absence of maintenance or lack of maintenance contributed to the defect and if a defect is established, why the particular defect exists. After those findings have been made, the matter could be returned to the Court for determinations in relation to legal responsibilities. Thus there would be a saving of cost and time. Although the reference to the arbitrator could be made under the Commercial Arbitration Act 2011 (SA), there can be a modification of the nature of the powers given to the arbitrator under that Act because it is implicit that some of the powers mentioned there are unnecessary for referral to the arbitration.
At this juncture, it is appropriate to refer to the authorities that have been identified by Mr O’Sullivan QC. In Leighton Contractors Debelle J was dealing with a building dispute concerning a multilevel building in Adelaide. There were a number of issues before the Court but pertinent to this action, was the question of the referral of technical issues involved in the construction to a referee the identity of whom had been agreed between the parties. That referee, Mr Sarah, was a qualified arbitrator but he was not a qualified legal practitioner. An issue before the Court was whether the Supreme Court Rules 1987 (SA) (‘Supreme Court Rules’) and the Supreme Court Act 1935 (SA) (‘Supreme Court Act’) provided the same flexibility that the parties desired to achieve and which was available under Pt 72 of the Supreme Court Rules (NSW) where the action had been first commenced. The action was transferred to South Australia by an order of Cole J in the Construction List Common Law Division of the Supreme Court of New South Wales.
One of the concerns of the parties was their ability to be able to apply to the Court to vary the report of any arbitrator or referee or to remit that reference or any part of it for further consideration by the arbitrator or referee. After considering the contents of the Supreme Court Act and the Supreme Court Rules, Debelle J formed the view that rules 76.05 and 76.07 within the then applicable Supreme Court Rules provided the flexible procedure that the parties sought.[18] His Honour was also of the view that under the same rules, and under the Supreme Court Act, the Court was in a position where it could exercise the control that the parties sought including the ability to set aside the report or award and to remit the matter to the arbitrator on particular questions. His Honour emphasised that only some of the issues of fact were to be referred to Mr Sarah for his determination and then, once having received the report, the Court would then have to determine the effect of the findings made by the referee upon the respective rights and obligations of the parties. It would not be until the Court had pronounced upon those issues that there could be a judgment or order of the Court.[19]
[18] Ibid 52.
[19] Ibid 53.
His Honour then summarised the historical developments in relation to such references and concluded his opinion by saying that the process under consideration meant that Mr Sarah would be able to make decisions upon issues of fact concerning the construction of the building, variations authorised by an architect, other claims for variations and issues arising out of extensions of time.[20] These would be resolved by Mr Sarah by him bringing his ‘special expertise’ to bear upon an expeditious determination of those issues in a way which was more expeditious than the Court might be able to achieve.[21]
[20] Ibid 55.
[21] Ibid.
Further, his Honour held[22] that if there was any particular application to vary the report or to remit any part of it for further hearing then the approach adopted in New South Wales[23] and like decisions would be applied. His Honour summarised the position that:-
A court will not lightly reject a report made by a referee. If it were contended that the referee had missed the point, failed to answer questions asked, failed to give adequate reasons, or provided inconsistent reasons, the court might refuse to act on the report...Should any question of law arise in the course of the reference or in the course of any remittal of the reference or any part thereof for a hearing of further consideration, Mr Sarah can state a special case pursuant to s 69 of the Act. [24]
[22] Ibid.
[23] Chloride Batteries Australia Ltd v Glendale Chemical Products Pty Ltd (1988) 17 NSWLR 60.
[24] Leighton Contractors (1991) 56 SASR 47, 56.
In Parletta, Judge Sulan, as his Honour then was, dealt with an arbitration award made by an arbitrator who had received a reference from the Court under s 33 of the District Court Act. The arbitrator had delivered an interim award and made a decision that an architect was liable for the identified and claimed defects in a domestic home. That interim award was challenged by the architect under rule 76.05 of the District Court Rules (SA) and s 33(4) of the District Court Act. His Honour decided that the District Court had jurisdiction to determine the questions raised by the arbitrator and also decided that in making that decision, the Court would not consider and determine matters afresh.
