Gigi Entertainment Pty Limited v Schmidt

[2010] NSWSC 906

CITATION:	GIGI ENTERTAINMENT PTY LIMITED v SCHMIDT [2010] NSWSC 906
HEARING DATE(S):	Wednesday 11 August 2010
JUDGMENT DATE :	16 August 2010
JURISDICTION:	Common Law
JUDGMENT OF:	Hall J at 1
DECISION:	(1)That the report of Dr John M Hutcheson, Referee, dated 28 April 2010 be rejected insofar as it expresses an opinion as to the costs of rectifying any of the following items referred to in the Scott Schedule dated 6 May 2008:- (a) item 8; (b) items 32, 34, 49, 120 and 150; (c) items 5, 39, 102, 108 and 109. (2) That the following parts of the Referee’s report be rejected:- (a) paragraphs 5(e), 64 to 66, 79(a)(i) and the row labelled “Supervisor for the Plaintiff” in the table behind Tab 3 (“Supervisor for the Plaintiff”); (b) paragraphs 5(f), 46 to 48, 79(a)(ii) and the row labelled “Referee – 5.5% Reserve” in the table behind Tab 3 (“reserve for unknowns”); (c) paragraphs 5(c), 58 to 60, 79(a)(iii), item 156 of Tab 2, Item 156 of Tab 3 (“preliminaries”). (d) paragraphs 5(d), 61 to 63, 79(a)(iv), item 158 of Tab 2, item 158 of Tab 3 (“OH&P”). (3) That, subject to order (4) of these order, the Referee’s report otherwise be adopted. (4) These orders are without prejudice to the defendant’s right to make contentions at trial regarding any question of law arising in the proceedings (including any question relating to the proper construction of any document) whether or not that question was inquired into or reported on by the Referee. (5) That the plaintiff’s notice of motion filed on 8 June 2010 be dismissed with costs. (6) That the plaintiff pay the defendant’s costs of, and incidental to, the hearing on 11 August 2010. (7) That the costs of the reference before the Referee be reserved.
CATCHWORDS:	REFERENCE TO REFEREE – under Court order UCPR Part 20.14(1) – application by a party to proceedings opposing adoption of Referee’s report on certain matters – PROCEDURAL FAIRNESS – whether Referee utilised a report of an expert the parties had agreed would not be relied upon for purposes of the proceedings – the report, in breach of procedural fairness requirements, had been used as a “check” on cost of work – obligation of Referee to “determine” quantum of liability of lessee under a repair and maintenance provision – requires more than selecting or preferring one expert’s assessment over another – determining quantum requires examination and analysis of basis of relevant material – “quantum” refers to an amount of money payable in damages – not determining maximum allowances for items of work and does not permit indeterminate allowances being made for items of work such as unquantified provisional sums – duty to give reasons – a Referee must identify the basis for or provide an explanation for a particular allowance or assessment of loss and not merely prefer one expert assessment over another
CASES CITED:	Strabak v Newton (Court of Appeal, unreported 18 July 1989 per Samuels JA) Xuereb v Viola (1989) 18 NSWLR 453
PARTIES:	GIGI ENTERTAINMENT PTY LIMITED v Michael Karl SCHMIDT
FILE NUMBER(S):	SC 08/289478
COUNSEL:	P: J Darvall D: S Robertson
SOLICITORS:	P: Macree Law D: Brischetto Ford

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

HALL J

MONDAY 16 AUGUST 2010

08/289478

GIGI ENTERTAINMENT PTY LIMITED v MICHAEL KARL SCHMIDT

JUDGMENT

The proceedings

1 HIS HONOUR: The plaintiff, Gigi Entertainment Pty Limited, commenced proceeding by way of Statement of Claim filed on 9 September 2008.

2 A Defence was filed on 26 September 2008 and subsequently an Amended Defence on 20 January 2009.

3 The proceedings involve a claim by the plaintiff against the defendant for damages in respect of obligations imposed on the defendant under a lease of a hotel known as the Tattersall Hotel, Lithgow, New South Wales (“the Tattersall Hotel”).

4 The defendant, Mr Schmidt, filed a cross-claim seeking damages for alleged wrongful repudiation of the lease and loss of his business conducted at the hotel.

Factual matters

5 In the proceedings it is alleged that Mr Schmidt executed a Deed made on 19 January 2007. The Deed is said to have constituted a deed of consent to the assignment of the benefit of the lease of the Tattersall Hotel to the defendant.

6 In due course, a Scott Schedule was served by the plaintiff quantifying its claim in an amount of $583,562 (excluding certain hotel equipment, not the subject of the referral to the arbitrator referred to below). In reply, the defendant assessed the amount of the plaintiff’s claim at $31,900 (including GST).

7 On 22 October 2009, an order was made, by consent, by Harrison J pursuant to which Dr John M Hutcheson was appointed as a Referee to inquire and report upon the following questions:-

“Assume for the purpose of this Reference only, that the Defendant has a liability under the repair and maintenance of Lease number AB903428, as amended, Determine:-
(a) which of the work set out in the Scott Schedule are within such liability; and
(b) the quantum of such liability.”

