CPC Energy Pty Ltd v Bellevarde Constructions Pty Ltd

[2007] NSWSC 1397

CITATION:	CPC Energy Pty Ltd v Bellevarde Constructions Pty Ltd & Anor [2007] NSWSC 1397
HEARING DATE(S):	27/11/07, 28/11/07
JUDGMENT DATE :	5 December 2007
JURISDICTION:	Equity Division Technology and Construction
JUDGMENT OF:	Einstein J
DECISION:	Referees report to be adopted.
CATCHWORDS:	Adoption of referees' report - Fraud finding - Jones v Dunkel - Principles to be applied on challenge to referees' report - Cost plus contracts
LEGISLATION CITED:	Arbitration Act 1902 Supreme Court Rules Uniform Civil Procedure Rules 2005
CASES CITED:	Allied Constructions Pty Limited v Hyder Consulting (Australia) Pty Limited & Ors [2004] NSWSC 808 Amaca Pty Ltd v State of New South Wales (2003) 199 ALR 596 Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 Buckley v Bennell Design and Construction Pty Ltd (1978) 140 CLR 1 Cape v Maidment (1991) 98 ACTR 1 Chloride Batteries Australia Ltd v Glendale Chemical Products Pty Ltd (1988) 17 NSWLR 60 Chocolate Factory Apartments Pty Ltd v Westpoint Finance Pty Ltd & Ors [2005] NSWSC 784 De Groot v The Nominal Defendant [2005] NSWCA 61 Derry v Peek (1889) 14 App Cas 337 Foxman Holdings Pty Ltd v NMBE Pty Ltd (1994) 38 NSWLR 615 Homebush Abattoir Corporation v Bermria Pty Ltd (1991) 22 NSWLR 605 Jones v Dunkel (1959) 101 CLR 298 Lazarus Estates Ltd v Beasley [1956] 1 QB 702 M & E M Hull Pty Limited v Thompson [2001] NSWCA 359 Multiplex Constructions Pty Limited v HSH Hotels (Australia) Limited & Anor [2003] NSWSC 1069 New South Wales Bar Association v Meakes [2006] NSWCA 340 Peabody Resources Ltd v Macquarie Generation (unreported, Supreme Court of New South Wales, 19 November 1998, Einstein J) Reynell v Sprye (1852) 1 De GM & G 660 Smith v Kay (1859) 7 HL Cas 750 Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 White Constructions (NT) Pty Ltd v Commonwealth of Australia (1990) 7 BCL 193 Yorke & Anor v Lucas (1985) 158 CLR 661
PARTIES:	CPC Energy Pty Ltd (Plaintiff) Bellevarde Constructions Pty Ltd (First Defendant) John Francis Fielding (Second Defendant)
FILE NUMBER(S):	SC 55062/05
COUNSEL:	Mr R Parsons (Plaintiff) Mr I Bailey SC, Mr R Marshall (Defendants)
SOLICITORS:	Summit Law (Plaintiff) Dibbs Abott Stillman (Defendants)

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

Einstein J

Wednesday 5 December 2007

55062/05 CPC Energy Pty Ltd v Bellevarde Constructions Pty Ltd & Anor

JUDGMENT

The reference

1 These proceedings were referred to the Honourable Moreton Rolfe QC and to Ms Janet Grey as joint referees. Their report was dated 9 July 2007.

The notices of motion

2 Presently before the Court are cross notices of motion:

i. by the plaintiff for the adoption of the report and for the entry of judgment against each of the first and second defendants in the sum of $791,042 plus interest;

ii. by the defendants:


a) for the adoption only of certain conclusions of the referees in the report;

b) for the court to refrain from adopting other conclusions of the referees in the report;

c) for orders dismissing the further amended summons;

d) for orders in accordance with prayer 1 of the second further amended cross-claim.

The nature of the proceedings

3 The plaintiff, CPC Energy Pty Limited, (“CPC”), acquired, on 8 February 2000, five adjoining residential properties in Miller Street, Cammeray, with a view to demolishing them and developing the land they occupied formerly into eighteen high quality apartments. The development is known as ‘The Canopy’.

4 On 2 February 2003, CPC entered into a cost-plus building contract, (“the Contract”), for the demolition of the houses and the building of the apartments with the defendant, Bellevarde Constructions Pty Limited, (“Bellevarde”). The second defendant, Mr John Fielding was the sole director and sole shareholder of Bellevarde.

5 Bellevarde held a 100% interest in Sidecut Pty Ltd which in turn, held a 100% interest in Cutcross Contractors Pty Ltd.

6 Mr Fielding controlled all three companies.

The report

7 The referees’ report extends for 51 pages and is detailed in the extreme. It is however fair to observe that both parties tended to move in ambulatory fashion, into and out of the necessary close focus upon the precise matters in particular raised by the defendants [in support of their contention that the report should not be adopted]. It is for that reason that from time to time it becomes necessary to outline some of the referees’ reasons in particular detail.

8 Essentially the Referees upheld the plaintiff's case that wilfully false pre-contractual misrepresentations were made by Mr Fielding to Mr Molyneux, who was the principal director of CPC, in reliance upon which Mr Molyneux was induced to cause CPC to make certain payments to Bellevarde, allegedly for labour and carpentry work carried out by labour employed by or subcontracted to Cutcross, the referees holding being that Cutcross was not entitled to certain of those payments from Bellevarde and that Bellevarde was not entitled under the contract to certain of these payments from CPC. The subject payments were the difference between the cost of labourers and carpenters, including where appropriate, on-costs paid by Cutcross and the amounts in excess of such costs [“the so-called uplifts”] charged by Cutcross to Bellevarde and, thence, to CPC. CPC paid Bellevarde these amounts and Bellevarde paid them to Cutcross.

CPC's contentions

9 CPC had contended before the referees as follows:

i. before the Contract was signed Mr Fielding represented that the defendants would:


a) act in good faith under the Contract; and

b) allow CPC to inspect Bellevarde’s books;
[‘the Representations’]


ii. the defendants made the Representations wilfully falsely;

iii. after the Contract was signed, CPC received Bellevarde’s payment claims, and those all included a claim for Cutcross’ labour charges. The claims were checked by CPC and given to Alex Popov, the architect, who certified each claim;

iv. reliant upon the Representations, CPC paid Bellevarde the first 20 certified progress claims;

v. if CPC had not so relied, it would have only paid the actual cost of the labour provided to Bellevarde by Cutcross;

vi. Cutcross was not an approved subcontractor under clauses 5(b) and 14(j) of the Contract and therefore Bellevarde could only claim the actual cost of labour to Cutcross as would be provided by clause 14(a) if Bellevarde had actually employed the workmen directly itself;

vii. CPC was entitled to set aside the conclusivity of the architect’s certificates by clause 16(c) and to restitution of the difference between what it paid Bellevarde for Cutcross’ labour and what the actual cost of the labour was to Cutcross, being an amount of $791,042.