In the course of making his decision, his Honour considered the decision of Debelle J in Leighton Contractors and a series of other decisions concerning the power of the Court to review the report of a referee where it is alleged to be erroneous as being against the evidence or the weight of the evidence or disclosed errors of law.[25] His Honour concluded at paragraph [39] of his Honour’s judgment as follows:-
[39]I conclude that the position in New South Wales is applicable to the position in South Australia and that the statements of principle made in the cases referred to are applicable to the South Australian legislation. In my view, in the case of a challenge to an award of an arbitrator made pursuant to an appointment by the court, the court is not required to reconsider and determine afresh all issues. Decisions are reviewable if there is an error of law or the decision is perverse or manifestly unreasonable. Even if error has been identified, the Court has an overriding discretion to refuse the application if no injustice will result.
[25] Hansen Yuncken (SA) Pty Ltd v Russell (1992) 168 LSJS 101; Buckley v Bennell Design & Constructions Pty Ltd (1978) 140 CLR 1; Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 (particularly at 563E); Chloride Batteries v Glendale Chemicals (1988) 17 NSWLR 60, 67.
For the sake of completeness it is necessary to refer to the decision of White J in Built Environs Pty Ltd v Saunders International Limited (‘Built Environs’).[26] The decision of White J is relevant at a number of levels but in summary, his Honour points to the difficulties that may be encountered in the application of the principles summarised by Judge Sulan as his Honour then was in Parletta which I have referred to above. The significance of White J’s decision in Built Environs is that where the dispute was referred to an arbitrator who made two interim awards, the question of the adoption or not (because of the challenges to it) of those awards under s 66(4) of the Supreme Court Act 1935 (SA) may depend upon the combination of a number of deficiencies in the arbitrator’s reasons. His Honour held that the plaintiff had established two major deficiencies in the approach of the arbitrator. First the plaintiff had established flaws in the conclusions by the arbitrator about the scope of the defendant’s work. Second, his Honour formed the view that there were so many deficiencies in the arbitrator’s published reasons that, viewed as a whole, there was good reason shown why the award of the arbitrator should not be adopted as the judgment of the Court. In summary it may be said that because of the combination of the whole of those factual circumstances the position reached in the Built Environs case after the arbitration was quite unsatisfactory. This includes the nature of the wholesale review that had to be undertaken by the Court of the evidence before the referee in order to determine whether there was an error of law or whether the decision was perverse or manifestly unreasonable. In that case, it was necessary to review the deficiencies in the reasoning as well as the conclusion about the scope of work. In effect, there was a repetition before White J of the issues canvassed before the referee with all of the associated difficulties of that process and the further costs that were incurred. In further summary, it may be said that no advantage was obtained by the process.
[26] (2012) 281 LSJS 183.
The plaintiffs read the affidavit of Mr Sean Ryan sworn 18 July 2014 and made particular reference to exhibit “SAR4”. The plaintiffs also read the thirteenth affidavit of Sarah Jane Southern sworn 1 August 2014[27] and the twelfth affidavit of Sarah Jane Southern sworn 20 July 2014.[28] Mr Jenner confirmed that the original approach of the plaintiffs concerning the appointment of an arbitrator was for the Court to determine the nature and scope of the duties of care and other duties that may be owed by the parties and to then make a determination based upon those findings.
[27] FDN 137.
[28] FDN 123.