8 Mr Hutcheson, in due course, produced a Referee’s report dated 28 April 2010.

9 Mr Hutcheson includes amongst his professional qualifications degrees in Bachelor of Engineering, Bachelor of Commerce, PHD. He is stated to be a Chartered Builder (NPBR), Project Manager/Consultant, Chartered Secretary; Certified Practising Accountant; Registered Tax Agent, Forensic & Investigative Engineer, Chartered Engineer, Licensed Building Supervisor, Ex Principal Certifier (Building); Ex-Accredited Certified – Civil Engineering, amongst other qualifications.

10 The Referee’s report concluded that the quantum of the plaintiff’s claim was $523,105 (inclusive of GST) together with an unspecified amount for supervision, the Referee noting that the question of supervision was not addressed by either party’s building expert.

Applications in respect of the adoption of the Referee’s report

11 In a notice of motion filed on 8 June 2010, the plaintiff moved for an order that the report of the Referee be adopted in whole. It also sought an order for its costs of the motion. In support of the application reliance was placed upon the affidavit of Basil John Macree, solicitor, sworn 7 June 2010.

12 The defendant opposes the adoption in whole of the Referee’s report on a number of bases. The defendant has served notice that it proposes to rely upon an application for the partial adoption of the Referee’s report.

13 On the hearing of the plaintiff’s notice of motion on 11 August 2010, Mr Scott Robertson of counsel on behalf of the defendant sought leave to file a notice of motion in which the following orders were sought:-

“1. That, pursuant to Rule 20.24 of the Uniform Civil Procedure Rules (NSW), the report of Dr John M Hutcheson dated 28 April 2010 (‘ the Referee’s Report ) be adopted to the extent indicated in Attachment A.
2. That the Referee’s Report otherwise be rejected.
3. That the Plaintiff’s notice of motion filed on 8 June 2010 be dismissed with costs.
4. That the plaintiff pay the Defendant’s costs of this Notice of Motion as agreed or assessed.
5. That the cost of the reference be reserved.
6. Such further or other orders as this Honourable Court deems fit.”

14 Leave was granted to the defendant to file the Notice of Motion in the registry and the motion was treated as before the Court at the hearing on 11 August 2010.

15 On 5 August 2010, the defendant filed a document entitled Defendant’s Outline of Submissions with respect to the Plaintiff’s Notice of Motion filed on 8 June 2010.

16 The Plaintiff’s Outline of Submissions in Reply concerning the adoption of the Referee’s report dated 9 August 2010 responds to the Defendant’s Outline of Submissions.

17 The written submissions have been supplemented by oral submissions by Mr Scott Robertson, counsel for the defendant and the oral submissions of Mr James Darvall, counsel for the plaintiff.

Consideration

18 The Referee’s report includes what is described as “the Joint Scott Schedule by all the Experts – with Referee’s Opinions”. That document identifies each of the 154 items that the plaintiff alleges the defendant was obliged to repair and includes comments by the Referee in respect of each item. The document also contains a summary of the Referee’s “preferences” (Tab 3 of the report).

19 In the Defendant’s Outline of Submissions (paragraph 15), it is made clear that the defendant does not oppose the report being adopted, insofar as it expresses an opinion as to the cost of repairs in respect of 143 of the 154 items.

20 Accordingly, the defendant’s position was that he opposed the adoption of the Referee’s report insofar as the remaining 11 items were concerned. The basis for that opposition is conveniently summarised in the Defendant’s Outline of Submissions, paragraph 16 as follows:-

“16 …
(a) In the case of Item 8 – the Defendant was not accorded procedural fairness in that the Referee’s decision was (without notice) expressly based on the report which was not relied upon by any party;
(b) In the case of Items 32, 34, 49, 120 and 150 – the Referee did not, in fact, express an opinion as to the cost of repairing those Items;
(c) In the case of Items 5, 39, 102, 108 and 109 – the Referee gave no (or no sufficient) reasons for identifying a particular quantum.”

Statutory provisions

21 The relevant provisions relating to orders of referral to Referees are contained in Part 20 Division 3 of the Uniform Civil Procedure Rules 2005 (“UCPR”).

22 By Rule 20.17, the Court may, at any time, inter alia, authorise a Referee to inquire into and report on any facts relevant to the inquiry and report on the matter referred.

23 Rule 20.23 provides:-

“20.23(1) Unless the Court orders otherwise, the Referee must make a written report to the Court on the matter referred to the Referee annexing the statements given under Rule 20.20(5) and stating:-
(a) the Referee’s opinion on the matter, and
(b) the Referee’s reasons for that opinion.
(2) On receipt of the report, the Court must send it to the parties.”

24 Rule 20.24 makes provisions for proceedings on a Referee’s report. Under these provisions, the Court may adopt, vary or reject the report in whole or in part, may require an explanation by way of report from the Referee, may, on any ground, remit for further consideration by the Referee the whole or any part of the matter referred for a further report or it may decide any matter on the evidence taken before the Referee, with or without additional evidence.

