Harris v Morabito Holdings - [2018] NSWSC 912

Supreme Court

New South Wales

Medium Neutral Citation: Harris v Morabito Holdings [2018] NSWSC 912
Hearing dates: 30/05/2018
Date of orders: 19 June 2018
Decision date: 19 June 2018
Jurisdiction: Equity - Technology and Construction List
Before: McDougall J
Decision:
See at [155] – [158].

Catchwords:
BUILDING AND CONSTRUCTION – adoption of referee’s report – discretion to adopt to be exercised judicially and with regard to the purpose for which discretion to refer is given – where report is factually thorough and reaches conclusions open on the evidence – where most errors complained of involve an attempt to reargue on the merits – exception regarding conclusions on delay and variations where there was a denial of natural justice – referee’s report adopted in whole with the exception of conclusions regarding delay and variations.
CONTRACT – interpretation of building contract –distinction between the interpretation of the terms of a contract and standard or extent of performance required to satisfy those terms.
Legislation Cited: Civil Procedure Act 2005 (NSW)
Home Building Act 1989 (NSW)
Supreme Court Rules 1970 (NSW)
Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited: Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570
Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175
Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2008] NSWCA 228
Bellgrove v Eldridge (1954) 90 CLR 613
Chocolate Factory Apartments Pty Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784
Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd (2013) 84 NSWLR 410
Jazabas Pty Ltd v Haddad (2007) 65 ACSR 276
Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104
Norbis v Norbis (1986) 161 CLR 513
Plant Construction PLC v Clive Adams & Associates [2000] BLR 137
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272
Wenco Industrial Pty Ltd v WW Industries Pty Ltd (2009) 25 VR 119
Category: Principal judgment
Parties: Anne Harris as executor of the estate of the late Arthur Harris (First Plaintiff)
Anne Harris (Second Plaintiff)
Morabito Holdings Pty Ltd t/as Marc Morabito Constructions (Defendant)
Representation:
Counsel:
P J Bambagiotti (Plaintiffs)
L Shipway (Defendant)
Solicitors:
Kreisson Legal Pty Limited (Plaintiffs)
HWL Ebsworth Lawyers (Defendant)

File Number(s): 2016/160508

Judgment

HIS HONOUR: On about 7 February 2012, the defendant (the builder) contracted to perform residential building work for the plaintiffs [1] (the owners). The builder achieved practical completion on about 13 September 2013. The defects liability period under the contract expired 12 months later.
1. Strictly speaking, the contract was made between the builder on the one hand and Mr Arthur and Mrs Anne Harris on the other. Mr Harris has died since the commencement of these proceedings. The proceedings have carried on in the name of Mrs Harris in her own capacity and in her capacity as executor of the estate of her late husband. Nothing turns on this, and I shall use the expression “the owners” to denote Mr and Mrs Harris until the date of the former’s death, and Mrs Harris (in both her capacities) thereafter.
In the usual way, the parties have fallen into dispute. The owners said that the work done by the builder was defective. The builder said that it was not liable for any further defects rectification. Further, the builder said, it is entitled to be paid for, among other things, variations and delay costs. There were other, relatively minor (in monetary terms), disputes.
The owners commenced proceedings in the NSW Civil and Administrative Tribunal. The proceedings were transferred to this court. When the evidence was complete, the whole of the proceedings were referred to a referee, Mr Barry Tozer (the referee), for inquiry and report. After a hearing taking 9 days spread over a four month period in 2017, involving no less than 25 lever arch folders of documents and oral evidence that occupied over 750 pages of transcript, the referee reported. He concluded that, taking into account amounts that he thought were owed one way and the other, there was a total of (in round figures) $328,000, including GST, owed by the builder to the owners.
The builder accepts the outcome. It moves for adoption of the report. The owners are dissatisfied. They say that they are entitled to much more by way of damages. Thus, they oppose adoption of the report.

Approach to adoption of a referee’s report

The topic of reference out to a referee is dealt with in Division 3 of Part 20 of the Uniform Civil Procedure Rules 2005 (NSW). The subject-matter of Part 20 is, as its title indicates, “Resolution of proceedings without hearing”.
Rule 20.15 empowers the court to appoint a referee. Rule 20.20 deals with the conduct of proceedings under the reference. Rule 20.23 requires the referee to report. Rule 20.24 deals with proceedings on the report.
I set out those rules:

20.15   Appointment of referees
(cf SCR Part 72, rule 3)
(1)    Subject to this rule, the court may appoint any person as a referee.
(2)    A judicial officer or other officer of the court may not act as a referee otherwise than with the concurrence of the senior judicial officer.
20.20   Conduct of proceedings under the reference
(cf SCR Part 72, rule 8)
(1)    The court may give directions with respect to the conduct of proceedings under the reference.
(2)    Subject to any direction under subrule (1):
(a)     the referee may conduct the proceedings under the reference in such manner as the referee thinks fit, and
(b)     in conducting proceedings under the reference, the referee is not bound by the rules of evidence but may inform himself or herself in relation to any matter in such manner as the referee thinks fit.
(3)    Evidence before the referee:
(a)     may be given orally or in writing, and
(b)     if the referee so requires, must, be given on oath or by affidavit.
(4)    A referee may take the examination of any person.
(5)    Each party must, within a time fixed by the referee but in any event before the conclusion of evidence on the inquiry, give to the referee and each other party a brief statement of the findings of fact and law for which the party contends.
(6)    The parties must at all times do all things which the referee requires to enable a just opinion to be reached and no party may wilfully do or cause to be done any act to delay or prevent an opinion being reached.
20.23   Report
(cf SCR Part 72, rules 11 and 12)
(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.
20.24   Proceedings on the report
(cf SCR Part 72, rule 13)
(1)    If a report is made under rule 20.23, the court may on a matter of fact or law, or both, do any of the following:
(a)     it may adopt, vary or reject the report in whole or in part,
(b)     it may require an explanation by way of report from the referee,
(c)     it may, on any ground, remit for further consideration by the referee the whole or any part of the matter referred for a further report,
(d)     it may decide any matter on the evidence taken before the referee, with or without additional evidence,
and must, in any event, give such judgment or make such order as the court thinks fit.
(2)    Evidence additional to the evidence taken before the referee may not be adduced before the court except by leave of the court.

It will be seen that r 20.24(1) requires the court to make final orders in the proceedings, and gives it a discretion to do so by taking one or other of the various approaches set out. The rule does not itself state how the court is to exercise the discretion. Nor does it state any express limitation or condition upon its exercise.
The discretion must be exercised in a manner consistent with the overriding objective set out in s 56 of the Civil Procedure Act2005 (NSW). As s 56(2) states, “[t]he court must seek to give effect to the overriding purpose when it exercises any power given to it by this Act or by rules of court…”.
Otherwise, all that can be said is that the discretion must be exercised judicially, and that the exercise must lead to a final resolution of the dispute. The discretion must be exercised in a way that takes into account the purposes that UCPR Part 20 seek to achieve, and thus the purposes in aid of which the discretion is conferred. The evident philosophy underlying the whole of Part 20 is the resolution of disputes without a hearing in court, through processes designed to achieve that outcome in a way that is just, quick and cheap. In this context, the minimisation of cost and delay is seen to be an integral part of a just resolution: see Gummow, Hayne, Crennan, Kiefel and Bell JJ, in Aon Risk Services Australia Ltd v Australian National University [2] at [98].
2. (2009) 239 CLR 175.
There have been many decisions in which various principles, or guidelines, considered relevant to the exercise of the discretion have been suggested. Some of those cases relate to r 20.24. Others relate to the former Part 72 r 13 of the Supreme Court Rules 1970 (NSW).
In Chocolate Factory Apartments Pty Ltd v Westpoint Finance Pty Ltd [3] , I considered a large number of earlier decisions dealing with the discretion (as it then stood, conferred by the Supreme Court Rules) and sought to draw from them the principles that had been generally recognised as relevant to the exercise of the discretion. I said at [7]:
3. [2005] NSWSC 784.

7    The relevant principles, distilled from those decisions, can be stated as follows:
(1) An application under Pt 72 r 13 is not an appeal either by way of hearing de novo or by way of rehearing.
(2)    The discretion to adopt, vary or reject the report is to be exercised in a manner consistent with both the object and purpose of the rules and the wider setting in which they take their place. Subject to this, and to what is said in the next two sub paragraphs, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised.
(3) The purpose of Pt 72 is to provide, where the interests of justice so require, a form of partial resolution of disputes alternative to orthodox litigation, that purpose would be frustrated if the reference were to be treated as some kind of warm up for the real contest.
(4)    In so far as the subject matter of dissatisfaction with a report is a question of law, or the application of legal standards to established facts, a proper exercise of discretion requires the judge to consider and determine that matter afresh.
(5)    Where a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the Court would have a disposition towards acceptance of the report, for to do otherwise would be to negate both the purpose and the facility of referring complex technical issues to independent experts for enquiry and report.
(6)    If the referee’s report reveals some error of principle, absence or excessive jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding, that would ordinarily be a reason for rejection. In this context, patent misapprehension of the evidence refers to a lack of understanding of the evidence as distinct from the according to particular aspects of it different weight; and perversity or manifest unreasonableness mean a conclusion that no reasonable tribunal of fact could have reached. The test denoted by these phrases is more stringent than “unsafe and unsatisfactory”.
(7)    Generally, the referee’s findings of fact should not be re-agitated in the Court. The Court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he or she did, particularly where the disputed questions are in a technical area in which the referee enjoys an appropriate expertise. Thus, the Court will not ordinarily interfere with findings of fact by a referee where the referee has based his or her findings upon a choice between conflicting evidence.
(8) The purpose of Pt 72 would be frustrated if the Court were required to reconsider disputed questions of fact in circumstances where it is conceded that there was material on which the conclusions could be based.
(9)    The Court is entitled to consider the futility and cost of re-litigating an issue determined by the referee where the parties have had ample opportunity to place before the referee such evidence and submissions as they desire.
(10) Even if it were shown that the Court might have reached a different conclusion in some respect from that of the referee, it would not be (in the absence of any of the matters referred to in sub para (6) above) a proper exercise of the discretion conferred by Pt 72 r 13 to allow matters agitated before the referee to be re-explored so as to lead to qualification or rejection of the report.
(11)    Referees should give reasons for their opinion so as to enable the parties, the Court and the disinterested observer to know that the conclusion is not arbitrary, or influenced by improper considerations; but that it is the result of a process of logic and the application of a considered mind to the factual circumstances proved. The reasoning process must be sufficiently disclosed so that the Court can be satisfied that the conclusions are based upon such an intellectual exercise.
(12)    The right to be heard does not involve the right to be heard twice.
(13)    A question as to whether there was evidence on which the referee, without manifest unreasonableness, could have come to the decision to which he or she did come is not raised “by a mere suggestion of factual error such that, if it were made by a trial judge, an appeal judge would correct it”. The real question is far more limited: ”to the situation where it is seriously and reasonably contended that the referee has reached a decision which no reasonable tribunal of fact could have reached; that is, a decision that any reasonable referee would have known was against the evidence and weight of evidence”.
(14)    Where, although the referee’s reasons on their face appear adequate, the party challenging the report contends that they are not adequate because there was very significant evidence against the referee’s findings with which the referee did not at all deal, examination of the evidence may be undertaken to show that the reasons were in fact inadequate because they omitted any reference to significant evidence.
(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.