It was then that the arbitrator could deal with specific issues based upon the findings about duties that the Court had made and the arbitrator could also deal with questions of quantum. Mr Jenner explained that the plaintiffs now see great difficulties in carving out any issues in any form; that rather than make the process more efficient, the process suggested by the first and second defendants would be more inefficient. This is because of the complex legal issues that ‘invade’[29] questions of duty and questions of contribution. Those matters are bound within the issues that are to be referred to the arbitrator and, as the argument went, the arbitrator would not be in a position to determine issues about contribution (for example) without there being a duplication of hearings by the Court in relation to the same expert evidence about apportionment. Thus, if an arbitrator made findings about the parties’ responsibility, the Court would still need to deal with the question of apportionment. Thus, the Court would be hearing the same evidence that had already been put before the arbitrator/referee.
[29] Transcript of Proceedings, T22.30.
Mr Jenner referred to and relied upon the decision in this Court of Judge Clayton in Kyren Pty Ltd v Wunda Projects Australia Pty Ltd (‘Kyren Pty Ltd’).[30] In that case, a master of the Court ordered that the action be determined by arbitration over the objection of the plaintiff/appellant. The plaintiff/appellant was the owner and developer of land at North Terrace and Wunda Projects Australia Pty Ltd (‘Wunda Projects’), a building contractor, entered into a contract with the plaintiff/appellant to carry out work on land known as the Palais Apartment Building. The plaintiff/appellant terminated the contract and the work was completed by another contractor. There were claims by Wunda Projects for the cost of work that it did in the amount of $1 million said to be unpaid for that work and there was a counter claim by the plaintiff/appellant for damages for breach of contract in an amount of $800,000.00.
[30] [2008] SADC 161.
Judge Clayton allowed the appeal on a number of bases including a comparison of the proposed dates for an expedited hearing before the arbitrator compared with an expedited hearing before the Court. The difference between those two dates of two months (in that case) did not justify the referral to the arbitrator particularly having regard to the additional expense that would have been incurred if the matter was heard by the arbitrator and it was necessary to pay reading fees, daily hearing fees and fees for the writing of the arbitral award. Judge Clayton relied upon the decision of Martin J in O'Brien Lovrinov Crafter Pty Ltd v Corradini.[31] In that case, over the objections of the appellant, a master of the Court had referred the whole action to an arbitrator (Mr Sarah – a person who is not legally qualified) to hear and determine questions concerning the legal nature of the contract, if any, between the parties, the interpretation of the contract, the enforceability of the contract and the appellant’s claim based on a quantum meruit and principles of unjust enrichment. Martin J allowed the appeal of O’Brien Lovrinov Crafter (the appellant) and made orders varying the orders of the learned Master and District Court Judge on appeal so that the matter would be heard as a trial of the District Court on two preliminary issues namely whether there was a contract in existence between the parties and what were the terms of the contract. Martin J also ordered that the trial of all issues in the District Court should be conducted prior to any hearing before the arbitrator.
[31] [1999] SASC 159.
In the Kyren Pty Ltd decision, Judge Clayton said at paragraphs [12]-[14] as follows:-
[12]In O'Brien Lovrinov Crafter Pty Ltd v Corradini Martin J said that where the parties do not consent to the appointment of an arbitrator the power should only be exercised where there is good reason why the court should not deal with the legal issues involved in the case. Martin J referred to Honeywell Pty Ltd v Austral Motors Holdings Ltd (1980) QR 355 where Campbell J, who was dealing with a similar situation, said:
In my opinion that discretion should rarely be exercised in the absence of consent of both parties. I think there is much force in the argument for the defendant that every person is as a general rule entitled to have his civil disputes tried and determined in a court of law and that the discretion to refer to arbitration should in the absence of consent be exercised only in cases of an exceptional nature.
[13] Martin J also referred to AT & NR Taylor and Sons Pty Ltd v Brival Pty Ltd (1982) VR 762 and Park Rail Developments Pty Ltd v Pearce Associates Pty Ltd (1987) 8 NSWLR 123 where the same principle was acknowledged. In allowing the appeal against the order to refer the action to arbitration Martin J said:
30. While I appreciate the point made that courts in recent times more amenable to referring matters to an arbitrator, it seems to me at the least, a party is entitled to have the court determine the relevant issues such as these unless good reason exists to direct otherwise. In expressing the matter in this way, I am not endeavouring to enunciate a definitive principle. In my opinion good reason to direct otherwise has not been established with respect to the particular issues that the appellant wishes to be determined by a court. It also appears that those issues have the potential to impact upon the other question as to whether there is then a failure to comply with section 23.