The referee’s findings on CPC's claim

10 The Referees found:

i. the Representations were made;

ii. the Representations were wilfully false;

iii. the Representations induced CPC to pay Bellevarde’s payment claims as certified;

iv. there were two provisions of the Contract by which labour could be charged to CPC as “the actual costs of the Works” for the purposes of clause 1(i) of the Contract, the first by Bellevarde employing labour directly under clause 14(a) or the second via an approved subcontractor under clause 14(j);

v. Cutcross was an approved subcontractor under the Contract;

vi. Cutcross was not a “genuine subcontractor” under the Contract, and any profit it made, like any profit made by Bellevarde, would flow through to Mr Fielding as the ultimate beneficiary;

vii. clause 16 of the Contract provided a conclusivity regime by way of architect’s certificate and absent fraud or dishonesty, CPC could make objection to a certificate within 10 days of certification if it wished to;

viii. the cost of labour was “inflated by fraud” and therefore the conclusivity of the certificate is soiled by fraud;

ix. the architect’s certificate should be set aside for fraud and dishonesty;

x. damages should be measured by calculating “ … the difference between the amount Cutcross charged Bellevarde for day labour and the amount Cutcross paid for that labour; ”

xi. on this basis damages were $791,042.

11 Hence the substantial issues between CPC and Bellevarde were:-

i. the former’s right to recover the uplifts; and

ii. Bellevarde’s entitlement to have the Contract rectified in a manner which would affect the amount CPC was otherwise obliged to pay to Bellevarde for Bellevarde’s own labour.

12 The referees finding was that the first issue should be answered favourably to CPC and the second favourably to Bellevarde.

The principles to be applied on the adoption application

13 There was no issue as to the principles to be applied. A short overview summary of those principles is as follows:

i. In Chocolate Factory Apartments Pty Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784 at [7], McDougall J, by reference to various authorities, including Super Pty Ltd v SJP Formwork (Aust) Pty Ltd, Chloride Batteries Australia Ltd v Glendale Chemical Products Pty Ltd (1988) 17 NSWLR 60, White Constructions (NT) Pty Ltd v Commonwealth of Australia (1990) 7 BCL 193 and Foxman Holdings Pty Ltd v NMBE Pty Ltd (1994) 38 NSWLR 615 summarised the principles to be applied in considering whether to adopt or reject a referee’s report as follows:


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

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

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

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

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

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

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

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

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

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

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

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

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

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

(15) Where the court decides that the reasons are flawed, either on their face or because they have been shown not to deal with important matters, the court has a choice. It may decline to adopt the report. Or it may itself look at the detail of the evidence to decide whether or not the expense of further proceedings before the referee (which would be the consequence of non adoption) is justified.”

ii. Where the challenges to a referee’s report are directed to errors of law, the principles are well established. In Homebush Abattoir Corporation v Bermria Pty Ltd (1991) 22 NSWLR 605 the New South Wales Court of Appeal (Clarke, Meagher and Handley JJA) said (at 609) of proceedings regarding adoption of a referee’s report pursuant to Part 72 rule 13 of the Supreme Court Rules (which read identically to Part 20 rule 24 of the Uniform Civil Procedure Rules 2005 ):

“Whatever be the proper approach to a report dealing with issues of fact, there can be no justification for the Court exercising any restraint when dealing with a referee's decision on issues of law. The powers of reference currently conferred by Pt 72 are derived from powers of compulsory reference to an arbitrator or referee previously conferred on the court by s 15, s 16 and s 17 of the Arbitration Act 1902. The nature and extent of the court's jurisdiction to supervise references under these sections was considered in Buckley v Bennell Design and Construction Pty Ltd (1978) 140 CLR 1. Jacobs J said (at 38): “… In respect of errors of law there can be no implied authority given to an arbitrator under s 16(1) to make errors of law.”
A referee appointed under Pt 72 can have no wider authority. In our opinion therefore the court in deciding what action to take on a referee's report is both entitled and bound to decide for itself whether the referee has erred in law and to correct any such error.”

iii. In Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 Gleeson CJ (at 563) observed that the judge hearing such an application:


“has a judicial discretion to exercise in a manner that is consistent both with the object and purpose of the rules and with the wider setting in which they take their place.

That wider setting is a system for the administration of justice according to law. In so far as the subject matter of dissatisfaction with a referee's report is a question of law, or the application of legal standards to established facts, then a proper exercise of discretion would require a judge to consider and determine that matter afresh. That was decided by this Court in Homebush Abattoir Corporation v Bermria Pty Ltd (1991) 22 NSWLR 605: see also, Cape v Maidment (1991) 98 ACTR 1 at 4. That conclusion is entirely consistent with the history of the rules and the reasoning of the High Court in Buckley which, although the case related to different provisions is also instructive as to the present provisions.”

iv. As I observed in Allied Constructions Pty Limited v Hyder Consulting (Australia) Pty Limited & Ors [2004] NSWSC 808:

“There is no implied authority given to the Referee to make errors of law. The Court is bound to decide for itself whether the Referee erred in law and, if such error be found, to correct the error in exercising its discretion under the rules ( Bermria at 609).”

v. The question whether, on a given set of facts, a duty of care was owed is a question of law: see the joint judgment of the High Court in Amaca Pty Ltd v State of New South Wales (2003) 199 ALR 596 (at 602 [26]):

“…there may be some question about whether the Court of Appeal, and therefore this Court, could undertake a review of the factual question of breach. But it is clear that the Court of Appeal did have power to determine whether, on the facts found at trial, the State did owe the injured plaintiff a duty of care . That was a question of law. If the Court of Appeal had identified the errors of law which the trial judge made, it would then have been appropriate, and in this case necessary, for the Court of Appeal to go on to consider whether the claim for contribution should have failed on the ground, urged by the State, that the State owed no duty of care to the injured plaintiff.”

vi. In Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 156, Glass JA said:

“A finding of fact ... may nevertheless reveal an error of law where it appears that the trial judge has misdirected himself, i.e, has defined, otherwise than in accordance with law, the question of fact which he has to answer."