25 In any event, the Court must give such judgment or make such order as the Court thinks fit.

26 Rule 20.24(2) provides that evidence additional to the evidence taken before the Referee may not be adduced before the Court except by leave of the Court.

Referee’s report dated 28 April 2010

27 In these proceedings, the Referee’s report comprised two volumes. On the hearing of the present applications, they were respectively marked Exhibit A1 and Exhibit A2. Exhibit A1 is entitled “Part No 1” of the Referee’s report. Part 2 of the report (Exhibit A2) contains various annexures and other materials that were before the Referee.

28 Exhibit A1 included a 40-page report from Dr Hutcheson. Tab 2 of Exhibit A1 consisted of a 78 page document entitled “The Joint Scott Schedule by all the experts – with Referee’s opinions”.

29 Behind Tab 3 of Exhibit A1 was a further document entitled “Summary of the builders’ joint Scott Schedule – if defendant lessee liable”.

30 The joint Scott Schedule was made up of a table (Table 2) which included a number of items, numbered 1 to 160.

31 The application by the defendant did not, as noted above, constitute challenge to the adoption of all of the Referee’s opinions, but was limited to a number of items. The defendant’s opposition to the adoption of the Referee’s report was confined to 11 specified items along with a number of matters detailed below.

32 I turn to consider the disputed items.

(1) Item 8 – Procedure fairness re Referee’s fact No 10 - Painting

33 This item raises the question as to the Referee’s use of a report by Asset Constructions Australia Pty Limited (“Asset Constructions”) commissioned by the plaintiff, (the “Asset Constructions Report”).

34 The statement of claim (paragraph 10) stated that, by letter dated 14 April 2008 from B J Macree & Co, the plaintiff sought from Asset Constructions advice as to the cost of rectification to the Tattersall Hotel in accordance with a report referred to as “the Tyrell’s Report”.

35 The statement of claim also records that this led to a demand by the plaintiff by letter dated 30 June 2008 accompanied by a copy of the Asset Constructions Report.

36 In the written submissions for the defendant (paragraph 20) on the hearing of the above application, it was contended that the plaintiff made a deliberate decision not to rely on the Asset Constructions Report for the purposes of the reference to Dr Hutcheson. It was said that this was confirmed in an email both to the defendant and to the referee. In this respect, reference was made to the report at Tab 23.

37 Accordingly, it was submitted:-

“21. Relying on the Plaintiff’s indication that it did not rely on the Asset Constructions Report, the Defendant did not make any submission with respect to that report but expressly ‘ reserve(d) the right to make submissions later if the Plaintiff decides to rely on the Asset Constructions Report ’.”

38 Reference was made in the latter submissions to the report at Tab 16, [14]. The submissions continued:-

“22. Despite this, the Referee relied on the Asset Constructions Report in deciding that the Plaintiff’s expert’s estimate with respect to Item 8 should be preferred to the Defendant’s expert’s estimate. Prior to doing so, the referee gave no indication that he intended to rely on that report in providing his Report.”

39 It was ultimately argued for the defendant that there was a clear breach of the rules of procedural fairness such that the Court must reject the report insofar as it purported to deal with Item 8. Reliance was placed in this respect upon the judgment in Xuereb v Viola (1989) 18 NSWLR 453 at 472D.

40 The plaintiff’s expert provided an estimated cost of $188,000 in respect of this item. The defendant’s expert estimated loss at $8,475.

41 The estimate calculated by the plaintiff’s expert involved a labour calculation totalling $160,000.

42 The Referee expressed his opinion “I prefer the PEs (plaintiff’s expert) $188,000”. The Referee set out nine points or reasons in support of his opinion.

43 Mr Robertson on behalf of the defendant, contended that the defendant was not accorded procedural fairness in relation to the Referee’s decision on this item as that decision was (without notice) expressly based on a report which was not relied upon by either party.

44 Mr Robertson, in support of his contentions, relied upon the following:-

• Email correspondence between solicitors for the plaintiff and the defendant. On 12 April 2010, the solicitor for the plaintiff advised the solicitor for the defendant in these terms:-

“As you are aware, the Asset Constructions Report was forwarded to Dr Hutcheson at his request. The plaintiff does not rely on that report.”

• In written submissions on behalf of the defendant before the Referee, it was noted:-

“ Asset Constructions Report
14. Although the plaintiff served a report by Asset Constructions dated 4 June 2008, this report was not relied upon by the plaintiff and the author did not participate in the conclave. No submissions are made by the D regarding the Asset Constructions Report and it is assumed to be abandoned. The D reserves the right to make submissions later if the P decides to rely on the Asset Constructions Report.”

45 The defendant’s complaint in relation to Item 8 was that the Referee did, in fact, have regard to and utilised the Asset Constructions Report in dealing with this item. Mr Darvall, in his oral submissions (t.35), contended that the inference from the Referee’s reference to that report was “I’m satisfied about the $188,000 and I’m comforted by the fact that it is not inconsistent with what is in Asset Constructions”.