It should be emphasised that the 15 points that I identified are not to be approached as some sort of checklist, the application or completion of which will provide in all cases an answer to the exercise of the discretion. By contrast, and as the Court of Appeal of the Supreme Court of Victoria observed in relation to a not dissimilar statement of principles, they “provide a general guide as to how the question of adoption of a referee’s report should be approached”[4] . A similar point was made in the Court of Appeal of this State in Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [5] .
4. Wenco Industrial Pty Ltd v WW Industries Pty Ltd (2009) 25 VR 119 at [17].
5. [2008] NSWCA 228 at [47].
Nonetheless, generally accepted statements of principle may be important. As Basten JA said in Jazabas Pty Ltd v Haddad [6] at [9] “the need to avoid confining an unfettered discretionary power should not be pursued to the exclusion of the need to ensure that material facts are assessed in a coherent and principled fashion”. His Honour cited the joint judgment of Mason and Deane JJ in Norbis v Norbis [7] at 519, where their Honours said:

It has sometimes been said by judges of high authority that a broad discretion left largely unfettered by Parliament cannot be fettered by the judicial enunciation of guidance in the form of binding rules governing the manner in which the discretion is to be exercised … However, it does not follow that, because a discretion is expressed in general terms, Parliament intended that the courts should refrain from developing rules or guidelines affecting its exercise. One very significant strand in the development of the law has been the judicial transformation of discretionary remedies into remedies which are granted or refused according to well-settled principles … It has been a development which has promoted consistency in decision-making and diminished the risks of arbitrary and capricious adjudication. The proposition referred to at the beginning of this paragraph should not be seen as inhibiting an appellate court from giving guidance, which falls short of constituting a binding rule, as to the manner in which the discretion should be exercised … And despite the generality of some of the statements to which we have referred, there may well be situations in which an appellate court will be justified in giving such guidance the force of a binding rule by treating a failure to observe it as constituting grounds for a finding that the discretion has miscarried.
6. (2007) 65 ACSR 276.
7. (1986) 161 CLR 513.

In Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd [8] , Barrett JA (with whom Meagher and Ward JJA agreed) referred at [15] to, among other things, what I had said in Chocolate Factory at [7]. His Honour made it clear at [16] that what I had said “may be accepted as equally applicable to a reference under Pt 20 Div 3 of the Uniform Civil Procedure Rules”.
8. (2013) 84 NSWLR 410.

Background

The owners were proprietors of land at Lilli Pilli upon which a dwelling house was erected. They wished to build for themselves a far more substantial dwelling, taking advantage of the views afforded by their property. They engaged an architect to prepare plans and specifications, and a builder (the first builder) to construct according to those plans and specifications. The owners became dissatisfied with the performance of the first builder, and ultimately terminated the contract. At the time that contract was terminated, the construction works were incomplete and were affected by many defects.
The owners then engaged Mr Horace Rapisarda of MLR Architects (the Architect – I shall use this term to refer indiscriminately to Mr Rapisarda and his firm) to prepare plans and specifications for:

rectification of defects in the work done by the first builder; and

completion of construction of the dwelling.

The Architect prepared a voluminous contract based on a standard form Major Works Contract designated ABIC MW – 2008 H NSW.
The work to be done was identified in two specification documents described as “Document No.1” and “Document No.2”. Document 1 (as I shall call it) dealt with rectification of the existing defective work. Document 2 (as I shall call it) dealt with work to complete the construction of the residence. In addition, the architect prepared a large number of plans, illustrating and identifying further the work to be done.
The builder tended for the work. Its revised quotation, almost $1.75 million including GST, was accepted. The quotation was broken up between construction works (referable to document 2) at (rounded up) $1.24 million and repair works (referable to document 1) at (rounded down) $510,000.

By the time practical completion was achieved, the builder had been paid (leaving aside any retention sum) in excess of $2.5 million. The value of approved variations was almost $830,000.

Outline of the report

The hearing before the referee concluded on 15 November 2017. His report is dated 31 January 2018. It is clear that he had worked very hard to produce the report in such a comparatively short space of time (noting that the Christmas / New Year vacation intervened between conclusion of the hearing and delivery of the report). Thus, no doubt, the evidence and the submissions were relatively fresh in the referee’s mind.
The report is structured in a logical fashion. It commences by setting out the background, and the conduct of proceedings under the reference. It then identifies the issues on the pleadings, the evidence called by each party and the documents comprising the contract.
The report then moves to consider the defective work. The referee approached that task by aggregating the defects into nine categories, including metal window and doorframes, window glazing, and other trade packages, and then dealing with general building defects. He made findings along the way as to what was or was not a defect and, where defects were found, the method and cost of rectification.
The referee then turned his attention to a separate claim made by the owners for “reimbursable costs”. This head of claim related to a deposit paid by the owners to an aluminium window manufacturer that went into liquidation. They lost the value of the deposit and, they say, received nothing in exchange for it.
The referee then moved to consider the builder’s claims for payment for further variations and for delay costs.
Having looked at all those matters in dispute, the referee aggregated the results and reported in the way that I outlined at the beginning of these reasons.
The report shows a reasoned and thorough approach to the issues. It demonstrates that the referee engaged with the evidence, both lay and expert, and expressed conclusions on it. Although there were complaints made that some of the conclusions were not supported by adequate reasons, or were contrary to the evidence, that was not and could not be said of the greater part of the report (which was 194 pages in length).
The referee is a qualified engineer. He is well known as a referee and arbitrator (and he is a fellow of the Chartered Institute of Arbitrators). If I may say so, he enjoys a high reputation in the field in which he practises.
It will be necessary to return to some of the detail of the report when I turn to consider the owners’ complaints and the builder’s response to them. However, at a level of some generality, there are matters that should be stated immediately.
Some of the owners’ challenges rely on errors of law, including errors in the application of legal standards to established facts. On orthodox principle (see Chocolate Factory at [7(4)]), they are matters that the court must consider on the hearing of the motion for adoption.
In general terms, however, I am of the opinion that the referee’s report shows a logical, thorough and analytical approach to the resolution of the dispute. It is quite clear that the referee’s consideration of the issues was facilitated by his technical expertise.
Where there were disputed questions of fact, the referee dealt with them in a way that showed that he understood and engaged with the issues. He did so in an economical way, which from time to time requires that reference be made to earlier or later paragraphs in the report to obtain a clear understanding of his reasoning process (for example, where he resolved questions in dispute between experts). Although his reasons are economical, they are sufficient to show that he engaged intellectually with the factual disputes, and reasoned towards a conclusion in a way that is both logical and capable of being understood. In my view, there is nothing remotely approaching perversity or manifest unreasonableness in the referee’s approach to and conclusions on the factual disputes. That he gave weight to the views of some experts over others, and found facts in a way that is disappointing to the owners, does not suggest perversity or manifest unreasonableness.
As I have said, the referee’s factual findings in many cases are informed and facilitated by his technical expertise. It would be inappropriate for the court to re-examine those matters, not only because to do so would be inconsistent with the philosophy underlying the reference process (for the reasons given at [10] above), but also because the court does not have an advantage possessed by the referee. It is inherent in the process of reference and report that where the referee enjoys technical expertise relevant to the subject-matter of the reference, that expertise will be used appropriately in coming to conclusions upon the matters in dispute.

Outline of the owners’ complaints

The owners provided 25 lever arch folders of documents as a “Court Book” to be relied upon on the hearing of the motion for adoption. I declined to permit the tender of that material. The extent of the tender has now been limited to the documents identified in two lists that have been marked for identification “A” and “B”. Not all of those documents should be in evidence, but I do not propose to waste time on pointing out why this is so.
Mr Bambagiotti of Counsel, who appeared for the owners, arranged their complaints in six categories. They were:

alleged errors of law and principle in the construction of the contract, including in particular the warranties contained in it. That was said to lead to an erroneous approach to the referee’s decision on questions of rectification and the costing of rectification work.

Alleged errors in the application of the proper construction of the contract (again, in particular, the warranties) to the facts of the case.

Errors in findings of fact arising where evidence is said to have been overlooked or misinterpreted.

Arithmetical and oversight errors dealing with quantum.

Denial of procedural fairness because findings were made on issues that were not “live” or were not taken up in cross-examination with the relevant witnesses.

Failure to give adequate reasons, also characterised as a denial of procedural fairness.