The nature of a cost-plus contract

14 Early in the report the referees explained the nature of a cost-plus contract and set out in a concise form a number of matters which conveniently explain parameters of the cases and some of the findings. It is convenient to set out paragraphs 8 and 9 immediately:

8 A cost plus contract is one whereby the builder charges the proprietor the costs the builder incurs for labour and materials, whether supplied directly by the builder or by parties with which the builder sub-contracts, and a fee which is either an agreed fixed amount or an agreed percentage of the payments, as occurred in this case, which may be, and was, in the present case, capped at a certain amount. The fee is to cover overheads and profits. Relevantly, this contract makes no provision for any additional payment: clause 1 of the Contract. A difficulty for the proprietor, which may arise under such a contract, is that whilst it is aware of the general costs payable to the builder or to parties to whom or which the builder may sub-contract certain of the works, it has little control over the costs incurred, particularly in respect of labour hours expended or the quantity of materials actually received and used on the job. In respect to sub-contractors the builder will, usually, pay them either a negotiated lump sum for the whole of the work sub-contracted or, in the case of day labour, a fixed hourly rate. In either case, the lump sum or the hourly rate will include the sub-contractor’s profit margin. Where the day labouring sub-contractors are providing their labour as individuals and not through corporate structures, the builder may also be obliged to pay certain on-costs, such as workers’ compensation insurance premiums all of which will be recoverable as part of the cost of the works.

9. In the instant case, the first problem to which we have referred arose because Bellevarde sub-contracted with Cutcross for the supply of carpenters and labourers. It was admitted that at least much of this labour was sourced by Bellevarde by advertisements, for which advertisements CPC was contractually liable to pay, and that Mr Fielding then directed that this labour be employed by Cutcross and that Cutcross invoice Bellevarde for the services of this labour: paragraphs 40 and 41 of the FAS, which were admitted. Cutcross in most, if not all, instances charged Bellevarde an amount in excess of what Cutcross was paying to or on behalf of its labour force. Bellevarde passed on this additional cost to CPC, which CPC paid to Bellevarde. The amount CPC seeks to recover is the difference between the labour and other legitimate on-costs of the workers employed by or sub-contracted to Cutcross and the additional amount, the uplift, charged by Cutcross to Bellevarde for such labour, which amount CPC paid to Bellevarde. Put shortly, CPC’s submission was that the uplift, of which it was unaware, was a gross profit to Cutcross, which flowed from Cutcross to Sidecut and, thereby, became money to which Mr Fielding, through his shareholding in Sidecut, became potentially entitled. Accordingly, so CPC’s argument ran, not only was Bellevarde or an entity within the company structure receiving the agreed margin under the Contract, but, unbeknown to CPC, the uplift, which was not sanctioned by the Contract, but which was capable of being diverted to Mr Fielding, in the way to which we have referred. In our opinion, the evidence of the payments, which was not in issue, makes good these submissions. It was submitted by Bellevarde that it always did business by sub-contracting through firstly Sidecut and then Cutcross, that it was known that sub-contractors would be used on this job and that Mr Molyneux would have expected the sub-contractors including Cutcross to make a profit.

The effect of the failure to call Mr Fielding

15 Mr Fielding was not called to give evidence. In consequence so far as Mr Molyneux deposed to conversations with Mr Fielding which in the referees finding constituted the relevant misrepresentations and/or dishonesty by Mr Fielding on behalf of Bellevarde to Mr Molyneux, on behalf of CPC, there was no contrary evidence. Furthermore Mr Molyneux was not cross-examined on the conversations.

16 The referees dealt in detail with the principles concerning failure to call a witness and are not shown to have misapplied those principles. Their reasoning in relation to this matter included the following:

10. … Accordingly, when one applies the principles stated by the Court of Appeal in M & E M Hull Pty Limited v Thompson [2001] NSWCA 359 and by Bergin J in Multiplex Constructions Pty Limited v HSH Hotels (Australia) Limited & Anor [2003] NSWSC 1069, we find no basis to reject the evidence of Mr Molyneux in those respects. We should add that we find no basis for rejecting his evidence in other respects either and, in addition to not being the subject of any contradiction, we are of the view that he was an impressive and straightforward witness, who should be believed.

11. The other point following from the failure to call Mr Fielding is that there is, so far as he is concerned, no explanation as to why the sub-contract labour was employed by Cutcross instead of Bellevarde, thus leaving it more readily open to draw the inference, which we consider it proper to draw, that the reason was to provide to Mr Fielding, in the way we have described, a larger profit margin than Bellevarde otherwise was entitled to receive under the Contract. Thus, to put it bluntly, the arrangement allowed Mr Fielding to be paid a greater amount, through the processes to which we have referred, than he otherwise would have been entitled to receive.

12. We shall deal with various explanations offered through certain other evidence and by way of submission said to be contrary to this inference, but the evidence to which we have and will refer coupled with the failure to call Mr Fielding, in our opinion, compels the inference to which we have referred. In the company structure, which Mr Fielding had set up and of which he was admitted to be the legal controller and the “ guiding mind and will ”, it did not matter, in our opinion, in which company the profit was made initially for, in the end, the company structure allowed the profit to flow to Mr Fielding. [12]

17 Their reasons included:

13. The effect of the failure to call a witness was discussed by the High Court in Jones v Dunkel (1959) 101 CLR 298, the majority finding that the inference of negligence was available, on the evidence, and that the jury should have been given directions about the effect of a witness not giving evidence. At page 312, Menzies J said:-


“In my opinion a proper direction in the circumstances should have made three things clear:

(i) that the absence of the Defendant Hegedus as a witness cannot be used to make up any deficiency of evidence;

(ii) that evidence which might have been contradicted by the Defendant can be accepted the more readily if the Defendant fails to give evidence;

(iii) that where an inference is open from facts proved by direct evidence and the question is whether it should be drawn, the circumstance that the Defendant disputing it might have proved the contrary had he chosen to give evidence is properly to be taken into account as a circumstance in favour of drawing the inference.”

14. In De Groot v The Nominal Defendant [2005] NSWCA 61 at paragraph 148 Byrson JA quoted this passage and, at paragraph 149, in referring to the failure to call a witness, his Honour said:-

“Notwithstanding his centrality, his absence meant nothing unless an adverse inference was available on such evidence as there was.”