46 In the Report, paragraph 69(f), the Referee recorded:-

“69(f) The estimate of loss by the Plaintiff’s Expert is consistent with that part of the market which is represented by the quotation by Asset Constructions Australia in Tab no 23 of $290,000 (including the preliminary, OH&P of the sub-contractors and head contractors) less a number of sums for other minor non-painting activities.”

47 The Referee made a further reference to the Asset Constructions Report in paragraph 61(b) although this was on the question of “Builders’ O H & Profits”, a matter with which I will deal separately below.

48 Mr Robertson contended that it is clear that, notwithstanding the agreement between the solicitors that the Asset Constructions Report would not be relied upon by the plaintiff that the Referee, nonetheless, had regard to it and utilised it in expressing his conclusion and opinion in relation to Item 8. In particular, it was contended:-

• A Referee is obliged to observe the requirements of natural justice in the conduct of his or her inquiry.

• There was a patent breach of the obligation in respect of the Referee’s consideration of Item 8.

• This occurred in circumstances in which the plaintiff had made a deliberate decision not to rely on the report for the purposes of the reference.

• Relying on the plaintiff’s indication to that effect, the defendant did not make any submissions with respect to the report and expressly reserved its right to make submissions as stated above.

• Notwithstanding the above, the Referee relied on the report in deciding that the plaintiff’s experts’ estimate with respect to Item 8 should be preferred to the estimate of the defendant’s expert. This was done without any notice having been given that the Referee intended to rely on the report.

• In the circumstances, there was a clear breach of the rules of procedural fairness and, in reliance upon dicta of Cole J in Xuereb (supra), the Court must reject the report, insofar as it deals with Item 8.

49 In response, Mr Darvall for the plaintiff contended that an examination of the Referee’s report, in particular, paragraph 69, indicated that the report of Asset Constructions had not been utilised by the Referee in formulating his report.

50 In the Plaintiff’s Outline of Submissions in Reply, it was contended:-

“34. A Referee is not obliged to conduct a reference in a manner as similar as possible to the conduct of court proceedings. While a Referee should ensure the parties receive natural justice, including in the sense that they be given the opportunity to place before the Referee submissions of facts and law, what may be required by natural justice will vary with the particular circumstances.
35. The Defendant was provided an opportunity to be heard on the subject of painting. The Referee notes the Defendant’s submissions at para.67(b)-(d) and then sets out his reasons, including the subject paragraph in sub-paragraphs (a)-(l) at pages 32-33. In the circumstances, the Defendant’s submission should be rejected, but further even on the face of the words, the Referee’s reliance, if any, on the Asset Constructions Report was to corroborate the decision he had already made.”

51 Mr Darvall drew attention to the nature of the Asset Constructions Report, a copy of which is behind Tab 23 in Exhibit A2.

52 It is, in my opinion, clear that, in the circumstances in which the solicitors for the plaintiff unequivocally stated there would be no reliance placed upon the Asset Constructions Report, taken in conjunction with the fact that the Referee did, in fact, have regard to and referred to the report when dealing with Item 8, without notice or opportunity to the defendant make submissions in relation to it, there was a clear breach of the requirements of procedural fairness, the defendant not been given such notice or opportunity.

53 In circumstances where the matter in issue concerns the quantum of any allowance made in respect of Item 8, the defendant was clearly entitled to be heard in relation to any matter to be taken into account in the assessment of that item. The estimate of $290,000 made by Asset Constructions was completely inconsistent with the defendant’s expert’s assessment and, at least prima facie, was seen by the Referee as providing a useful “check” against the plaintiff’s expert assessment before finally accepting the latter assessment. In those circumstances, the breach of procedural fairness related directly to a matter of central importance on the assessment of quantum in respect of Item 8.

54 In circumstances in which the defendant has established a clear breach of procedural fairness requirements, Mr Darvall properly accepted that there was an onus (whether or not called an evidentiary onus) upon him to establish that any breach of procedural fairness established by the defendant had no effect. Alternatively, even if the defendant had been made aware of the Referee’s intended use of the Asset Constructions Report, it was for the plaintiff to establish that the use of the Asset Constructions Report would have made no difference to the Referee’s assessment of Item 8.

55 It is, in my opinion, clear from the terms of paragraph 69(f) of the report that the Referee did use the Asset Constructions Report at least , either as a form of “corroboration” or as a “check” on assessment relied upon by the plaintiff. The Referee’s statements indicates that the Asset Constructions Report established a relevant matter, namely, “the market” which the latter report is said to represent. There was no statement by the Referee that he, in fact, did not have any regard to the report or that he found it to be of no use to the assessment. The Referee’s statement about the Asset Constructions Report indicates the contrary, namely, that he considered that it was of value and was instructive for the purpose of the assessment exercise required of him. In those circumstances, I am of the opinion that the use of the report of Asset Constructions meant that the defendant was deprived of a fair hearing in accordance with the principles to which I have referred above.

56 In those circumstances, the defendant having been deprived of the opportunity of being heard, the Referee’s conclusion or opinion in relation to Item 8 is vitiated and ought not be adopted for the purpose of the proceedings.