Conclusions on three complaints

I do not propose to deal in detail with the third, fourth and sixth of those heads of complaint. The reasons for that approach can be stated simply.
The third complaint asserts that, in various places, the referee overlooked or misinterpreted evidence. There are a number of difficulties lying in the way of accepting that this error (if demonstrated) should lead to any different outcome. First, it treats the exercise of the discretion as if it were an appeal by way of rehearing. That is not a correct approach. In general terms, it is not for the court considering the exercise of the r 20.24 discretion to re-evaluate the facts for itself. Of course, if it can be shown that on a significant point the referee completely overlooked or completely misunderstood an important piece of evidence, the position might be different. But the complaints in this case do not go so far.
The second reason flows from (indeed, may be a restatement of) the first. The discretion to “adopt, vary or reject the report”, or to take another of the courses identified in r 20.24, is to be exercised by reference to the just, quick and cheap identification and resolution of the real issues in dispute. That is what the reference was designed to achieve and what, in large measure, it has achieved. The exercise of the discretion requires a balance between the interests of litigants in having a full and complete opportunity to prepare and present their cases so as to lead to an outcome that is, objectively, fairly derived according to law on the one hand, and the efficient and economical litigation of disputes on the other. The proposition that a judge hearing the application under r 20.24 should descend into the detail of the evidence for the purpose of deciding complaints of the kind with which I am now dealing is inimical to the fundamental nature and purpose of the discretion.
The third reason is that Mr Bambagiotti’s approach does not take proper account of the way in which the referee addressed and decided questions of fact. Mr Bambagiotti’s submissions identified, or highlighted, particular paragraphs from the 1,253 comprising the whole of the report. They do not take account of the fact that the referee expressed relevant conclusions (for example, as to his preference for the evidence of one expert over that of another) in one place, and a conclusion on a particular factual dispute at another, where that conclusion was driven by the preference expressed elsewhere. Further, having regard to the character of some of the disputes and the voluminous amount of evidence, it would have been unconscionable to expect the referee to grapple with every minute aspect of the detail.
When I read the paragraphs to which objection is taken on this ground, and consider them in the context of the report as a whole, it is plain that the referee does give, either in or adjacent to the paragraphs or elsewhere in the report, a sufficient basis of reasoning to enable an understanding of why he came to the conclusion he did.
I turn to the fourth ground of complaint, mistakes in calculation and the overlooking of certain items of cost. That is simply not a matter that should occupy the time of a judge on an adoption hearing. The parties should be able to agree where there have been arithmetical errors. They should also be able to agree where (if it happened) the referee found that a defect existed, expressed a conclusion as to the proper method of rectification, but mistakenly omitted to allow whatever he concluded was the proper cost to carry out that rectification work. Of course, if the parties, having considered the matters complained of, remain at odds, the matter may require determination. But as a wholesale complaint, it should not be advanced for resolution by a judge in its entirety.
I turn to the sixth category – alleged insufficiency of reasons. That is answered by what I have said at [40], [41] above.
With those matters out of the way, I turn to the first of the significant complaints: namely, that the referee misconstrued relevant provisions of the contract, and thus erred in his application of those provisions, properly construed, to the facts that he found.

Relevant provisions of the contract

Clause A3 of the contract states the warranties given by the builder (referred to as “the contractor”). I set out that clause:

A3   Warranties by the contractor
1.   The contractor warrants that it:
a   has the capacity to enter into this contract

b   has the skill, technology, human and financial resources necessary to perform its obligations
c   is registered or licensed, as the case may be, to carry out the *works in accordance with the *relevant legislation and the registration or licence number is shown in item 1 of schedule 1
d   has been allocated the Australian Business Number (ABN) shown in item 1 of schedule 1 for taxation purposes and that it is registered for *GST
e   will notify the owner *promptly of any change in its ABN, *GST registration, or the status of its licence or registration to carry out the *works.
2. The contractor warrants pursuant to section 18B of the *Act that:
a   the *works will be performed in a proper and workmanlike manner and in accordance with the plans and specification set out in the *contract documents
b   all materials to be supplied by the contractor for use in the *works will be good and suitable for the purpose for which they are used and that, unless the *contract documents state otherwise, those materials will be new
c.   the *necessary work will be done in accordance with and will comply with the *Act or any other law
d.   the *necessary work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time
e.   as the *works consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repair, renovation, decoration or protective treatment of a dwelling, the *works will result to the extent of the *necessary work conducted, in a dwelling that is reasonably fit for occupation as a dwelling
f   as the particular purpose for which the *works are required and the result which the owner wishes the works to achieve is described in the *contract documents and the owner relies on the contractor’s skill and judgement, the contractor warrants that the *works and materials will be reasonably fit for the specified particular purpose or result.

Clauses R4 and R7 were referred to in the course of submissions. I set them out:

R4   Entire contract
1.   This contract contains everything the owner or the architect has agreed with the contractor in relation to the matters it deals with. Neither *party may rely on an earlier contract, or on anything else said or done by the other *party (or by an officer, agent or employee of the other *party) before this contract was entered into.
R7   Waiver
1.   The fact that a *party or the architect fails to do, or delays in doing, something it is entitled to do under this contract, does not amount to a waiver of that *party’s or the architect’s right to do it. Any waiver by a *party or the architect must be in writing. A written waiver is only effective in relation to the particular obligation or breach in respect of which it is given. It is not to be taken as an implied waiver of any other obligation or breach, or as an implied waiver of that obligation or breach in relation to any other occasion.

In the usual way, the contract provided for an architect to be appointed to administer the contract, and made provision for instructions, disputes, and the like (see generally cls A6 to A9). Presumably, the Architect was so appointed; but since the page containing item 2 of schedule 1 (which is where the architect is to be named) is missing, I cannot be certain.
One of the annexures to the contract was the development consent given by Sutherland Shire Council dated 10 February 2009. That consent contained a number of conditions. One (condition 2A) required the work to be “carried out in accordance with the provisions of the Building Code of Australia”.
The specification – document 1 and document 2 – also formed part of the contract. As I have noted, document 1 dealt with rectification work. Counsel did not refer to any provisions of document 1 in the course of their submissions.
Document 2 dealt with new work required to complete the construction of the dwelling. It contained a number of general conditions, described as “supplementary conditions of contract”. Mr Bambagiotti referred to some of the requirements set out in cls 28 to 30 and 32 to 34. I set out the parts of those clauses to which Mr Bambagiotti referred:

28.   Care of the Works
A.   Delivery, handling and storage: deliver, handle and store products in accordance with manufacturer’s recommendations and by methods and means which will prevent damage, deterioration, and loss including theft …
B.   Limiting exposure of work: to the extent possible, through control and protection methods, supervise performance of work in a manner which will ensure that none of the work, whether completed or in progress, will be subjected to harmful, dangerous, or damaging exposures during construction period.
C.   Cleaning and protection of finished work. General: during handling and installation of work as project proceeds, clean site and protect work in progress and adjoining work on a basis of perpetual maintenance.
29.   General Product Compliance
A.   Provide products which comply with requirements, and which are undamaged and unused at time of installation, and which are complete with accessories, trim, finish, features required by regulation, and other devices and details needed for a complete installation and for intended use and effect.
…
D.   Manufacturer’s recommendations: where installations include manufactured products, comply with manufacturer’s current and applicable recommendations for installation, to whatever extent these are more explicit or more stringent than applicable requirements indicated in contract documents. At completion of project, provide to the architect a copy of each set of manufacturer’s recommendations which have been used in the work of each trade.
30.   Builder’s Quality Control
Compliance with Australian Quality Standard: in clause 103 of most trade sections, there may be reference to compliance with Australian Standards for Quality Systems.
…
D.   Install work during conditions of temperature, humidity, exposure and weather which will ensure the best possible results for each of the work, or component or treatment as necessary to prevent damage and deterioration.
32.   Material/Colour Selections
A.   The architect will prepare a master Colour Schedule indicating the required colour, finish, pattern, material, texture, and other pertinent information in connection with interior and exterior finishes. …
33.   Miscellaneous Completion Procedures
A.   Removal of protection: except as otherwise indicated or requested by architect, remove temporary protection devices and facilities installed during course of the work to protect previously-completed work. Where secured to exposed-to-view new work or existing to remain, remove evidence of protection devices. Remove protection within 5 days before Practical Completion.
B.   Trade cleaning: as each trade completes its work in each areas of the building, the sub-contractor is required to be reasonable for “broom clean” standard of cleaning in that area.
34.   Final Cleaning
Final cleaning: provide final cleaning of the work of this specification, at time indicated, consisting of cleaning …
Examples of required cleaning are:
…
B.    Clean transparent materials, including mirrors and window/door glass, to a polished condition, removing substances which are noticeable as vision-obscuring materials. Replace broken glass and damaged transparent materials.
C.   Clean exposed exterior and interior hard surfaces …

In the usual way, document 2 then set out separate specifications for each trade package. Particular reference was made to sections 07600 (dealing with metal roofing and roof plumbing) and 0852 (dealing with metal windows, doors and glazing).
For convenience, I set out at this point those parts of the specifications for those packages to which particular reference was made. I start with the specification for metal roofing and roof plumbing:

101   Scope
Supply and install a complete roofing installation as shown on the drawings including but not limited to the following:
A.   Colourbond roof, including accessories, fastening clips, apron flashings, gutters, copings, overflow pipes & downpipes.
B.    Roof penetrations and sealing thereof.
The previous contractor has installed the bulk of the roof, allow to check all remaining works, flashing etc… [ellipsis in original] to ensure a watertight installation.
Allow to connect downpipes to storm water system.
Allow to re-fall existing gutters to civil engineer’s drawings.
…
107   Warranty
Provide to the proprietor a warranty on the whole of the roof and roof plumbing including penetrations for pipes, flues, upstands etc. performed for mechanical equipment sub-contractor which states that work will remain waterproof and weather-tight for the period of 15 years from the date of Practical Completion.