15. In New South Wales Bar Association v Meakes [2006] NSWCA 340 Tobias JA, with whom Bryson and Basten JJA agreed, said, at paragraph 77:-

“Yet these were the very matters which were totally within the knowledge of the Respondent and which he did not offer to answer in the witness box. On the contrary, he chose the safety of the well of the Tribunal. Notwithstanding the advice of his then Senior Counsel, the Respondent’s refusal to enter the witness box and provide evidence with respect to the matters referred to should have been the subject of harsh criticism by the Tribunal. Moreover, if that evidence had otherwise been relevant to the issue, his refusal to provide it would have significantly detracted from the weight to be attached to the tendered character references. In these circumstances, the only inference one can draw from the Respondent’s refusal to give sworn testimony in this matter was that his evidence would not have assisted his case in resisting a finding of professional misconduct.”

16. In our opinion, the inference we have drawn was clearly open on the evidence and admitted facts. The drawing of it is strengthened by the failure to call Mr Fielding.

18 No error of principle is shown to have been made by the referees in the manner in which they approached the Jones v Dunkel issue.

Particular clauses of the contract

19 Certain clauses of the Contract are appropriate to be set out presently.

· Clauses 5(a) and (b), provide that save as otherwise provided in the Contract:-

“5(a)

“The Builder shall supply, deliver and pay for all materials and provide all labour required for the efficient performance of this Agreement and shall at his own expense and with all reasonable expedition remove and replace with best quality any defective work and any work not in accordance with this Agreement. The Builder shall have no authority to pledge the Proprietor’s credit for the purchase of any materials or the employment of any labour.

5(b)

The Builder shall not enter into any sub-contract for the execution of the Works or any portion thereof without the consent of the Architect provided that such consent shall not be unreasonably withheld. In any case in which the Architect refuses to consent to a sub-contract which the Builder is desirous of entering into the Architect may by written notice require the Builder to enter into such sub-contract as the Architect shall nominate and in this event the Builder shall subject to Clause 6 hereof enter into such sub-contract accordingly.”

· Clause 14 of the contract is concerned with the “Actual Cost Of The Works”. It states, relevantly:-

“The actual cost of the Works shall include only costs attributable to this Agreement and as follows:

14(a)

The actual wages or other remuneration (including allowances) paid to workmen and other employees at Award rates or such higher rates as shall be paid generally by the Builder under industry agreements or in accordance with arrangements notified by him prior to entering into this Agreement or as approved by the Architect prior to the execution of the work concerned in respect of services and labour supplied wholly in connection with Works together with the requisite allowance or on-cost for annual leave, public holidays, sick pay, Payroll Tax, long service leave or payments and/or other benefits provided for in current Awards, Ordinances or Acts of Parliament, which on-costs as at the date of this Agreement are represented by the percentage figure shown in the Appendix”.


[The figure shown in the Appendix was 10%, although the referees found that it was clear that the additional allowances and on costs were a substantially higher percentage. It was in respect of this matter that rectification was sought.]

14(j)

“The cost of all authorised sub-contracts and prime cost items”.

· Clause 16 of the Contract deals with certificates and payments and for the determination by the Architect of the work performed and the issue by the Architect of a progress certificate for the amount so determined “plus a proportion of the Builder’s fee calculated as detailed in the Appendix hereto less a reasonable allowance in respect of any defective work…”. Paragraph 16(c) states:-

“Unless disputed by notice in writing within 10 days of issue any such certificate shall be conclusive evidence of the costs of materials, labour and other items provided by the Builder during the period under review except in the case of fraud, dishonesty or error in computation.”

· Clause 16(e) in dealing with the Final Certificate, was in substantially the same terms except it allowed 14 days in lieu of 10 days and for certain further, otherwise presently irrelevant, matters.

20 The referees rejected a submission made [apropos clause 5] by CPC that Bellevarde had entered into subcontracts without the consent of the architect, or of CPC. The finding was that the architect approved the payment of amounts to subcontractors and that prima facie that would indicate consent. The finding was that the architect's certificate was conclusive, such conclusivity extending to the approval of the subcontractors, either itself, or by the approval of the payment to them. Further the evidence of Mr Molyneux was held to dispel any suggestion that approval was not so given. For those reasons the referees findings were that there was approval of Cutcross as a subcontractor.

The pleaded cases

21 The referees dealt in detail with the pleadings, the particulars and the statement of findings of fact and law for which the parties contended.

22 Dealing with the pleadings the referees observed as follows (at [35]-[43] of the report):

35. The FAS starts by setting forth the relief claimed. It is unnecessary, for present purposes, to refer to all of that. However, we propose to set forth paragraph 15, which states:-


“15. In the alternative, a declaration that the conduct of the First and Second Defendants in knowingly:-

(i) employing or causing the employment of labour by Cutcross in the execution of the Works and charging the Plaintiff or causing the Plaintiff to be charged for that labour at rates not in accordance with the terms of the Contract;

(ii) failing to provide the Plaintiff, when requested on behalf of the Plaintiff, with the proper details of the actual cost of labour employed in and about the performance of the Works and the Contract by either the First Defendant or Cutcross;

(iii) engaging and charging the Plaintiff for the majority of labour in Cutcross, which labour was sourced from advertisements paid for by the Plaintiff, at rates in excess of the rates the First Defendant was entitled to charge the Plaintiff for labour pursuant to the terms of the Contract;

(iv) failing to disclose to the Plaintiff the true relationship between the First Defendant and Cutcross and the true purpose of the First Defendant employing the majority of the labour to execute the Works through Cutcross;

(v) intentionally misleading the Plaintiff as to the actual cost to the First Defendant of labour required to carry out the Works
…
(vii) making an undisclosed profit, both in the First Defendant and Cutcross, from the conduct referred to in this paragraph, constituted fraud, and in particular fraud within the meaning of Clauses 16(c) and 16(e) of the Contract and/or dishonesty within the meaning of those clauses .”

36. Paragraph 20 sought a declaration:-


“…that on a true construction of the Contract the First Defendant was under an obligation pursuant to the Contract to act in good faith in preparing and making claims for payment under the Contract”.

Mr Bailey conceded that an obligation of “ good faith ” was an implied contractual term.