(2) The alleged failure of the Referee to express an opinion regarding quantum in respect of Items 32, 34, 49, 120 and 150

57 The fundamental submission on behalf of the defendant was that, in respect of Items 32, 34, 49, 120 and 150, the Referee has not in fact considered the actual cost of repair to each of those items, but has simply indicated a “preference” to a stated cost of repair.

58 It was submitted that the clearest example was Item 120.

59 In his written submissions, Mr Darvall contended that, in respect of the five items in question, the Referee provided what was required of him “… a maximum or cap on expenses …”: Plaintiff’s Outline of Submissions in Reply, paragraph 38.

60 In relation to each of these items, the Referee expressed his opinion in terms of a “preference” as to the cost of repair. In this respect, it is important to observe that the order by which the referral was made to the Referee required him to “determine”, inter alia, the quantum of the liability referred to in paragraph (a) of the consent referral order. This does not, as the plaintiff submitted, involve fixing a maximum or a cap on expenses.

61 In context, the word “determine” means, in accordance with the ordinary dictionary meaning of the word, to “settle or decide (a dispute, controversy, etc …) as a judge or arbiter …”: Shorter Oxford English Dictionary – in this case, the amount or quantum of damages.

62 Similarly, in the case of a referee appointed under the provisions of the UCPR, it is necessary for a referee to examine the issues and merits and material bearing upon the same in order to resolve the matter or matters in controversy. In other words, other than in special circumstances, the task of determining disputed issues involves more than a mere selection or “preference” of one competing expert assessment over another, unless, of course, the selection or “preference” is made following an examination and analysis of the relevant material bearing upon the assessment of liability or loss and the basis for the determination is identified in the Referee’s report. The issue of “reasons” for a determination is dealt with below.

(a) Item 120

63 In relation to Item 120, Mr Robertson observed that the Referee expressed the opinion that “the bar has value of an undermined quantum (emphasis added)”. And stated:-

“If the Defendant lessee is liable, I prefer the PEs’ PS of $30,000 which will be quantified by a detailed scope of work based on what is the extent of the Defendant lessee’s ability.” (emphasis added)

64 It was contended for the defendant that this part of the report should not be adopted by the Court as an opinion as to the cost of repairing Item 120. It was submitted in this respect that it was evident that the Referee did not turn his mind to the question of the assessment or determination of the cost of repairing Item 120, but instead simply adopted the plaintiff’s experts’ proposed provisional sum pending a proper evaluation as to the cost of repairing Item 120.

65 The Referee recorded five matters in support of his opinion as follows:-

“(1) Until a detailed scope of work is prepared, the PEs’ use of a PE is the valid method used in the construction industry.
(2) The critical element is the list of defects present at the beginning of the lease and which are identified by the Court as being the Defendant lessee’s liability to rectify.
(3) Tax depreciation is an accounting entry and does not record the sale value of the bar but more importantly does not record the value of the bar to the operation of the hotel.
(4) In valuation practice, consideration should be given to the value of the bar to carry out a function as well as the loss while there was not bar etc.
(5) Hence, the bar has value of an undetermined quantum.”

66 The Referee’s report recorded in relation to Item 120 the comment by the plaintiff’s expert “… subject to further investigation, allow provisional sum of $30,000 to replace bar”.

67 At paragraph 70(a) of the Referee’s report, a number of items are listed (including Item 120) which are referred to as losses designated “as provisional sums”.

68 In paragraph 70(b) it is noted, “the Defendant’s Expert makes objection to the use of PSs”.

69 In the Summary of the Builders’ Joint Scott Schedule, behind Tab 3 of Exhibit A1, the Referee noted:-

“3. The Provisional Sums (PS) need to be converted to a firm loss/cost after a more detailed inspection by the experts to produce a scope of work for costing.”

70 Mr Robertson’s submission was that this part of the report (Defendant’s Outline of Submissions, paragraph 27):-

“… should not be adopted by the Court as an opinion as to the cost of repairing Item 120. It is clear from the quoted section of the Report that the Referee did not turn his mind to the question of the cost of repairing Item 120. Instead, he simply adopted the Plaintiff’s Experts’ proposed provisional sum pending a proper valuation as to the cost of repairing Item 120. ”

71 I consider that this submission is well-founded.

72 On an issue arising under the terms of the order of referral, namely, “the quantum of such liability”, the Referee was required to make a determination of “quantum”, namely, the amount of money payable in damages. The opinion expressed by the Referee in relation to Item 120 was not a determination of an amount of money in damages but was a provisional and qualified assessment and, as such, was not within the terms of sub-paragraph (b) of the order for referral.

73 It is not, as Mr Robertson submitted, a question as to whether or not there is a standard practice in formulating estimates to provide for a provisional sum where there has been a grouping of defects. The provisional sum purportedly provided for by the Referee was not of a kind or nature contemplated by sub-paragraph (b) of the order. This is clear from the terms of the report (Tab 3, p.8) wherein it was stated:-

“… The Provisional Sums (PS) need to be converted a firm loss/cost after a more detailed inspection by the experts to produce a scope of work for costing.”