Turning to the specification for the metal windows, doors and glazing package, the starting point is that in cl 101, dealing with “Scope”, there was the following statement in bold print:

The bulk of the aluminium windows and doors have been supplied and installed. Allow to remove the windows and doors, repair, water proof surrounds as per schedule of rectification works to windows and doors and re instate same. Allow to supply and fix flyscreens to all window and door openings.

Mr Bambagiotti referred to cls 106, 107, 205, 309 and 310. I set them out:

106   Delivery, Handling and Storage
Handle materials with care. Do not store on site. Install directly in place. Store sealants as instructed by manufacturer.
107   Warranty
Provide to the proprietor a warranty, counter-signed by the installer, on the whole of the installation, which states that work will remain intact, waterproof and fully operations for the period of not less than 9 years after date of Practical Completion.
…
205   Finish
Polyester powder coat:
Polyester powdercoated, to colour approved by the architect and by the manufacturer of the powder material, to metal of windows, doors and inspect screen frames.
Perform pre-treatment and application of powder coating by applicators approved by the architect and by the manufacturer of the powder material.
Minimum coating thickness of 50 microns subjected to random testing after installation non-conforming material will be removed and made good by the builder.
Comply with requirements AS 3715.
…
309   Protection
A.    Framing system: protect metal surfaces as necessary during erection. Finish surfaces free from mechanical imperfections such as scratches, scrapes, dents, spots, stains and streaks.
B.   Glass: protect glass from breakage immediately upon installation and until Practical Completion. Remove and replace glass and metal panels which are broken, cracked, abraded, chipped or damaged in other ways, before, during or after installation, at no additional cost to proprietor.
C.   Be responsible for breakage and damage to installation until Practical Completion.
310   Cleaning
A.   Remove labels, excess glazing compounds, stains, spots and other foreign matter from glass, frames, hardware and other finished surfaces immediately upon installation of glazing for each light.
B.   Debris: remove rubbish and debris resulting from glazing operations, each day.

It should also be noted that in cl 203, there was a requirement that “the glazed assembly [be designed] to minimise visual distortion of reflected[ [9] ] images”. To jump ahead for a moment: the glazing experts agreed, and the referee found, that for toughened glass of the kind specified some degree of distortion must be expected. They said, further, that the only way to minimise distortion was to continue rejecting panels of glass (which had to be custom-made for the particular job) until one was delivered that, from the subjective view point or according to the subjective requirements of the home-owner, had an acceptably low degree of distortion.
9. It is not obvious why distortion of reflected images was thought to be relevant to transparent glazing.
Returning to the warranties, it will be noted that cl A3.2 imposed, as express terms of the contract, the warranties implied into every contract to do residential building work by s 18B of the Home Building Act 1989 (NSW). For convenience, I set out s 18B:

18B   Warranties as to residential building work
(1)    The following warranties by the holder of a contractor licence, or a person required to hold a contractor licence before entering into a contract, are implied in every contract to do residential building work:
(a)     a warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract,
(b)     a warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new,
(c)     a warranty that the work will be done in accordance with, and will comply with, this or any other law,
(d)     a warranty that the work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time,
(e)     a warranty that, if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling,
(f)     a warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes known to the holder of the contractor licence or person required to hold a contractor licence, or another person with express or apparent authority to enter into or vary contractual arrangements on behalf of the holder or person, the particular purpose for which the work is required or the result that the owner desires the work to achieve, so as to show that the owner relies on the holder’s or person’s skill and judgment.
(2)    The statutory warranties implied by this section are not limited to a contract to do residential building work for an owner of land and are also implied in a contract under which a person (the principal contractor) who has contracted to do residential building work contracts with another person (a subcontractor to the principal contractor) for the subcontractor to do the work (or any part of the work) for the principal contractor.

The only point to make for present purposes is that the express warranty set out in cl A3.2(f) differs from the warranty implied pursuant to s 18(b)(1)(f). The express contractual warranty suggests that the specified purpose and result may be discerned from the contract documents. Counsel did not point to any particular provision of the voluminous contract documents that said, in terms, what was the particular purpose for which the owners required the works to be done or what was the result that they intended to achieve. Thus, the purpose and result must be inferred from the documents as a whole.
The inference from the documents is that the owners desired to have a dwelling constructed, conforming to the plans and specifications, to the standard and using materials of the quality specified. They did not stipulate any more particular purpose or any more particular result. Nor did they stipulate that any particular or specific standard of workmanship or finish was to be achieved, except in so far as those matters are covered, expressly or by implication, in the specifications (in particular, for present purposes, in document 2). Since the work done by the first builder was retained (subject to rectification of defects), it may be appropriate to infer that the appropriate standard of workmanship was that shown in the non-defective parts of the first builder’s work.
There is what could most kindly be described as a peculiarity in the pleading of the breach of warranty case. Paragraphs 63 to 65 of the Technology and Construction List Statement allege express terms of the contract:

Express Terms of the Contract
63.   The Contract contained express terms that the Building Work would comply with:
(a)   The Building Code of Australia;
(b)   All other relevant codes, standards and specifications that the work is required to comply with under any law;
(c)    The conditions of any relevant development consent or comply and development certificate.
Particulars
(a)   Schedule 10 of the Contract at page 45 of Tab 2 in Volume 1.
64.   The Contract contains express terms that the Defendant would attend to rectification of the defective Building Work within 10 days of written instructions to do so.
Particulars
(a)   Clause M14 page 66N at Tab 2 of Volume 1.
65.   The Contract contains express terms that the Defendant was to show reasonable cause for the failure
(a)   to rectify defective Building Work;
(b)   to provide a timetable that is acceptable to the Architect for correcting the defective Building Work.
Particulars
(a)   Clause M15 page 66N at Tab 2 of Volume 1.

Paragraph 70 alleges that the s 18B statutory warranties were implied into the contract. However, for reasons known only to the drafter, there is no pleading of the express warranties set out in cl A3 of the contract. Thus, there is no pleaded case of breach of the express warranty set out in cl A3.2(f). The owners’ case that the works will be fit for purpose is thus confined to the s 18B(1)(f) warranty [10] . Perhaps that reflects the owners’ appreciation that, despite the wording of cl A3.2(f), the contract does not specify any particular purpose or any particular result that the owners desired to achieve.
10. There was no separate claim for breach of the s 18B(1)(e) warranty.
There is one final point to note about the contract. Contrary to common practice, it does not incorporate, either expressly or by reference, the builder’s tender (except in so far as the contract contains a statement of the revised tender price). Nor does it warrant the accuracy of statements made in the tender. That is of some significance, because the owners relied upon statements, as to quality, capacity, and the like made in the tender. Since the tender was not incorporated into the contract, those statements could not have contractual effect. In terms, reliance upon them appears to be forbidden by cl R4.1. Of course, that clause would not prevail were there a claim for damages for misleading or deceptive conduct in breach of some statutory norm; but no such claim was pleaded or advanced.

Error of law in the construction of the warranties?

The owners’ case was that the referee had erred in his approach to the construction of the warranties implied by s 18B of the Home Building Act (I shall refer to these simply as “the statutory warranties”). Mr Bambagiotti submitted, correctly, that a mistake in the construction of a contract (whether of an express or implied term is irrelevant) is an error of law.

The referee’s approach

The owners submitted to the referee, as they did to me, that the construction of the statutory warranties should take into account matters of context and background known to the parties before the contract was concluded. The referee summarised those submissions as follows[11] :
11. Report (R) [114].

114.   The Plaintiffs submit that there are a range of such features of background, context and the object of the transaction that affect the way that this particular building contract should be construed. The Plaintiffs list these matters as follows:
(a)   the Plaintiffs contend that because this was a contract to rectify and complete residential building work in circumstances where they had been dissatisfied with the previous building, they were entitled to expect a better standard from the Defendant;
(b)   the project was a substantial one for a single dwelling with an architect engaged and extensive specifications provided;
(c)   the contract price of more than $1.7 million was substantial for rectification of defects of the previous builder and completion of work that had already been begun.
(d)   the Defendant listed this project in its marketing material, the only single dwelling in the Defendant’s listing of projects;
(e)   there is significance attached to the project being a residential home that sets the nature of the work apart and quality issues can have added importance;
(f)   the statutory warranties go from generalised references to the plans and specifications and the generic description of proper and workmanlike work to the fitness for purpose warranties which are intended to go beyond blind adherence to the strict letter of the contract itself;
(g)   that the language of the building contract and the specifications is clear and the requirements are expressed in absolute terms without qualification on the appropriate standard to be adopted; and
(h)   the nature and detail of the language used reflects the context, the nature and the objects of the transaction which are indicators of the way that the general terms of the statutory warranties can be construed and how they are applied in determining the standard of workmanship required and what was promised.

The referee noted[12] that the owners had referred to a number of authorities on the standard of workmanship. He said (in my view correctly) “that the only conclusion that can safely be drawn from these sources is that it depends on the terms of the Contract”.
12. R [115].
The referee then reasoned as follows [13] :
13. R [116] – [123].