37. The next portion of the FAS deals with the Nature of Dispute and, commencing with paragraph 13, considers the Cost of Labour and alleges that Bellevarde was not entitled to charge CPC for labour for the works, other than in accordance with the provisions of Clauses 5(a), 14(a) and the Appendix to the Contract.

38. Paragraph 14 states:-


“14. The Plaintiff claims that the First Defendant

a. procured the employment of labour in a related entity of the First Defendant, being Cutcross;

b. procured that Cutcross issue invoices to the First Defendant for such labour at rates higher than the rates actually paid by Cutcross;

c. then invoiced the Plaintiff for such labour at rates in excess of the amount the First Defendant was entitled to charge the Plaintiff for labour in accordance with the terms of the Contract.”

39. Under the heading “ Issues ”, it is stated, inter alia:-

“9. Whether the First Defendant and Second Defendant were under an obligation pursuant to the terms of the Contract, or the Trade Practices Act or otherwise to perform the terms of the Contract in good faith and complete the Works to the benefit of the Plaintiff and not to their own purposes in securing a further benefit to themselves, which was not disclosed to the Plaintiff in the Contract or otherwise.”


40. Thereafter, the FAS turns to the Plaintiff’s Contentions. In paragraph 14 the allegation is made that during the negotiations, Mr Fielding made certain representations to CPC including that Bellevarde would keep it properly informed of the amount of cost against Budget at all times throughout the execution of the Works; that Bellevarde would execute the Works in accordance with a cost-plus contract in good faith; that Bellevarde would make available to CPC at all times all of Bellevarde’s books, records and accounts relating to the Works; and that there would be a final accounting between the parties and a final reckoning of all of the accounts of the Works on their completion.

41. Paragraph 50 pleads:-

“The First Defendant, to the knowledge of, or at the direction of, the Second Defendant charged the Plaintiff in progress claims for the cost of labour supplied by personnel, employed by Cutcross and invoiced to the Plaintiff by the First Defendant, at rates in excess of the rate which the First Defendant was entitled to charge the Plaintiff, for the cost of labour, in accordance with the provisions of the Contract.”

42. Paragraph 50C alleges that the conduct of the First and Second Defendants pleaded in paragraph 50B “constituted fraud and in particular fraud within the meaning of Clauses 16(c) and 16(e) of the Contract and/or dishonesty within the meaning of those clauses ”.

Thus fraud was again alleged specifically.

43. Paragraph 70 pleads:-

“The Defendants have procured that Cutcross in invoicing the First Defendant for labour employed in the execution of the Works, add margins of up to 26% to Cutcross’ actual cost of such labour in relation to Progress Claims 22-25 and the Final Claim and other amounts so calculated and shown in spreadsheets exhibited to the Affidavits of John Richard Molyneux dated 18 May 2006, 26 September 2006 and 3 May 2007 served in these proceedings ”.

23 The referees rejected the proposition that the pleadings did not allege fraud and that counsel for the defendants were under any misapprehension as to the case which the defendants were called upon to answer. Nothing in this section of the report suggests error by the referees.

Parameters of the respective cases

24 It is also convenient to repeat [48]-[50] of the report which treat with parameters of the respective cases and the issues raised for determination:

48. CPC’s case, put in various ways, was that it entered into a cost plus contract whereby it was only obliged to pay the contractually stipulated amounts. It alleged that the further costs it incurred by paying the difference between the cost of labour to Cutcross and the higher cost of labour, “ the uplift ”, invoiced by Cutcross to Bellevarde, constituted an arrangement or scheme, within the corporate structure controlled by Mr Fielding, whereby Bellevarde was paid an amount by CPC greater than that to which it was contractually entitled, because Cutcross was being paid that amount, and the profit thereby generated was then able to be siphoned through the corporate structure to the benefit of Mr Fielding in the way we have described. Mr Bailey submitted that this was not a scheme devised to extract more money from CPC, but was the way in which Bellevarde carried on its business in relation to sub-contracting for labour for many years, initially through Sidecut and then through Cutcross. CPC further argued that it was not relevant whether the ultimate charge by Cutcross to Bellevarde was “ within the range ” or “ reasonable ” or “ OK ”. It asserted that the method employed by Bellevarde led to more money being paid by CPC than that provided for by the Contract, which money was ultimately for the benefit of Mr Fielding, and as to which there had been no disclosure to Mr Molyneux by Mr Fielding, but a positive misrepresentation to the contrary. That Bellevarde understood the issues appears from its Statement of Issues at paragraph B9:-

“That Cutcross made a profit from its labour supply to Bellevarde is neither a breach of the Contract nor contrary to any representation made by Bellevarde which was relied upon by CPC in the payment of Bellevarde payment claims”.[48]

49. In paragraph C10, the Defendants asserted that to go behind the conclusiveness of the Architect’s progress certificates, CPC “ must prove that Bellevarde has been fraudulent ”. In paragraphs C11 and 12, the Defendants stated:-

“To succeed CPC must prove to the Briginshaw standard that:
(a) Bellevarde made a representation to CPC;
(b) that representation was false;
(c) Bellevarde knew the representation not to be true;
(d) Bellevarde made out that the representation was true; and
(e) CPC acted, or omitted to act, based on the representation in regard to the progress claims, and has caused loss,
See Derry v Peek (1889) 14 App Cas 337.

12. CPC has not proven the matters in 11(a) to (d). There are three representations asserted in paragraph 6 of the ‘Particulars of Fraud’, and reference is made to each using similarly numbered sub-paragraphs.

(i) this was represented and was not false;
(ii) this was represented and was not false;
(iii) this was not represented and in that regard paragraph 70 of Mr Molyneux’s first Affidavit falls short of the evidence required to prove it. Further, even if that were not so it is in regard to a future matter and there is no evidence it was uttered without belief in its truth”.

50. Accordingly, the presently relevant issues raised for determination were that Mr Fielding represented in about May 2002 that Bellevarde would execute the Works in accordance with the Contract in good faith, but that this was not false; and that Mr Fielding represented to CPC in about May 2002 that Bellevarde would make available to CPC at all times its books, records and accounts relating to the Works, but that this was not false. Thus, the representations flowing from paragraph 21 of Mr Molyneux’s Affidavit of 28 July 2005 were admitted, to the extent to which they are set out in paragraphs 6(i) and (ii), but their falsity was denied.