74 An opinion expressed in those terms by the Referee, not being a determination of an amount of money payable in damages, is, accordingly, not one contemplated by the terms of the order and, accordingly, should not be adopted by the Court for the purpose of the proceedings.

(b) Item 32

75 The Referee’s opinion effectively endorsed the estimate of the plaintiff’s expert (Mr Seeto). The Referee’s opinion was:-

“If the Defendant lessee is liable for rectification, then I prefer the DE’s estimate of $200 for the tiles and the PE’s $560 plus PS @ $8,000 for the pipe work and leaks.”

76 The Referee identified four points in support of his opinion. The second point stated that until the quantum of the defective pipe was prepared in detail, “… it is not possible to determine the scope of works for the rusted pipe or the number of leaks. Therefore, the use of a PS is appropriate and standard practice”.

77 The observations which I have made in relation to Item 120 equally apply to the Referee’s opinion as a provisional sum expressed in relation to Item 32. It is not a determination, as the order required, of an amount of money payable in damages. It is clear that it is simply an upper limit and the actual loss or cost may be established as that limit or some lesser amount. Given the nature of the defect and the Referee’s opinion, the Referee was clearly not in a position to determine an actual cost for the purposes of the determination he was required to undertake. Accordingly, the Referee’s opinion should not be adopted for the purpose of the present proceedings.

(c) Item 34

78 The Referee expressed the opinion that he preferred the plaintiff’s expert’s allowance of a provisional sum of $10,000 to be quantified after detailed inspection. The observations I have made in relation to Item 32 and Item 120 apply equally here. The expert’s opinion, accordingly, is not a determination required by the Order of Referral.

(d) Item 49

79 In relation to this item (services – galvanized pipe), the Referee’s opinion, again, was expressed in similar terms:-

“If the Defendant lessee is found liable, I prefer the PE’s PS of $10,000.”

80 For reasons stated in relation to Item 32 and Item 120, this is not a determination required by the Order of Referral.

(e) Item 150: single bathroom – fitting out new bathroom

81 The Referee, again, expressed his opinion in relation to this item as follows:-

“If the Defendant lessee is liable, I prefer the PE’s PS of $10,000.”

82 The observations made above in relation to Items 32, 34, 49 and 120 apply equally to the Referee’s opinion in relation to this item. That opinion is not a determination in accordance with the Order of Referral and, accordingly, should not be adopted for the purpose of the proceedings.

(3) Failure by the Referee to give reasons with respect to Items 5, 39, 102, 108 and 109

83 Rule 20.23(1)(b) of the UCPR requires a Referee to set out his or her reasons for the opinions expressed in a Referee’s report.

84 In this respect, it was acknowledged in the defendant’s submissions that the obligation does not require a referee to make express findings on each and every matter contended for by a party. However, the obligation, it was contended, does, as a minimum, require a referee to identify the fundamental reasons leading to a stated conclusion. In this respect, reliance was placed on Xuereb (supra) at 469C per Cole J.

85 In the present proceedings, it was contended that the Referee failed to provide any reasons at all for supporting one valuation or estimate by the experts over another in the case of Items 5, 39, 102, 108 and 109.

86 By way of general observation, in relation to particular items, one, at least, can envisage that a close examination by a referee could possibly lead to one of three or, perhaps, four results. The first would be that the Referee has assessed the item in line with the plaintiff’s expert. The second is that he or she assesses an item in line with a defendant’s expert’s quantification or estimate. The third is that the Referee determines an intermediate figure. A fourth possibility in a particular case may be that there is not enough information to make any assessment at all in relation to particular items.

87 The Referee, in relation to certain items in this case, appears to have proceeded on the assumption that the choice was either between the plaintiff’s expert’s assessment or the defendant’s assessment. There is no explanation as to why some intermediate assessment would not have been appropriate in relation to particular items. As earlier stated, the Referee’s obligation under the terms of the order of referral was to “determine”, inter alia, the issues of “quantum”.

88 It is necessary to examine the approach taken by the Referee in relation to each of the above items.

89 It was contended for the defendant that the Referee’s reasoning on quantum was expressed in relation to the relevant items in terms similar to that adopted in relation to Item 5, that item being taken as an example. In relation to that matter, the Referee stated:-

“6. If the lessee is liable, the DE considers a loss of $350 is applicable.
7. I prefer the PEs’ loss of $3,404.”

90 The same lack of reasoning, it was contended by Mr Robertson, infected Items 39, 102, 108 and 109.

91 Accordingly, the contention made on behalf of the defendant was that the report should not be adopted in relation to those items.

(a) Item 5: Gutters

92 The comments included in the Joint Scott Schedule indicates that there was a claim for the repair/replacement of two types of guttering. The first was a box gutter at the verandah roof estimated at $1,152. The second was a claim for the replacement of eaves gutters on the basis of a replacement over 92 metres.

93 The Referee recorded seven points. It is clear that points 1 and 2 relate to the box gutter and, on that basis, as the Referee observed, an amount of $1,152 should be deleted. That would then leave an alleged loss of $3,404 in relation to other guttering, which was the amount preferred by the Referee.