116. My review of the General Conditions of Contract indicates that the standard set by the Contract was that prescribed by the Statutory Warranties in section 18B of the Home Building Act 1989 (NSW) [the Act] which are set out in full in clause A3.2 and the provisions of Schedule 2 of the Home Building Regulation 2004, relating to the quality of construction which are set out at Schedule 10.
117. The Plaintiffs acknowledge that the fitness for purpose warranty (section 18B(e) of the Act) addresses the basic requirement that the building work ‘be reasonably fit for occupation as a dwelling’. It notes that this requirement is augmented by the warranty in section 18B(f) which provides for fitness for specific purposes that are made known by the Plaintiffs to the Defendants. The Plaintiffs admit that the purpose of the work is the rectification of the defective work and the construction and delivery of a residential home all of which is the subject of the terms of the Contract. No other specific purpose is identified as being made known by the Plaintiffs to the Defendant.
118.   The Plaintiffs also submit that an important feature of the context and background to the contract is the parties’ understanding of their transaction. In his evidence, John Harris [Harris] states that Mr Morabito [Marc Morabito] represented that his work would be of a very high standard and gave assurances as to the high quality of his work. The Plaintiffs refer to statements in the Defendant’s tender for the work and Annexure A to Marc Morabito’s statement, which include the promotion of the Defendant’s credentials as a competent builder, as evidence that Morabito made statements to this effect. Harris says that based on Morabito’s assurances as to the quality of its work, he felt confident that Morabito would do a good high quality job.
119.   I note that the Defendant’s tender submission was not incorporated into the Contract and the Plaintiffs make no claim for misleading or deceptive conduct by the builder. I find that no representations of a higher quality or higher standard of workmanship (whatever that adjective may mean) were included in or formed part of the Contract.
120.   The Defendant contends that the standard of workmanship and quality that applied under the Contract was the ordinary standard generally applicable to residential building work in New South Wales except in those limited instances where a particular provision in the specification applied.
121.   The Defendant submits that there is no reason to construe the Contract as requiring some unspecified ‘higher’ standard, whether by virtue of the Plaintiffs’ subjective perception of the luxurious nature of the house or otherwise.
122.   I find that the prominence given to the Statutory Warranties in the Contract, notwithstanding that they would apply regardless, is an indicator of the standard envisaged by the Contract. That is the ordinary standard applied to building work. The Defendant’s submission is persuasive on this point and no higher standard should be required unless expressly stated. I note that the Plaintiffs’ pled the breach of Statutory Warranties and express terms of the Contract as the reasons for their entitlement to damages.
123.   Although the Plaintiffs contend that the Contract includes additional express ‘fitness for purpose’ warranties, none requiring a higher standard were identified in the extensive review and commentary on the Contract documents undertaken in the Plaintiffs’ submissions.

The parties’ submissions

Mr Bambagiotti submitted that the referee had erred because he should have concluded, from various items of background information (in substance, those identified by the referee at R [114] which I have set out at [63] above) that a higher standard of workmanship was required than “the ordinary standard applied to building work” derived from the statutory warranties. Mr Bambagiotti submitted (and I am prepared to assume, although there was no evidence on the point) that the contract price was very high for a residential dwelling. He noted that it included both a substantial element for rectification of defective work done by a previous builder and an even more substantial element for new work to complete the dwelling. He pointed to the specifications, and to what the owners said were pre-contractual representations made by, and the pre-contractual understandings of, the owners and the builder.
Mr Bambagiotti submitted, on the basis of all that material, that the statutory warranties should be construed as requiring the highest standard of workmanship, applicable to “a luxury waterfront home”[14] .
14. Submissions on motion for adoption at [48].
Mr Shipway of Counsel, for the builder, submitted that much of the material to which Mr Bambagiotti referred – in particular, pre-contractual representations and understandings – was inadmissible on the question of construction of the warranties. He submitted that the meaning of the warranties was clear and well established, and that to interpret them in the way for which the owners contended would replace those well understood requirements with a standard of vague and uncertain application.
Mr Shipway submitted that it had been open to the owners to stipulate for some higher or specific level of workmanship and quality, but that they had not done so. Instead, he submitted, they had simply stated (with an irrelevant variation in one case) the statutory warranties as express terms of their bargain with the builder.

Decision

Counsel referred to numerous authorities dealing with the approach to be taken to the construction of contracts. I do not propose to refer to any but one of those decisions . In my view, there is no reason for a judge at first instance sitting in a commercial court to continue to restate, by reference to copious citation of authority, the relevant principles. In this case, it is unnecessary to do more than set out six paragraphs from the joint reasons of French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited [15] at [46] to [51]. Although the process of bulk citation from authority is generally and properly regarded as inimical to analysis and understanding, I see no point in restating in my own words what has been said authoritatively. I therefore set out, without references, those paragraphs:

46.   The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
47.   In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
48.   Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.
49.   However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.

50. Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations.
51. Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption "that the parties ... intended to produce a commercial result". Put another way, a commercial contract should be construed so as to avoid it "making commercial nonsense or working commercial inconvenience".
15. (2015) 256 CLR 104.

In my view, the submissions for the owners elide the distinction between the proper construction or interpretation of the terms of a contract – in substance, the determination of the legal effect of the words that the parties used – on the one hand, and the application of those terms, properly construed, in the facts of the particular case. To put it another way, there are in my view two distinct tasks. The first requires the court to decide the proper construction of the terms of the parties’ bargain. The second requires the court to consider and decide what is the factual extent of the performance required to satisfy the relevant term or terms, properly construed?
That distinction was drawn by May LJ (with whom Henry and Chadwick LJJ agreed) in Plant Construction PLC v Clive Adams & Associates [16] . His Lordship said [17] :

Any analysis of implied terms in a building contract must start with and take proper account of its express terms. Subject to the express terms, there will normally be an implied term that the contractor will perform his contract with the skill and care of an ordinarily competent contractor in the circumstances of the actual contractor. In my judgment, the factual extent of the performance which this term requires will depend on all relevant circumstances, which may vary enormously. I shall not attempt to make a comprehensive list of possible circumstances. But they may in particular cases include the size, nature and details of the works; the experience and perceived expertise of the contractor; relevant elements of the relationship between the contractor and the employer and of their respective relationships with others, for example, architects, engineers, surveyors, contracts managers, clerks of works, subcontractors, local authority building inspectors and so forth; and crucially details of the particular parts of the works and other facts which give rise to the question whether the contractor fulfilled the obligation which the implied term imports.
16. [2000] BLR 137.
17. At 147.

Of course, the contract as a whole will give indications of performance standards. For example, a specification will frequently stipulate standards of performance. In this case, as the quoted extracts from document 2 show, that happened. A failure to meet the stipulated standard of performance means that there is a breach of contract. That in turn would direct attention to the question of rectification. Again, factors of the kind to which May LJ referred may assist in deciding, by reference to the principles established in cases such as Bellgrove v Eldridge [18] and TabcorpHoldings Ltd v Bowen Investments Pty Ltd,[19] what is the appropriate measure of damages to be awarded as compensation for the breach.
18. (1954) 90 CLR 613.
19. (2009) 236 CLR 272.
The approach to construction for which Mr Bambagiotti contended would have the effect that the proper construction of common form statutory warranties implied into every contract for the performance of residential building work would vary from contract to contract. The certainty that the statutory warranties are intended to provide would evaporate. It would be necessary, in each case, to delve into the antecedent contractual material to understand what it was that the parties really “meant” those warranties to mean in the circumstances of their particular contract. That is antithetical to the objective approach to the construction of contracts. It is antithetical to certainty. And it is antithetical to the obvious purposes intended to be served by the uniform and non-excludable regime of statutory warranties imposed by s 18B.
Further, in my view, Mr Bambagiotti’s submissions, as to the matters that can be taken into account in construing the statutory warranties, go too far. I do not accept that the subjective non-contractual expectations of the parties are relevant. Nor do I accept that a pre-contractual statement (“boast” or “puff” might be better words) made by the builder can be taken into account, in particular because cl R4.1 of the contract propounded by the owners expressly excluded such matters from consideration.
There is a further problem with this aspect of the submissions. The evidence advanced for the owners as to subjective understanding (including understanding based on pre-contractual statements made by the builder) did not come from the owners themselves. Rather, it came from their son Mr John Harris. Mr Harris (as I shall call him) said that the owners had authorised him to be their representative for the building work, and that actions that he undertook in relation to it were done with their consent and authority [20] . Mr Harris (who is the “Harris” referred to from time to time by the referee) was not a party to the contract; he was not “the owners”. Even if the subjective understandings of the owners were relevant in some way to the process of interpretation (and I do not accept that they were), evidence of his subjective understanding is not, of itself, evidence of his parents’ subjective understanding.
20. Affidavit sworn 16 December 2015, read in the reference, at [5], [6].
Further, (although this a very minor point), to the extent that Mr Bambagiotti’s submissions relied on a promotional brochure published by the builder which featured, among other projects, the owners’ dwelling, that (being self-evidently something produced after work under the contract had been completed) can have no relevance to this, or indeed any other, issue in the litigation.
When the referee said[21] that the standard required is that denoted by the statutory warranties, he did not err. Rather, he gave effect to the bargain that the plaintiffs had made. When the referee said, in the same paragraph, that this “is the ordinary standard applied to building work”, he was saying no more, in my view, than that the statutory warranties applied to this contract as much as they applied to any other contract for the performance of residential building work. He said, again in my view correctly, that this analysis was reinforced by the twin facts that:

the owners had stipulated the language of the statutory warranties (with the modification to which I have referred) as express terms of their contract; and

the owners had not stipulated for any higher, more specific, or different standard of performance.
21. At R [122].

I conclude that the referee did not err in his approach to the construction of the statutory warranties (considered either in that capacity or as express terms of the contract).

Error in application of the warranties properly construed?

Introduction

At the outset, it is necessary to note a few points about the evidence and the referee’s approach to it. It is common ground that there were no structural defects. The expert evidence as to defects was given in substance by Mr John Foster (called by the owners) and Mr Peter Ellis (called by the builder). Mr Harris also gave detailed evidence of defects that, he said, he had observed. The referee took the view that Mr Harris had influenced Mr Foster’s evidence as to defects (in particular, in so far as that evidence was set out by reference to a Scott Schedule prepared by Mr Foster).
The referee noted[22] that Mr Foster based his inspection on a defects list said to be the product of a site inspection carried out by the architect on 9 September 2014. That date is significant, because it was shortly prior to the expiry of the defects liability period. No doubt, the list was intended to provide the basis of a requirement for the builder to rectify the defects listed in it. However, the referee said in the same paragraph that Mr Foster:

… dismissed items on that list that he did not consider were defects… [and that]… he also observed a number of additional defects which were recorded and added to the report. In addition to his own observations, he [Mr Forster] included any owner concerns that were advised to him in relation to the works carried out by the Defendant.
22. R [127].