The referees deal with certain of the defendants’ submissions

25 In generally explaining their reasons the referees (at [74]-[77]) put the matter as follows:

74. …Mr Bailey submitted that the paperwork was kept in an immaculate manner and revealed that Cutcross was acting as the sub-contractor, which supplied the labour. However, the evidence was that there was very little attempt to distinguish between Bellevarde and Cutcross in relation to the employment of workers in the correspondence before us. This showed the close relationship between those companies and revealed that the essential element was payment by Cutcross, thus enabling it to pass on higher costs to Bellevarde. What was not revealed was the additional amount charged by Cutcross, thereby constituting a profit in Cutcross, which could be passed on to Mr Fielding, in addition to the agreed capped profit margin.

75. …Mr Bailey submitted and, to some extent, Mr Molyneux agreed with the general proposition, that one would expect a company in the position of Cutcross to make a profit. An arms-length sub-contractor would, clearly enough, fall within this category and, thus, within Clause 14(j). However, in the absence of any explanation from Mr Fielding as to why Bellevarde could not hire the labour itself, rather than through Cutcross with all the consequences to which we have referred, we think it appropriate to draw the inference, which is clearly available on the totality of the evidence, that the profit being made allowed for an increase of the capped profit margin to which Bellevarde was entitled under the Contract and was capable of being passed to Mr Fielding through Sidecut. It was, in this context, that Mr Parsons submitted that Cutcross was not a genuine sub-contractor falling within Clause 14(j), but, rather, a company interposed to increase the “ plus ”, i.e. the profit margin. This was never revealed to Mr Molyneux. In our opinion, that submission should, for the reasons we have given, be accepted. The “ plus ” Bellevarde or, perhaps, more accurately the Fielding Group was obtaining was not only the agreed capped profit margin, but also the profit generated by Cutcross and, therefore, it exceeded that to which Bellevarde, which received the “ uplift ” in the first instance, was entitled. It was, therefore, in our opinion, not an amount to which Bellevarde was contractually (or indeed in any other way) entitled.

76. …Mr Bailey submitted that a proper and adequate explanation was also given in paragraph 6 of Mr Molyneux’s Affidavit of 28 June 2005, where he recorded having asked Mr Fielding why he employed some of his workers in Cutcross. Mr Fielding’s reply was:-


“So I won’t lose everything if someone sues me.”

The only way it was suggested this could occur was through unfair dismissal. Such an action would hardly cause Mr Fielding or any of his companies “ to lose everything ”.

77. In paragraph 68 Mr Molyneux said that in his experience, it was not unusual for a business to be operated using more than one corporate entity for asset protection purposes “ for reasons similar to why CPC and Even undertook the Project with the ANZ, or for a number of other reasons ”. Accordingly, Mr Bailey submitted that Mr Fielding had explained his reasons. We have come to the conclusion that that was not an explanation for the misrepresentations to which we have referred. The reason, we infer, was not to protect assets but to generate income in Cutcross, which would eventually flow to Mr Fielding. There was no suggestion in Mr Fielding’s answer to Mr Molyneux of the generation of additional profit, over and above that provided by the Contract, nor, indeed, of how asset protection would be achieved and, in our opinion, the sheer generality of Mr Molyneux’s evidence does not give rise to any contrary inference. Certainly it does not provide any support for the view that a contracting party could, by the interposition of another company in the same corporate group, increase its profit beyond that to which it agreed in the Contract and thus vary its contractual entitlements for its financial benefit. No such proposition was ever put to Mr Molyneux.

The essential attack by the defendants in opposing the adoption of the report

26 The defendants put forward three grounds in opposition to the adoption of the report:

i. The contention that the finding of fraud was incorrect;

ii. The contention that a relevant nexus between the fraud, dishonesty or error in computation and the architect's certificates was necessary to be established and had not been established;

iii. a contention that the referees having found that Cutcross was an approved subcontractor under the contract, it was not open for the referees to have found that Cutcross was not a genuine subcontractor falling within clause 14 (j), but was rather a company "interposed" to increase the profit margin of Bellevarde or the Fielding Group, nor that Cutcross had not been an arms-length subcontractor.

The ‘nexus’ issue

27 The second of these issues is appropriately dealt with first because, at least on one level, it purports to treat with the proper construction of clause 16(c) the contract which it will be recalled provides that an architect's certification is conclusive evidence of the cost "… except in the case of fraud, dishonesty or error in computation". Hence what is being treated with may qualify as a question of law requiring special focus on an application for adoption of a referee's report.

28 The defendants’ submissions on this ground were inter alia as follows:

"Fraud used to set aside the Architect’s Certificate

i. There must be a relevant nexus between “ the fraud, dishonesty or error in computation ” and the architect’s certificates. The authorities are concerned by the proximity of the fraud with the signing of the certificate. Collusion between the builder and the certifier is the classic vice or mischief which this provision is aimed at. Further, if the certificate certifies an invoice that itself is a misrepresentation of fact (such as falsifying the number of hours worked or materials used), then that would also be envisaged to be subject to this type of provision.

ii. In the instant case, the nexus between the alleged deceit and the circumstances of the certification and payment are too remote.

iii. The Representations occurred in about April 2002. Those utterances are the alleged deceitful act. Between that time and certification the following things happened:

· the Contract’s terms were negotiated. This resulted in 11 special conditions being inserted and took from about April 2002 until 2 February 2003;

· Bellevarde began work on site in November 2002 based on a “mutual understanding;”

· on 2 February 2003 the Contract was signed;

· the first progress claim was rendered by Bellevarde on CPC on 31 January 2003. It contained and claimed an invoice from Cutcross to Bellevarde for labour;

· the second progress claim was rendered by Bellevarde on CPC on 15 February 2003. It also contained and claimed an invoice from Cutcross to Bellevarde for labour;

· each progress claim included a claim for Cutcross labour;

· thereafter the progress claims were rendered on the 15th day of each subsequent month;

· in February or March 2003 Mr Fielding told Mr Molyneux Snr that Cutcross was a related corporation to Bellevarde;

· the progress claims, including Cutcross’ enclosed invoices and time sheets, were checked by John Aho and John Richard Molyneux. They were also subject to Mr Aho’s evaluation against industry rates as being “middle of the range”, reasonable and “O.K.”;

· Cutcross’ invoices accurately reflected the hours worked and the nature of each worker’s qualification (and hence the applicable hourly rate). The maths were correct. The hourly rates were approved;

· the progress claims, once checked in this way by CPC, were sent out to Alex Popov, the architect, and he certified them;

· as an ongoing process the progress claims and their attached certificates were sent on to Rider Hunt, quantity surveyors, who certified for the payment to be made by the ANZ Bank, CPC’s financier.

iv. In these circumstances, the Representations do not procure the architect’s certificate.

v. The Representations cannot cause the architect’s certificate to be set aside.