94 The complaint is that there is no explanation in the Referee’s reasons for why the Referee stated “I prefer the PEs’ loss of $3,404”.

95 Although the amount for Item 5 is relatively small, nonetheless, the matter of principle raised by the defendant, I consider, is an important one. In that regard the following matters are noted:-

(1) In the present case, by virtue of Part 20.23(1)(b) of the UCPR, there was a statutory obligation on the Referee in his written report to include “the Referee’s reasons for the opinion” .

(2) The statutory requirement imposed by Part 20.23(1)(b) is consistent with what, under the general law, is required by natural justice, although the extent to which reasons must be given will vary with the particular circumstances of a particular case upon which a referee is asked to report: Xuereb (supra) at 467 and 469.

(3) Accordingly, the Referee is not necessarily required to provide a meticulous analysis or a detailed exposition of every aspect of the evidence and the arguments. What is necessary is a basic explanation of the fundamental reasons that led the Referee, as in the case of a judge, to a conclusion expressed: Strabak v Newton (Court of Appeal, unreported 18 July 1989 per Samuels JA).

96 A party in the position of the defendant in this case is entitled to know the basis upon which a Referee, in relation to a particular item, determined the estimate cost or loss of that item. In relation to Item 5, for reasons not disclosed, the Referee elected to adopt or “prefer” the exact figure assessed by the plaintiff’s expert ($3,404) and not some lesser amount without explanation. The report, in that respect, on this item does not comply with the statutory requirements and principles to give reasons to which I have referred in the preceding paragraph. It follows that the report should not be adopted in relation to that item.

(b) Item 39: front verandah

97 The Referee’s opinion is simply expressed in terms “if the Defendant lessee is liable, I prefer the PEs’ estimate of $3,810”. There are no reasons specified or basis identified for choosing the plaintiff’s expert’s estimate as distinct from any other lesser amount.

98 The opinion does not comply with the requirements set out above and, accordingly, should not be adopted.

(c) Item 102: coping bricks missing

99 The position in relation to this item is the same as that in relation to Items and 39. The Referee’s conclusion in relation to it is stated as an expression of opinion by way of preference for the plaintiff’s expert’s estimate.

100 For the same reasons, the opinion should not be adopted.

(d) Item 108: cellar – absence of gas monitoring equipment

101 The approach adopted by the Referee in relation to this item is the same as that referred to in respect of Items 5, 39 and 102.

102 For the same reasons, the opinion in respect of this item should not be adopted.

(e) Item 109: keg slide broken

103 The position arising in respect of this item is the same as that in respect of Items 39, 102 and 108.

104 For the same reasons, the opinion of the Referee should not be adopted.

(4) Additional items referred to in the Referee’s Report

105 The defendant also challenges the Referee’s report in relation to the following:-

“(a) An amount (unspecified) in respect of ‘Supervisor for the Plaintiff’;

(b) A ‘reserve for unknowns @ 5 to 10% on an old building’.

(c) Preliminaries @ 12.5%

(d) Builders’ OH& Profits @ 10%.”

106 The defendant challenges the Referee’s “preference” in respect of each if the items (a), (b), (c) and (d) above. It was submitted that the Court should not adopt the report, insofar as it suggests that such additional items have been assessed by the Referee. I note that Items (a) and (b) were not included in the joint Scott Schedule.

107 Mr Robertson for the defendant contended that, in respect of the items “Supervisor for the plaintiff” and “reserve for unknowns”, none of the parties’ experts or the parties themselves contended for either or these items. In such circumstances, it was contended (Defendant’s Outline of Submissions, paragraph 40):-

“… The Referee was not entitled to invent new heads of claim in the absence of affording the parties an opportunity to make submissions and lead evidence regarding whether those heads of claim should be allowed.”

108 Mr Darvall, quite properly in the circumstances, did not make any submissions in support of conclusions expressed by the Referee in relation to them.

109 In respect of Items (c) and (d) above, the first, “Preliminaries” (Item 156 in the joint Scott Schedule), was allowed by the Referee at 12.5% ($48,008). The report noted that the defendant’s expert had integrated or included preliminaries in the rates adopted by him. The Referee’s opinion is expressed in these terms, in respect of Item 156:-

“I prefer the PEs’ allowance of preliminaries (either wholly or partly) for the reasons given in the text of My Report.”

110 In respect of Item (d) above (numbered Item 158 in the joint Scott Schedule), the Referee noted, “Builders’ Overheads and Profit 10%”. The opinion is expressed in terms:-

“I prefer PEs’ allowance for OH&P for the reasons given in the text of My Report.”

111 In relation to the item “Preliminaries” (numbered Item 156 in the Joint Scott Schedule), it was contended, again, that, as in respect of Items 5, 39, 102, 108 and 109, the Referee’s report suffered from a lack of reasons. In this respect, it was contended that whilst the report did provide reasons as to why “preliminaries for the head contractor should be included in the total cost”, the report did not provide any reasons as to why the figure of 12.5% was adopted instead of a figure such as 8% or 10%.