In short, the referee concluded that Mr Foster’s list of defects in the Scott Schedule was based partly on the results of the inspection carried out on 9 September 2014 purportedly by the Architect, partly on his own observations and partly on instructions from Mr Harris. In those circumstances, it is hardly surprising that the referee said the following [23] :

128.   In this regard, Foster was asked during cross-examination about the involvement of Harris in the preparation of his reports. He communicated with Harris directly by telephone in relation to the alleged defects and received emails from Harris in response to his questions. Harris provided assistance to Foster during his inspections by affixing blue tape to areas where Harris thought a defect existed and the damage would be difficult for Foster to see.
129.   Given this evidence of the circumstances in which Foster’s reports were prepared, I note that the extent of the involvement by Harris appears to be significant and influential and gives rise to some doubts regarding Foster’s independent view on the defects to be included in the compilation of the Scott Schedule.
…
1039.   I find the detailed evidence by Ellis reliable (to the extent that it is consistent with the facts as outlined elsewhere in the evidence), accurate (particularly because of the detail in which he described his observations) and independent, because he was not ‘coached’ by the Defendant in the way that Foster appears to have been, by the Plaintiffs’ representative, Harris.
23. R [128], [129], [1039].

Further, as the referee found[24] , the evidence given by the Architect in cross-examination was “that the inspection of defects undertaken on 9 September 2014 (at the end of the defects liability period) was not carried out by him or MLR Architects”. The referee obviously (and on the evidence understandably) inferred that Mr Smith had prepared the list. He said, with admirable understatement, that Mr Harris had “had a significant influence on the inclusion of items on the defects list”[25] .
24. R [130].
25. R [131].
Another very significant point made by the referee [26] was that, given Mr Harris’ “meticulous and at times pedantic attention to detail”, any defects not included in the list prepared on 9 September 2014 “were, on the balance of probabilities, not present at the time that the defects list was prepared”. As the referee recorded in the same paragraph, the obvious inference was “that any new defects not listed were not caused by [the builder], because [the builder] had left the site”. Instead, the likelihood was, “such defects were more likely caused by the occupants… or their pets or through normal wear and tear”.
26. R [133]; this paragraph refers to submissions put for the builder, but it is plain from subsequent paragraphs of the report that the referee accepted them.
The referee expressed a preference for the evidence of Mr Ellis over that of Mr Foster where there was a difference between them. That preference is found very late in the report[27] . The referee had however presaged that preference earlier[28] :

150. As a result of my detailed review of the evidence prepared by Foster and Ellis on these items as outlined above, I find that Ellis has undertaken a more thorough forensic investigation of each individual item than Foster and has accurately detailed his findings. Accordingly, I prefer his observations to those of Foster where there is a disagreement on the extent of the deficiency and its categorisation as a building defect.
27. R [1039].
28. R [150].

Finally, by way of introductory comments, the referee plainly performed a meticulous analysis of the defects list set out in the Scott Schedule. As a result, he was able to conclude [29] that there was significant duplication (that is, that the same defect was listed more than once) and indeed that not all defects said to relate to a particular trade (in this case, metal window and door frames) did in fact do so.
29. R [145], [146].

The parties’ submissions

Mr Bambagiotti submitted that the referee had erred because he had applied the wrong test, based on his suggested erroneous interpretation of the contract, to the facts. For the reasons I have given, that submission cannot be accepted in the form in which it was put. However, it remains necessary to deal with the factual basis on which that submission was put.
Mr Bambagiotti relied upon the various provisions of document 2 to which I have referred. He submitted, correctly, that the builder was required to deliver window frames and glazing that were relevantly “as new” and unmarked. This the builder failed to do because, on any view of the evidence, there were scratches and marks present on both the anodised metal frames and the glazing (both window and balcony) that were fitted.
Mr Bambagiotti submitted that the referee had erred in the way that he analysed the defects, because he considered, in effect, whether the defects were such as might be observed in ordinary usage, or whether they were observable only if some special means of viewing them were adopted (for instance, using a torchlight – as the referee said at one stage – or a magnifying glass). It was not to the point, Mr Bambagiotti submitted, that the bystander might not notice the defects. The point was, rather, that the very presence of the defects, whether readily observable or not, marked a departure from the contracted standard of quality.
It followed, Mr Bambagiotti submitted, that the only way to secure to the owners the full benefit of the contract they had made with the builder was to order replacement of all the defective frames and glazing. Rectification, he submitted, would not give them the quality for which they had contracted and which they had understood they would receive.
Mr Shipway submitted that the referee had analysed the defects appropriately, using his experience and the results of his own observation, and had come to a decision that was open to him on the facts.

Decision

The referee commenced by identifying the extent to which there were deficiencies (scratches and the like) in the anodised metal frames, and in the glazing. Having eliminated double counting, defects that were not properly classified under either heading, and defects that had not been identified in the report prepared following the inspection of 9 September 2014 (in each case, for the reasons I have given already), the referee found that the anodised metal framings were defective to the extent that Mr Ellis had accepted.
The referee then turned his attention to the rectification of the defective framing. The referee considered the expert evidence of Ms Tracey Gramlick (called for the owners) and Mr Craig Brennan (called for the builder). Based on that evidence, he found that rectification was required and that there were two alternative methods. The first involved removal and replacement of the accessible components of the material, and the use of “anodised trim angles or flat extruded sections to cover the surface damage” for fixed components. The alternative method of rectification involved leaving all the components in place, but using “an accredited and reputable surface finishing company experienced in recoating” to replicate the required finishes.
The referee recorded[30] that the owners did not accept either solution; that is to say, that the owners did not agree with the methods of rectification that their own expert Ms Gramlick had said were appropriate.
30. R [157].
The referee concluded that [31] that the appropriate method of rectification was to use 1mm thick cover strips over the damaged sections of framing. He accepted [32] that there were component suppliers and tradespeople who could do the work, and that there were practitioners who could implement a quality control process to ensure an appropriate outcome.
31. R [158] and following.
32. R [164], [165].
The referee referred to an inspection that he had carried out, which suggested to him that where trim strips had been applied, they were “not noticeable… until viewed closely and then only after the rectification work was pointed out”[33] . Mr Bambagiotti submitted that this passage of the report involved a denial of natural justice, because the referee had not informed the parties of his observations or given them an opportunity to put submissions, and thus had deprived them of the opportunity to address him on the matter. I return to this submission at [137] below.
33. R [160].
So far as this passage of the report goes, I see nothing in it that involves any erroneous application of the warranties, properly construed, to the facts as found. On the contrary, the referee:

expressed a reasoned (and on the face of things entirely understandable) preference for the evidence of Mr Ellis over that of Mr Foster;

based on that preference, reached a conclusion as to the extent of the defects; and

based on the joint views of the rectification experts, expressed a view as to a method of rectification of the defects.

It is correct to say that the whole of the framing components could have been removed and replaced. But there was no reason given, apart from the desire to have precise conformity with the specification (document 2), why this should be done. It was not suggested that the method of rectification proposed was functionally or aesthetically inadequate (there was a separate dispute as to its impact on warranties, and I shall return to this).
Further, to do as to the plaintiffs wished would have given them the benefit of rectification not only of defects to the anodised metal framing that could be attributed to the builder, but also of defects that had been caused after the builder had ceased to have any contractual responsibility. Indeed, given the evidence of the susceptibility of such frames to damage, it is likely that some of the damage observed on 9 September 2014 had in fact been caused by others, in circumstances for which the builder had no responsibility; but that is not a consideration of any dispositive significance. In those circumstances, complete removal and replacement would go far beyond what was “necessary” and “reasonable”[34] to give the owners the benefit of the contract.
34. Bellgrove v Eldridge (1954) 90 CLR 613 at 618 (Dixon CJ, Webb and Taylor JJ).
The first question for the referee was whether there had been a breach of warranty in relation to the anodised metal framing. He found that there had been, to the extent identified by Mr Ellis [35] . The next question for the referee was what was the appropriate method of rectification. He expressed a conclusion on this, based on the joint evidence of Ms Gramlick and Mr Brennan. The third question was what should be allowed for the cost of rectification. The referee dealt with this, based on the evidence of the costing experts, in a way that does not require consideration.
35. And for the reason just given, that was likely to have been unduly favourable to the owners.

I return to the reservation expressed at [98] above. The owners submitted, both before the referee[36] and before me, that rectification by the use of thin anodised strips would void the manufacturer’s warranty. The specification required that a nine year warranty be given. It is entirely unclear whether that warranty was to be given by the manufacturer or by the builder (or, for that matter, by someone else). Regardless, there was no evidence as to the terms of any manufacturer’s warranty for the material actually used.
36. The submission is recorded at R [173].
There was apparently evidence of the terms of a warranty offered by another supplier. That supplier had not been engaged on the project. The relevance of that evidence is a little difficult to understand. There was apparently also evidence from Ms Gramlick that rectification by the use of anodised strips (which was one of the methods she had recommended) would void a manufacturer’s warranty. That may have been Ms Gramlick’s opinion, based on the terms of some unidentified and unproven warranty, but it is not capable of proving the asserted fact. There is no reason to think that Ms Gramlick is an expert in the interpretation of contracts. There is no evidence of the terms of the contract on which she based her opinion. And there is no evidence that those terms would have been the terms on which the metal components in question were in fact supplied.
Although Mr Bambagiotti attacked this aspect of the referee’s reasons, the attack in my view was misconceived. If the owners wished to contend that a proposed method of rectification would have an adverse impact on the warranty actually offered by the manufacturer of the components actually installed (assuming that such a warranty had been given), it was incumbent upon them to prove the terms of the warranty. They did not do this. The fundamental premise of this argument is, therefore, missing.
I conclude that there was no error in the referee’s treatment of defects relating to the anodised metal framing.
I turn to the glazing. The first complaint was of chips, scratches and blemishes. The evidence of the relevant experts, Mr Bill Moisidis (called for the owners) and Mr Peter Karsai (called for the builder) was that some of those alleged defects were not defects at all, and that most of the others could have been rectified. In a few cases, where the defects simply comprised material adhering to the glass, they could be rectified by cleaning. In other cases, where the defects comprised chips or cracks, the experts opined that they could be removed by light polishing. The referee accepted that evidence, and concluded[37] based on it that polishing would remove defects comprising chips or cracks.
37. R [189].
There was a dispute along the way as to the extent of scratching defects, and as to how those defects were to be assessed. In the event, those disputes do not seem to me to go anywhere. The referee concluded, based on the expert evidence, that they could all be dealt with by polishing. As the referee said[38] :

188. The glazing experts noted that in all cases, however viewed, the scratches were light/shallow in depth and could be rectified by on-site polishing. The experts agreed that, correctly undertaken, such polishing is unlikely to affect the visual optics of the glass (due to the shallow nature of the scratches).
38. R [188].