31. In all the circumstances, in my opinion the Master erred in directing that the particular issues of whether there was a contract in existence between the parties and, if so, what the terms of the contract were, be referred to an arbitrator. Even if it could not strictly be said that he erred, in the exercise of my discretion I would allow the appeal. The appellant is entitled to have the issues determined by a court and those issues are better suited for determination by a court.
[14]O'Brien Lovrinov Crafter Pty Ltd can be distinguished on the basis that the issues that had been referred to arbitration related to the existence and terms of the contract and were strictly legal issues. The nominated arbitrator was not a legal practitioner but a very experienced and respected arbitrator with a building background.
At paragraphs [19]-[23] of Judge Clayton’s judgment in Kyren Pty Ltd his Honour said as follows:-
[19]In my opinion the benefit of a reduction in the delay of two months gained by starting an arbitration in February rather than a court hearing in April is not a sufficient reason to order an arbitration against the wishes of one of the parties. Even if the court could not have commenced the hearing until August I would not have regarded that as a sufficient reason to order an arbitration in lieu of a court hearing. The question of delay must be considered in the overall context of the building contract and the court proceedings.
[20] One of the reasons why the action was taken out of the trial list for 7 October 2008 was the delay in the preparation of expert reports. It would appear that both parties had played a part in the reports not being ready.
[21] So far as the additional costs are concerned they do in my opinion provide good reason for not referring the matter to arbitration. In round figures the plaintiff's claim is for $1 million and the defendant's counterclaim is for $800,000. The Master had proceeded on the basis that the additional costs of an arbitration over the cost of a court hearing might be in the order of $200,000 plus GST (paragraph 62). That was based on the arbitrator spending one week in preparation five weeks at the hearing and at least two weeks writing the award. In my opinion the possibility of additional costs of $200,000 plus GST did provide a compelling reason why the matter should not have been referred to arbitration against the wishes of one of the parties. Those costs are the additional costs of the arbitrator and the arbitration itself and do not include the costs of the parties.
[22] In my opinion the fact that the result might be expedited by an arbitration did not warrant additional costs of that magnitude. As I have said the period by which the determination of the matter might be expedited by an arbitration must be considered in the light of the contract and the action overall.
[23] Even if the additional costs of the arbitration above a court hearing were reduced to the vicinity of $80,000 - $90,000, as they now might be, I would regard additional costs of that magnitude as a reason for not referring the matter to arbitration.

In this case there is no difference in timing between the Court hearing the matter and an arbitrator hearing the matter. As well, in this case, the reference out of the matter to the arbitrator will incur significantly greater costs than would otherwise be incurred in a court hearing. In the argument before me, there were various estimates made in relation to those extra costs. It was suggested that there would be a cost overrun of something in the order of $100,000.00. The calculation of this sum depended upon the number of days in which the Court would be involved in the proceedings (compared to the number of days that an arbitrator would likely be involved in the arbitration of various aspects of the proceedings). It is difficult to state with any real conviction the upper level of these costs because of the imprecise nature of the calculation to be made. My observation of the parties’ positions during argument was that there was little challenge to the figure of $100,000.00 as referred to by Mr Jenner in argument. Having regard to the observations made by Mr Goodall in his submissions for Aurecon, that estimate may well be quite low.