112 In the body of the report (paragraph 58(c)), it was stated that, in the conclave, the parties discussed the use of and the quantum of head contractors’ preliminaries. It was noted:-

“They agreed that if they were to be included, that the rate should be 8 to 12.5% of the total of the sub-contractors’ prices.”

113 It is clear that there was no agreement that the appropriate allowance in this case was 12.5%, that is, the top of the range figure. Why the Referee elected to adopt that particular percentage figure is not stated in the report.

114 It is clear, in these circumstances, that the opinion of the report adopting 12.5% for preliminaries was an opinion unsupported by reasons.

115 For the reasons I have earlier set out, the report should not be adopted in respect of this item.

116 In relation to the item, “Builders’ OH & Profits at 10%”, the Referee dealt with that matter in paragraph 61 of his report. He noted there that the plaintiff’s experts allowed 10% of the payment by the head contractor for the sub-contractors and preliminaries as overhead and profit. He stated that, in his experience, for renovation work, OH & P frequently was 15% and, at time, as high as 25%.

117 The basis upon which the allowance was made is set out in paragraph 63 of the report entitled “My Preference – 8”. In that paragraph, however, the Referee stated his preference for the “Plaintiff’s allowance for OH & S”, but for reasons for stated in (a), (b), (c) and (d). However, those paragraphs simply identify the tasks that would be required. They did not explain why the Referee preferred the figure of 10%.

118 In the submissions for the defendant in relation to this item, it was observed that the report did not explain why the fact that a head contractor might have to “pay for marketing” or effect “payment for CPB training …” bore on the question as to the quantum of the liability under the repair and maintenance provisions of the relevant lease.

119 I do not consider that the matters set out in the report, including, in particular, paragraph 63 constitute reasons or an explanation for the adoption of the particular percentage figure adopted for builders’ overheads and profits.

120 No doubt, the figure would vary according to the nature of the project and the nature and number of the sub-contractors required to undertake specific particular aspects of the work constituting the project.

121 In the circumstances and for reasons earlier stated, on the question of the obligation to provide reasons, the report does not, in relation to this item, satisfy the requisite requirement and tests.

122 I, accordingly, am of the opinion that the report should not be adopted in relation to preliminaries or overhead and profits.

Conclusions

123 The defendant has not challenged the whole of the Referee’s report but does challenge it insofar as it purports to express an opinion in relation to 11 items that have been detailed above. Otherwise, the defendant contends that the Referee’s report should be adopted.

124 For the reasons set out above, I am of the opinion that the defendant has made good the challenge to the 11 items to which I have referred and for which specific provision will be incorporated in the order below.

125 Mr Robertson submitted draft short minutes of orders in the event that I made the necessary findings and conclusions as contended for on behalf of the defendant.

126 Provision is made in the draft orders for the inclusion of a statement that orders made on the application are made without prejudice to the defendant’s right to make contentions at trial regarding any question of law arising in the proceedings (including any question relating to the proper construction of any document) whether or not that question was inquired into or reported on by the Referee.

127 Mr Darvall for the plaintiff did not challenge the proposed basis for the orders to be made in that respect and it is clear that, at the final hearing of the proceedings, the defendant is entitled to rely upon any matters of law, including in particular, any question relating to the proper construction of any document and the effect, if any, of the construction contended for.

128 I accordingly propose to make appropriate provision in the orders below.

Orders

129 I make the following orders:-

(1) That the report of Dr John M Hutcheson, Referee, dated 28 April 2010 be rejected insofar as it expresses an opinion as to the costs of rectifying any of the following items referred to in the Scott Schedule dated 6 May 2008:-

(a) item 8;


(b) items 32, 34, 49, 120 and 150;

(c) items 5, 39, 102, 108 and 109.

(2) That the following parts of the Referee’s report be rejected:-

(a) paragraphs 5(e), 64 to 66, 79(a)(i) and the row labelled “Supervisor for the Plaintiff” in the table behind Tab 3 ( “Supervisor for the Plaintiff” );
(b) paragraphs 5(f), 46 to 48, 79(a)(ii) and the row labelled “Referee – 5.5% Reserve” in the table behind Tab 3 ( “reserve for unknowns” );
(c) paragraphs 5(c), 58 to 60, 79(a)(iii), item 156 of Tab 2, Item 156 of Tab 3 ( “preliminaries” ).
(d) paragraphs 5(d), 61 to 63, 79(a)(iv), item 158 of Tab 2, item 158 of Tab 3 ( “OH&P” ).


(3) That, subject to order (4) of these order, the Referee’s report otherwise be adopted.

(4) These orders are without prejudice to the defendant’s right to make contentions at trial regarding any question of law arising in the proceedings (including any question relating to the proper construction of any document) whether or not that question was inquired into or reported on by the Referee.

(5) That the plaintiff’s notice of motion filed on 8 June 2010 be dismissed with costs.

(6) That the plaintiff pay the defendant’s costs of, and incidental to, the hearing on 11 August 2010.

(7) That the costs of the reference before the Referee be reserved.

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