29 There is no substance in these submissions.

30 The proposition appears to be a bifurcated one:

i. One limb concerns the certification process itself and the suggested proposition that nothing which caused the architect to certify is shown to have constituted fraud or inappropriate conduct: hence it is said that there is no fraud that affects the certificates.

ii. The second limb concerns what is put as a temporal issue which essentially comes down to the proposition that any anterior representation had been spent prior to the entry into of the contract.

31 The referees dealt with the first limb proposition, principally at [79]-[81] of the report. As the referees interpreted the submission made by the defendants it was that for CPC to succeed “it must prove that the progress certificates were procured by ‘fraud’” (cf [79]).

32 The referees observed (also at [79]) that this formulation appeared to be intended to mean that the furnishing of the progress certificates must have been attended by fraudulent conduct, for the submission continued that CPC must prove that “Bellevarde and Mr Fielding made a representation to CPC and the Architect; that Bellevarde and Mr Fielding made out the representation to be true to CPC and the Architect”; and that “the Architect and CPC acted or omitted to act based on the representation in regard to the progress claims”.

33 The referees relevant findings on this particular point are to be found in [80] and [81]:

80. "In one sense, it may be said, that there was a procuring of the progress certificates by “ fraud ” because they contained the inflated amounts paid by Bellevarde to Cutcross, albeit “ reasonable ” or “ within the range ” or “ OK ”, notwithstanding that they were inflated for the reason we consider should be inferred, namely to increase the capped profit margin.

81. However, in our opinion, Clause 16(c) can be construed more simply. Relevantly, for present purposes, it is conclusive evidence of the cost of labour provided by Bellevarde, except in the case , inter alia, of fraud . Therefore, if it can be shown that the cost of labour was inflated by fraud, the conclusiveness of the certificate, which is soiled by that fraud by the inclusion of the inflated amounts, ceases to exist. [Emphasis added.]

34 This finding is said by the defendants to be incorrect. Their contention is that:

(i) In the light of the remoteness of the representations from the certification, the Referees are wrong.

(2) Further, the cost of labour was not “inflated by fraud”. It was charged at rates approved by CPC. The cost of labour was not misleading. Cutcross’ charges were accurate and approved by CPC.

35 The referees’ findings certainly showed a relevant nexus between the fraud/dishonesty and the architect’s certificates. There are many authorities which support the proposition that when it is shown, fraud will unravel all: cf Lazarus Estates Ltd v Beasley [1956] 1 QB 702 at 712 -713 where Denning LJ observed:

“No court in this land will allow a person to keep an advantage which he has obtained by fraud. No judgment of the court, no order of a Minister can be allowed to stand if it has been obtained by fraud. Fraud unravels everything. The court is careful not to find fraud unless it is distinctly pleaded and proved, but once it is proved, it vitiates judgments, contracts and all transactions whatsoever."

36 The referees’ reasoning is not infected by error of the type which would suffice as a ground for the Court to refuse to adopt the report.

The so-called temporal issue

37 This raises a question of fact and was determined by the referees against the defendants. Little more requires to be said of the proposition. No error is shown in the referees’ reasons, they having clearly rejected the proposition that any anterior representation had been spent prior to the entry into of the contract.

38 The applicable principles dealing with the circumstances in which continuing representations may be regarded as having lapsed or having become ‘spent’ were set out in Peabody Resources Ltd v Macquarie Generation (unreported, Supreme Court of New South Wales, 19 November 1998, Einstein J) at 555 et seq.

39 In truth the type of representations upon which the plaintiff had relied, would likely be enduring representations. Where the transaction has been originally founded on fraud, the original vice will continue to taint it however long the negotiation may continue, or into whatever ramifications it may extend: Reynell v Sprye (1852) 1 De GM & G 660 at 697; Smith v Kay (1859) 7 HL Cas 750 at 775.

Estoppel

40 Also included in the report (in the balance of [81]) were the referees’ reasons rejecting an associated submission that CPC was estopped from asserting that the progress certificates which it had paid were able to be revisited. The convenient course is also to set out that part of the report:

81. "… Mr Bailey also submitted, conformably with paragraph 42 of his Amended Defence to the FAS, that CPC was estopped from asserting that the progress certificates, which it had paid, were able to be revisited, because the acceptance of them by payment amounted to an act by CPC, which created an estoppel. In our opinion, this submission, which was not elaborated upon in any detail, must be rejected for at least two reasons. First, Clause 16(c) provides that notwithstanding the conclusiveness of the certificates, they may be revisited if fraud, dishonesty or error in computation is found. There is no time limit within which these matters may be found, under Clause 16(c), and, of their very nature, it is unlikely and, in any event, inconsistent with a proper construction of the Contract, that it should be held that they should be found before payment was made. Accordingly, provided the vitiating factors, or any of them, are or is found to exist, the progress certificates and, hence, the payments, may be revisited. This clause, in the circumstances of the case, denies the ability of an estoppel to arise. Secondly, shortly after the progress certificates began to be issued, Mr Molyneux spoke to Mr Fielding. The conversation is recorded in paragraph 70 of Mr Molyneux’s Affidavit of 28 July 2005. He said that he told Mr Fielding that in view of the problems with the site he would wait “ until near the end before I get my Accountant to reconcile the actual payments to your records ”. Mr Fielding replied that that “ won’t be a problem ”. This conversation was never denied by Mr Fielding in evidence before us and we accept it. The consequence is that Mr Fielding was agreeing with Mr Molyneux, at a very early stage, that the figures could be revisited. It was open to Mr Fielding, at that point, to have objected and stated that payments made under the progress certificates were conclusive, except in certain circumstances. However, he agreed with Mr Molyneux that the figures could be revisited by way of reconciliation “ near the end ”. In our opinion, this precludes any estoppel, of the type for which Mr Bailey contended, arising. Thirdly, Mr Fielding had assured Mr Molyneux that “ my books will always be open, you can check on the costs at any time ”. We make the same findings in relation to this statement, which preceded the issue of any progress certificates, as we did in respect of the statements made in paragraph 70. Finally, it seems to us that an estoppel would not run in circumstances where Mr Molyneux was unaware of the true situation. This reason is really bound up with the first, which we have considered in this context.”