There were some panes of glass that had a coating, presumably intended to reduce the passage of ultraviolet radiation. The referee accepted that it was likely that the process of polishing would damage the coating. Where this was a problem, he accepted that the panes (if defective by reason of scratches or chips attributable to the builder) should be replaced.
There was a separate complaint relating to scratches to the balustrade glazing. The referee noted that they had not been included in the defect list prepared following the inspection of 9 September 2014. In those circumstances, he concluded[39] , they were not attributable to the builder.
39. R [197].
The owners have failed to demonstrate that the referee erred in relation to chips and other marks in the glazing.
The other defect of which the owners complained, relating to balustrade glazing, was “rolling waves or distortion… visible the through toughened glass in some locations”[40] . That appears to have related to two sheets of glass[41] . It was common ground that this was a natural (in other words, inevitable) result of the process of manufacturing the glass.
40. R [198].
41. R [199].
The referee said that “there were no specified criteria for rejection or acceptance of a particular degree of distortion in the glass”[42] . That was correct. As I have said, document 2 required only that distortion [43] be minimised. There was no evidence that the extent of distortion apparent breached this somewhat elastic, imprecise and subjective criterion.
42. R [208].
43. For reflected images; I have said, the relevance of this in the specification is unclear, since the subject-matter was transparent glass.
Finally, although it may not be relevant having regard to the nature of the alleged defect, the referee noted[44] that distortion was not a subject of complaint in the list of defects provided to the builder at the time of practical completion. Presumably, the Architect did not regard the distortion as excessive. There is the additional common-sense reality check following from what the referee said[45] to the effect that, as the experts agreed, “new replacement glass will exhibit similar distortions to the current glass”.
44. R [207].
45. R [206].
In short, there is no basis for concluding, in relation to distortion, that the glass did not comply with the requirements of document 2. Nor is there any basis for concluding that replacement would achieve a better outcome. The referee did not err in his conclusions on this topic.

Error in relation to roofing and hydraulic work?

Introduction

The owners complained of a number of “hydraulics defects”. The evidence is a little obscure, because, as it appears from the report [46] , the relevant experts appear to have agreed on the existence of the defects. The real dispute was as to responsibility for the defects.
46. R [516], [517].

The contractual provisions

Roofing and roof plumbing (which is as I understand it is the subject of the complaints as to “hydraulics defects”) is dealt with in both document 1 and document 2. Document 1 specifies defects in the work carried out by the previous builder which the builder was required to rectify. Those defects related to the cold water service, gas service and soil and waste service.
Document 2 contains a separate section, 07600, dealing with metal roofing and roof plumbing. Clauses 101 and 107 were referred to in the course of submissions. I set them out again, for convenience:

101   Scope
Supply and install a complete roofing installation as shown on the drawings including but not limited to the following:
A.   Colourbond roof, including accessories, fastening clips, apron flashings, gutters, copings, overflow pipes & downpipes.
B.   Roof penetrations and sealing thereof.
The previous contractor has installed the bulk of the roof, allow to
check all remaining works, flashing etc…
to ensure a watertight installation.
Allow to connect downpipes to storm water system.
Allow to re-fall existing gutters to civil engineer’s drawings.
107   Warranty
Provide to the proprietor a warranty on the whole of the roof and roof plumbing including penetrations for pipes, flues, upstands etc. performed for mechanical equipment sub-contractor which states that work will remain waterproof and weather-tight for the period of 15 years from the date of Practical Completion.

The specification is remarkable for its obscurity. On its face, it appears to require the builder to construct the complete roofing installation. The extent of that work is qualified only by the reference to the drawings. The parties did not take me to the drawings to indicate, by reference to them, what roofing work the builder was required to perform.
The alleged defects included, according to the report, complaints relating to the eaves, gutters, box gutters, Vergola downpipes and other parts of the roofing or roof plumbing [47] .
47. R [529]; those matters are expanded upon in the following paragraphs of the report.

The referee’s approach

The referee started from the proposition that the defects identified by the relevant experts were agreed. He then considered the contract. He stated, correctly, that there were two parts: document 1, for rectification works; and document 2, for new works required to complete the dwelling [48] . He referred to the clauses of the roofing specifications set out in document 2 that I have set out above, and noted that in general terms, the builder was required to complete all contracted work in accordance with the contract documents and written variations issued by the architect[49] . Neither party submitted that there were any other provisions of document 2 that bore on this question.
48. R [521], [523].
49. R [526].
The referee considered document 1 and document 2 (including, as I understand it, the plans) and came to the conclusion that[50] :

527. I find, from a reading of these clauses together, that the scope of work included in the Contract relating to the roof and roof plumbing was very limited. It comprised rectification work to the existing eaves and box gutters to achieve falls as described, connection of downpipes to the stormwater system and installation of those flashings which were required to ensure a watertight installation, including where the builder was required to install penetrations in the roof. The scope of work did not include rectification of the metal roofing or roof plumbing otherwise.
50. R [527].

Having dealt with the scope of works, the referee turned his attention to the requirement to provide a warranty. He said[51] :

528. However, in order to provide the warranty required under the Contract, it was the responsibility of the builder to identify any deficiencies in the roof and roof plumbing which came to his attention and to seek a variation to rectify those deficiencies pursuant to Section J1.3 of the Contract. It was for the architect to instruct whether the requested variation was to proceed where the proposed work was not included in the builder’s scope of work. If directions were not given to rectify that defective work as a variation, the builder was not obliged to undertake that work and no warranty on the whole of the roof and roof plumbing could be provided.
51. R [528].

The referee turned to the alleged defects in the roofing and roof plumbing. He concluded[52] that a number of those items were not the responsibility of the builder, because they related to work done by the previous builder. For completeness, I note that document 1 (to which the referee had already referred) does not require the builder to undertake any rectification work in respect of defective work done by the previous builder relating to box gutters, overflow rainwater heads and sumps and related matters. However, the referee concluded, others of the defects listed did fall within the builder’s scope of work, and thus that the builder was liable for the cost of rectification.
52. R [531].

The parties’ submissions

Mr Bambagiotti submitted that, on its proper construction, document 2 required, by cl 101 read in conjunction with cl 107, the builder to check all roofing and associated plumbing (including work done by the previous builder) and thus, to the extent that there were defects in the roofing work done by the previous builder, the builder was liable.
Mr Shipway submitted that the plain intention of the scope was to limit the builder’s responsibility to the limited work that it was required to perform.
As I have said, document 2 is opaque as to the scope of the work to be performed by the builder in relation to roofing and roof plumbing. It was apparently to be understood by reference to “the drawings”. However, Counsel did not take me to the relevant drawings, to show whether the scope of work extended beyond the limited scope that was the subject of the referee’s conclusion at R [527].

Decision

The scope cannot mean that the builder was required to supply and install a complete roofing installation. That follows because, as the scope itself noted, the bulk of that work had been done by the previous builder. Since the parties did not provide any assistance as to the extent to which the scope identified by the drawings, I am unable to express a view as to whether the referee’s conclusion at R [527] is correct. It is enough to say that the conclusion has not been shown to be erroneous.
The real debate concerned the extent or content of the obligation “to check all remaining works, flashing etc.” Mr Bambagiotti submitted that this meant the entirety of the roofing works, whether done by the previous builder or by the builder. In effect, his submission was that “remaining” should be read as “existing”; or that the words “after completion of the builder’s scope of works” should be read in after the word “remaining”. Mr Bambagiotti sought to support that conclusion by reference to cl 107.
Mr Shipway submitted that the natural and ordinary meaning of the words in question was that they obliged the builder to check the roofing work that remained to be done after it went onto the site.
Considering cl 101 in its entirety, it seems to me that the construction for which Mr Shipway contended is correct. It accords with the natural meaning of the words “all remaining works, flashing etc”. It respects and gives effect to the syntax of the sentence, which appears to juxtapose two separate concepts: “the bulk of the roof” (referring to work already done by the previous builder) and “all remaining [roof] works, flashing etc” (referring to work to be done by the builder).
In effect, the construction for which Mr Bambagiotti contended required the builder to check the whole of the roofing works and their associated flashings and plumbing. If that is what the parties meant to say, there was a very obvious and clear way for them to say it. They did not do so.
However, it is erroneous to consider the words in question simply in the context of cl 101. They must be considered in the wider context of the whole of section 07600. Indeed, they should be considered in the context of the entirety of the contract, although neither party submitted that there was anything outside document 2 that would bear on the question of construction.
Clause 107 imposes a freestanding obligation on the builder to provide a warranty having the characteristics that are described. The referee considered the impact of cl 107. He said, in substance, that it required the builder to identify any deficiencies in the existing roofing and roof plumbing works done by the previous builder, and to seek a variation to rectify them. If no such direction were provided, the referee said, then the builder was not obliged to provide a warranty[53] .
53. R [528].
I am not sure that it is correct to read down cl 107 as requiring the builder to warrant only to the extent that it had assumed responsibility for the work of the previous builder by checking and rectifying defects in that work outside the defects identified in document 1 [54] .
54. And I repeat that document 1 made no reference to the roofing or roof plumbing.
However, the question at present is not what is the content of the cl 107 warranty but, rather, whether the existence of that warranty has any bearing on the construction of the words “check all remaining works, flashing etc”. On balance, I do not think that it does. I think that cl 107 imposes an independent obligation on the builder to warrant the whole of the roof and roof plumbing in the terms set out. Whether the builder carried out in the inspection or not, it would be liable for the whole of the roof pursuant to the cl 107 warranty.
The pleaded case did not rely on cl 107. It did not plead any breach of the warranty that the builder gave, or breach of the obligation to give a warranty, pursuant to cl 107. Instead, it pleaded a claim for damages for breach of the statutory warranties relating to the work that the previous builder actually did. The defects were identified by reference to the Scott Schedule. So far as the Scott Schedule deals with roofing and roof plumbing, it refers to breaches relating to box gutters, flashing and the like. In other words it relates to discrete defects in workmanship. The owners did not plead, and the Scott Schedule did not identify, a breach of the obligation “to check all remaining works, flashing etc”.
On the case that was pleaded and run, I see no overall error in the conclusion reached by the referee.