Mr Jenner also relied upon the comments made by Judge Clayton[32] concerning the considerations referred to by the Master in reaching his decision and that were apparently canvassed again in the appeal. His Honour sets out his comments concerning the considerations in paragraphs [25]–[41] of his Honour’s judgment. His Honour concluded at paragraph [42] of his judgment that there were no exceptional circumstances in that case which departed from the general rule that an arbitration should not be ordered against the wishes of one of the parties. His Honour also found that the additional costs that would be involved in the arbitration was another reason for not making the order. Similarly, Mr Jenner submitted that there were no exceptional circumstances that were identified by the first and second defendants. Mr O’Sullivan QC put that the exceptional circumstances are properly to be understood as the very technical nature of the issues before the Court and which would more appropriately be handled by an arbitrator with the skill and experience of Mr Shnookal QC. Mr Jenner also submitted that the hearing for liability and quantum would be in the order of 25 hearing days based upon a day for an opening and one day, on average, to deal with each of the 19 defects before the Court. Mr Goodall, counsel for Aurecon, disagreed with that approach and suggested that the nine week allowance for the trial was by no means too generous. Mr O’Sullivan QC was of the same view.
[32] Ibid [24].
There was no contest between the parties that the case is principally one that will revolve around the opinions of experts who have expressed their opinions having assessed any observed (or observable) defect against approved documentation and appropriate standards. This in turn required a consideration of four main issues: what was approved to be built; what was actually built; the existence of any defects; and the scope of repair and cost. This evidence should only be led and considered once and any orders made by this Court should avoid the possibility of any need to consider this evidence more than once. There is an obvious practical benefit in this approach and it accords with well understood policy considerations.
On the question of costs to be incurred by the parties, Mr Jenner emphasised that the arbitrator would have to be flown to and from Adelaide each week for a period of at least three weeks. There will be the accommodation costs for the arbitrator, the allowance for the arbitrator to read materials before the hearing commences, the costs incurred during the arbitration and the costs incurred in relation to the arbitrator writing his award. There will also be the cost of location of the arbitration as well as the cost of transcript before the arbitrator.
The second aspect of Mr Jenner’s argument was that the arguments about pleadings and the amended pleadings disclosed that there are very difficult liability issues that must be resolved in the action and the arbitrator would find it very difficult to decide matters that are identified in the pleadings in a legal vacuum about responsibility. This is in the background of the different nature of the claims made against each of the first two defendants. As against the first defendant, three claims are made namely a failure to execute a development contract, which may be understood as a complaint about a failure to construct in accordance with a scheme description which it is said, is a different standard from what might be regarded as a general requirement to build in a proper and workmanlike manner and which also will involve a review of the development approval. The second basis of claim against the first defendant is a breach of an alleged statutory duty of care and matters for the determination of the Court are the existence of the duty and the extent and requirement of the duty. The third claim is in tort for a breach of a duty of care and the resolution of this issue involves a number of complexities. This is because the first defendant denies the existence of the duty of care but if such a duty existed, then the first defendant alleges that it has discharged its duty by engaging Baulderstone Hornibrook Pty Ltd (now described as Lend Lease Building Contractors Pty Ltd, the second defendant) and thereby delegating its responsibilities. This raises a further question as to whether merely by appointing a builder means that a party appointing the builder does not attract any responsibility to any other party in relation to its own obligations. This is particularly pertinent in relation to the nature of the position of the two plaintiffs that are ‘creatures’ of statute under the relevant state legislation. The plaintiffs contend that those questions should not be determined by an arbitrator and should be determined by the Court.
The claim against the second defendant is a claim purely in tort that requires an examination of the alleged duty of care upon the second defendant as a builder under a design and construct contract owed to two entities such as the plaintiffs which did not come into existence until the very end of the building contract. This in turn requires a consideration of the decision of the High Court in Woolcock Street Investments Pty Ltd v CDG Pty Ltd[33] and the decision of the Court of Appeal of New South Wales in Brookfield. Those matters will also need to be decided in light of the defences raised by the second defendant concerning its ability to delegate responsibility to Aurecon as engineer and Woodhead as the architect as well as the extent of such delegation. Those issues, the plaintiffs contend, must remain with this Court. The claims against Woodhead, the fourth defendant (if Woodhead remain within the proceedings) are just as complex. It is recognised that there are three specific time periods in relation to the position of Woodhead and perhaps Aurecon. The first is the activity that occurred before either of them were specifically engaged by the first defendant. The second is the period when both the first and second defendants engaged Woodhead and the third after only after the second defendant engaged Woodhead. This in turn creates other difficulties because a court will need to determine whether and in what circumstances and in what time period any defect exists, whether there has been any particular breach of duty based upon the existence and scope of any duty owed. Mr Jenner submitted that the appropriate sequence for the determination by the Court would include first a determination of the nature and scope of the duties and then a consideration of the defects.