Returning to the contention that the finding of fraud was incorrect

41 In essence this contention flies in the face of clear findings of fact. It is rejected out of hand there simply being no basis for any suggestion that the evidence did not justify the finding.

The contention that it was not open for the referees to have found that Cutcross was not a genuine subcontractor falling within clause 14 (j), but was rather a company "interposed" to increase the profit margin of Bellevarde or the Fielding Group nor that Cutcross had not been an arms length subcontractor

42 Here again the contention flies in the face of the clear findings of fact. It is also rejected out of hand.

The contention that if the matter had been decided on a quantum meruit basis, the figures would have been much the same as those charged because they were “within the range” or “reasonable” or “ok”

43 The referees rejected this contention, observing that it missed the point for the following reasons:

i. First, the matter was never approached on a quantum meruit basis and Mr Bailey did not seek to explain how such an approach could, in light of the Contract provisions, have arisen or been relevant.

ii. If Bellevarde had employed an arms-length sub-contractor, or engaged the same sub-contractor as had been engaged through Cutcross, there could have been no complaint.

iii. It was Cutcross’ interposition which added to the costs, and Mr Fielding’s failure, notwithstanding his assertion that he hid nothing, to disclose, consistently with his hiding nothing, that by that strategy the capped profit margin under the Contract was increased.

iv. Even though the charges may have been “ much the same ”, with which we do not necessarily agree, if Bellevarde had sub-contracted with the workers, CPC would have been paying to have the work carried out conformably with the Contract and not by making the uplift payments adding to the contractually stipulated capped profit margin.

44 Nothing in this approach reveals error.

Relief

45 The plaintiff moves for adoption of the whole of the report, varied so as to provide for judgment against Mr Fielding (the second defendant) for damages for fraud in the amount of $791,042. That limited variation is warranted by the clear finding at [71], [86] and [87] of the report.

46 The referees’ precise reasons in terms of conclusions on liability were expressed as follows:

CONCLUSIONS ON LIABILITY

94. As we have found fraud, the conclusivity of the Architect’s certificates is removed. Further, as we have said, fraud can lead not only to that result, but also to the awarding of damages for deceit. In these circumstances it is not strictly necessary to consider whether there was conduct contrary to the provisions of the Trade Practices Act and/or in breach of Contract. However, it is desirable that we make certain, albeit brief, comments in relation to the Act.

95. Section 52(1) of the Trade Practices Act 1974 hardly requires repetition. We are satisfied that the comments made by Mr Fielding to Mr Molyneux, as appearing in paragraph 21 of the latter’s Affidavit of 28 July 2005, constitute conduct in trade or commerce that was either misleading or deceptive in so far as Mr Fielding made the comments, which we have quoted and, particularly, the statement to the effect that “ I hide nothing ”. Relief under the Act, of course, is only available if the conclusiveness of the progress certificates is successfully attacked. If the view is taken that there was no fraud, there was, in our opinion, dishonesty. The dishonest statement was that nothing was hidden, whereas it is clear that something, of significance was hidden, namely the “ uplift ” in the arrangements between Bellevarde and Cutcross. For these reasons we would be prepared to hold that the conclusiveness of the progress certificates was defeated; that the reason for that defeat constituted the conduct proscribed in Section 52 and that CPC is entitled to relief under the Act. The relief we would be disposed to give, if our principal reasoning is not accepted, are damages in the amount for which damages should be awarded for fraud.

96. This then raises the position and potential liability of Mr Fielding under Section 75B of the Act. In Yorke & Anor v Lucas (1985) 158 CLR 661 it was held that for an individual to be involved in a contravention of the Act, for the purposes of that Section, he must be shown to have intentionally aided, abetted, counselled or procured a contravention; and to form the necessary intent he must have knowledge of the essential matters which make up the contravention whether or not he knew that those matters amounted to a contravention. In our opinion there can be no doubt, on the facts of this case, that Mr Fielding intentionally procured the contravention by setting up the arrangement between Bellevarde and Cutcross and, if the matter were to be decided pursuant to the Act, we consider that he also would be liable under it.

47 The referees’ precise reasons in terms of conclusions on the damages were expressed in the following terms:

CONCLUSIONS ON DAMAGES

122. As indicated, Mr Molyneux impressed us as a witness of credit. He had accountancy skills, his figures and calculations were essentially unchallenged, his methodology was based on the contractual regime for costing the works and finally, a random check of the Bellevarde and Cutcross documents from which he transposed the actual costs to the spreadsheet showed the figures used to be accurate, to the extent that the check enabled this. In all these circumstances we are satisfied, on the balance of probability and having regard to the appropriate onus, that Mr Molyneux’s calculation should be accepted. Accordingly, we find that the loss sustained by CPC was $791,042.00, as claimed.

Recommendations to the Court

48 The referees’ recommendations to the Court were expressed in the following terms:

[W]e recommend to the court to that :

(a) the conclusiveness of the progress and final certificates is vitiated by reason of fraud and/or dishonesty;

(b) it be found that CPC has paid to Bellevarde in consequence of that fraud and/or dishonesty $791,042.00 more than it was contractually obliged to pay;

(c) there be judgment for CPC against Bellevarde as either:-

(i) damages for fraud; or
(ii) damages for breach of the Trade Practices Act
in the sum of $791,042.00


(d) in the event of it being found that Bellevarde has acted in breach of the Trade Practices Act , that it be found that Mr John Francis Fielding has also breached that Act and that there be judgment against him in the sum of $791,042.00; and

(e) the Contract be rectified by deleting “10 ” from the Appendix relating to clause 14(a) and inserting in lieu thereof “N/A”.

49 The appropriate orders will require to be reduced to short minutes. Subject to clarification of the Trade Practices issue [see below], the proper course is to adopt the whole of the report, varied so as to provide for judgment against Mr Fielding for damages for fraud in the amount of $791,042: that limited variation being warranted by the clear finding at paragraphs 71, 86 and 87 of the Report. I did not understand the plaintiff to be further seeking orders under the Trade Practices Act - but the plaintiff has leave to address further submissions on this matter if it still seeks such orders.

50 The other recommendations of the referees are to be adopted.

Short minutes of order

51 The plaintiff is to bring in short minutes of order on which occasion costs may be argued. At the same time, updated detail as to interest to judgment date may be dealt with.