[33] (2004) 216 CLR 515.
The plaintiffs also contended that the first and second defendants’ pleas under s 72 of the Development Act 1993 (SA) about the alleged wrongful acts of Aurecon and Woodhead complicate the position because those matters can only be considered in what was described as a framework of ‘owing some form of duty or having some form of responsibility to the party that has been wronged...’.[34] Thus, in order to determine the s 72 of the Development Act 1993 (SA) point it is necessary to determine the scope of duty and the same considerations arise under the Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA). The arbitrator would not be in a position to determine those matters because the arbitrator would also then be asked to determine the scope and extent of any duty which is properly a matter for the Court.
[34] Transcript of Proceedings, T32.23-24.
Finally Mr Jenner made some other observations in relation to the position of an arbitrator. There were some difficulties under the terms of the Commercial Arbitration Act 2011 (SA) in relation to the ancillary powers of an arbitrator and permission to be obtained from a court (which in this instance is the Supreme Court). However, in my opinion, these matters can be managed by appropriate orders of the Court.
Mr Goodall, for Aurecon, joined in the opposition to the application made by the first and second defendants. Mr Goodall emphasised that the process proposed by the first and second defendants was as follows:
1. That the issue of defects be referred to the arbitrator (without any referral in relation to quantum);
2. Upon the arbitrator making an award, the matter is referred back to the Court for adoption and for the Court to hear arguments in relation to the award;
3. After disposal of those matters, the Court proceeds to make legal determinations on the variety of legal issues that arise in the proceedings;
4. The matter would be referred back to the arbitrator to deal with issues of quantum either on a global basis or on a specific basis.
Mr Goodall submitted that this recital of steps discloses that it would be necessary for the Court to hear evidence from the experts in the same fashion as the arbitrator has heard that expert evidence in order for the Court to be in a position to make its decision about apportionment and contribution and, percentage responsibility. Thus, if all that the arbitrator is doing is making an order in relation to whether something is a defect or not and if so the nature of the defect, without making any finding about responsibility, the Court would be undertaking the same exercise when it does make a decision about responsibility. Thus, again, the same experts would be called both in the arbitration and before the Court. There would be no efficiency or saving of time and that is particularly because Mr Shnookal QC would be in no better position to decide questions of responsibility than would the Court. Mr Goodall thought that the estimate of 19 hearing days was entirely optimistic and Mr O’Sullivan QC agreed with that submission.
Mr Goodall also put his submissions at another level. He submitted that the determination by the Court of the facts relating to the issues such as, for example, design issues, would require the Court to survey all of the material in relation to the lead up to those matters. Determinations about all of those matters would need to be made before any expert evidence could be led in relation to them. This involves a number of questions including adequacy of design or specifications but also the performance of the work on site and whether the work on site met specifications.
Mr Goodall emphasised that in his opinion, the cost differential of a court hearing compared to the cost of using a referee such as Mr Shnookal QC was well in excess of $100,000.00 and that the appropriate use of resources was to allow the Court to deal in one comprehensive sitting with issues of liability, responsibility, defects and other matters.
Mr O’Sullivan QC further emphasised that any enquiry into apportionment is a technical enquiry because it is necessary to enquire into blameworthiness. He also emphasised that the Brookfield decision was still the subject of the appeal to the High Court and that in relation to costs, a differential of $100,000.00 was to be seen in the context of a claim for $3.5 million.
These are all matters for judgment in the exercise of my discretion. From the outset of my involvement in this action, I raised with the parties the possibility of the technical aspects of this action being referred off to a referee who was a specialist arbitrator skilled in matters of engineering and construction. Mr Shnookal QC fits the description of the person that I had in mind at the time that I made my suggestion.
As I emphasised earlier in this judgment, the evolution of the cases of the parties that has occurred in the last six months since my involvement in this action means that my earlier expressed views must be reviewed. In my opinion, there are now many different layers of complexity involved in this matter and many different levels of involvement of different parties. There is also a considerable overlay of complexity arising from the type and nature of the involvement of the various parties, the allegations that the parties have now made against each other, the need for the determination of the questions of liability at many different levels and the application in that determination of a number of statutory provisions concerning apportionment of liability.
A further consideration is the methodology and procedure for the Court to hear and determine legal issues and for the arbitrator to hear and determine specific technical issues. I agree with the outline submitted by Mr Goodall which I have set out in paragraph [42] above. In my opinion, that outline discloses a process that is cumbersome and difficult to manage. It would not add to the efficiency of the process nor may it be identified with a saving of costs for the parties. Sitting above those considerations is the question of the extra costs to be incurred by the parties in respect of the work to be done by the referee which at the least appears to be in the amount of about $100,000.00.
That is not to say that I have formed any final view that is adverse to the question of the suitability of issues for reference. In my opinion, there may still be an appropriate step reached in the proceedings where an arbitrator can be involved in the determination of issues, for example of quantum. I agree with the submissions of Mr Goodall and Mr Jenner that the hearing of this matter will take place within the same parameters and the same time limits as a hearing using a referee although that comparison is more doubtful when considering the position of the referee because of the need for the Court to receive, consider and hear any applications about the award of the referee before proceeding further with an action on the question of legal issues. Thus there would be no prejudice caused by any delay in having the matter heard. I am not satisfied that a reference out to the arbitrator would necessarily save costs as submitted by Mr O’Sullivan QC. I think the greater likelihood is that the reference to an arbitrator would occasion additional costs of in excess of $100,000.00. Finally, it is necessary for me to bear in mind in my considerations what has been described as the ‘general rule’ that the arbitration should not be ordered against the wishes of one of the parties although there are also countervailing considerations to that general rule. Those countervailing considerations may, in the appropriate case, require me to take into account the relevant interest of the parties and whether, for example, there is a party of limited financial resources that requires an early determination of the matter in order to maintain or develop their business or enterprise in the normal way. However those considerations are subject to the question of what may be described as the present circumstances of the case. I have already set out those circumstances in detail above and the comments I have made reveal a matter that is both complex and difficult. A nine week hearing time has been specifically set aside by the Court and it may be properly anticipated that this matter will be heard in a continuum so that the parties are not prejudiced by an incomplete hearing even if that nine week period is exhausted in court hearing time.
For those reasons and in the exercise of my discretion, I have decided, with some reluctance and regret, to dismiss the application of the first and second defendants. I give leave to the first and second defendants to re-agitate their application at any appropriate time in the future.
There are further matters for consideration. One of those further matters involves the manner in which the hearing will take place having regard to the involvement of the experts. There does not seem to be any difference between the parties about the fact that there will be a heavy reliance upon the evidence of experts in the matter. A perusal of the third Scott Schedule would indicate that this must be so and in that regard, consideration must be given to the way in which the expert evidence will be given. Matters that might be taken into account include whether evidence is heard in conjunction; whether experts to be called in relation to the same issue should be asked to formulate the relevant questions to be addressed and then for submissions to be made in relation to the manner in which the experts would address those questions; and general directions in relation to the appropriate manner in which the evidence of the experts will be taken (in a practical way) on site. I will need to hear the parties in relation to these and other relevant matters.
The formal order today is that the application of the first and second defendants on FDN 127 is dismissed.