Denial of natural justice

As I have indicated, this relates to the referee’s observations at R [160]. I set out the whole of that paragraph:

160. I note that this method of rectification has been applied to one window already where three sides were fitted with cover strips. My observation was that the trims were not noticeable on the window frame until viewed closely and then only after the rectification work was pointed out.

Mr Bambagiotti submitted that the referee had been obliged to inform the parties of his visual observations and of what he thought followed from them, and by not doing so had denied some measure of natural justice to the owners. I do not agree.
The parties knew that the referee was going to undertake an inspection. He recorded at R [67] that he had arranged to inspect the defects in the company of “the two experts”, presumably, Messrs Foster and Ellis. It was apparently in the course of this inspection that the referee made the observations referred to at R [160]. Thus, the experts were aware that the builder had examined part of the anodised metal framing where cover strips had been applied over scratched metal work. It is obvious that the experts knew this, because the referee said that he was only able to discern the cover strips (which he called in this paragraph “trims”) “after the rectification work was pointed out”.
It is apparent, considering those matters, that one or other of the experts (or if not one of them, Mr Harris) must have pointed out to the referee where the cover strips had been applied. Although I do not suggest that the experts were agents or representatives of the parties, it was open to them to report to their respective clients that the inspection had been performed, and that the referee’s attention had been drawn specifically to the cover strips.
Referees are not bound by the rules of evidence. They are entitled to inform themselves as they see fit. They are, of course, bound to afford natural justice to the parties. In the circumstances that I have outlined, I think that the referee afforded sufficient natural justice to the parties by conducting the inspection in conjunction with the experts, and by inspecting the applied cover strips when that was pointed out by one expert or the other.

Reimbursable costs

I have outlined the basis of this dispute already[55] . The referee dealt with it relatively briefly. He found that:
55. At [25].

the subcontractor in question, Cath Aluminium, was a subcontractor that the Architect directed the builder to use[56] ;

the Architect certified payment of the deposit amount (which is the subject of the present claim) to Cath Aluminium, for work that included removal of windows, repair, and manufacture of new windows[57] ;

Cath Aluminium went into liquidation, apparently having removed windows for the purpose of rectification[58] ; and

in those circumstances, Cath Aluminium had performed at least some of the work for which the deposit had been paid to it[59] .
56. R [1074].
57. R [1075].
58. R [1076].
59. R [1079].

It was plain, as the referee found[60] , that such work as Cath Aluminium did was abortive. The referee also noted[61] that the owners had changed the windows specification and that a new supplier had been engaged. In those circumstances, the referee concluded that “some work was undertaken by Cath Aluminium for which it was entitled to be paid prior to entering liquidation”[62] .
60. R [1080].
61. R [1080].
62. R [1083].
Mr Bambagiotti submitted that the referee’s conclusions were not supported by the evidence. He did not show me why it was that the particular findings made by the referee, that Cath Aluminium had removed the windows and commenced the process of repair, were erroneous. In essence, this seems to amount an invitation to the court to review the evidence and come to some different conclusion. As I have said already, that is not a task that should be undertaken in the exercise of the discretion conferred by UCPR r 20.24.
I find no error in the referee’s approach to and conclusion on this issue.

Variations and delay costs

The builder claimed for the cost of variations that had not been approved, and for delay costs and damages arising from extensions of time. Although the referee considered those mattes separately (and in careful detail), they can be dealt with together.
It appears to have been common ground that the builder did not comply with the requirements of the contract that had to be satisfied were it to be entitled to payment under either head. The owners relied on those contractual provisions in answer to the claims. The referee found that they had been waived, by the way in which the Architect, with the knowledge of Mr Harris, informally administered the contract.
The real difficulty with this conclusion is that waiver (whatever that may be thought to mean) had not been pleaded. The closest that the pleadings come is an allegation, based on scanty particulars, that the owners were estopped from relying on the relevant contractual provisions. That pleading is found in the Technology and Construction List Cross-Claim Statement at [24] (in relation to variations) and [36] (in relation to delay costs). I set out those paragraphs:

24.   Further or alternatively, the Owners are estopped from denying liability to pay a reasonable price for the works the subject of the Variations by reason of the following:
a)   Morabito assumed a particular entitlement existed, or would come to exist under the Contract;
b)   the Owners and/or the Architect acting on the Owners’ behalf induced Morabito to adopt that assumption or expectation;
c)   Morabito acted or abstained from acting on the faith of that assumption or expectation;
d)   the Owners and/or the Architect acting on the Owners’ behalf new of Morabito’s action or intended Morabito to act that way; and
e)   Morabito’s action or inaction caused it to suffer detriment when the assumption or expectation was not fulfilled; and
Particulars
(i)   Morabito proceeded with the works the subject of the Variations in good faith and on the understanding that the works were necessary and would be paid for.
(ii)   The Owners and the Architect were aware through site meetings and correspondence that Morabito was going to perform, and did perform, the work the subject of the Variations.
(iii)   Morabito incurred costs in performing the additional / varied work the subject of the Variations.
f)   the Owners and/or the Architect on the Owners’ behalf failed to act to avoid the detriment by not fulfilling the expectation or otherwise.

Estoppel
36.   If and to the extent that the Owners rely on any notification provisions under the Contract to preclude Morabito from pursuing any contractual or other claims pleaded in this Cross-claim, then by reason of the Conduct, Morabito says that the Owners are estopped from relying on such provisions by reason of the following:
a)   Morabito assumed or expected that the Alternate Procedure wold be followed:
b)   the Owners, through the Architect acting as their agent and representative, induced Morabito to adopt that assumption or expectation;
c)   Morabito acted or abstained from acting on the faith of that assumption or expectation;
d)   the Owners, through the Architect acting as their agent and representative, knew of Morabito’s action or intended Morabito to act that way;
e)   Morabito has suffered detriment as a result of the Owners not fulfilling that assumption or expectation;
f)   the Owners failed to act, through the Architect or otherwise, to avoid the detriment by fulfilling the expectation or otherwise; and
g)   it would unconscionable in the circumstances to permit the Owners to resile from the assumption or expectation.

I enquired of Counsel whether waiver had been addressed in the course of submissions. They agreed that it had not.
In my view, the pleading of estoppel was not sufficient to put the owners on notice that the builder would argue that they had waived their right to rely on the contractual requirements that had to be satisfied before the builder became entitled to payment for variations of payment for delay costs. The inadequacy of the pleading is highlighted by the uncertainty inherent in the use of the term waiver (as to which, see Gummow, Hayne and Kiefel JJ in Agricultural and RuralFinance Pty Ltd v Gardiner [63] at [50].)
63. (2008) 238 CLR 570.
I accept, of course, that the term “waiver” is sometimes used to refer to estoppel, and that estoppel was pleaded. However, the referee did not address specifically the pleaded estoppel. Nor did he address the “reasonable price” issue that would have arisen had he found that the pleaded estoppel had been made out on the facts.
I conclude that it was not open to the referee to decide in favour of the builder on these issues, on the basis of some innominate waiver. In doing so, he denied the owners natural justice in a significant way.
The referee found that the builder was entitled to $8,723.67 for variations, and $49,211.58 for delay costs (in each case, inclusive of GST). He took those amounts into consideration in concluding that the amount (in his precise figures) of $327,741.22 (again inclusive of GST) was owing to the owners.
It follows from my conclusions that the amounts allowed in favour of the builder for variations and delay costs should be added back to that amount. On that basis, the amount payable to the owners would be $385,676.47. That is subject to any agreed adjustment by reason of the matters stated at [42] above.

Conclusion and orders

The report should be adopted, save in respect of [1190] and the underlying paragraphs quantifying the total set out in that paragraph, [1245], [1246], [1250], [1251] and [1253]. It is unnecessary to say anything more about any other paragraphs apart from [1253]. That paragraph should be varied to refer to the amount of $385,676.47 [64] payable to the owners.
64. Subject to any agreed adjustment.
So varied, and to the extent indicated, the report should be adopted. The owners are entitled to judgment for the sum of $385,676.47, subject to any agreed adjustment. Interest should run on that sum from the date of the report, 31 January 2018, until the date of entry of judgment pursuant to s 100 of the Civil Procedure Act.
That leaves for resolution the question of costs: both the costs of the reference and the costs of the proceedings (including, specifically, the costs of the motion for adoption). I think that the best way to deal with this is to give the parties a date for directions, with the intention that a date will be fixed for the hearing of argument on costs and that directions will be given to ensure that the argument is ready to proceed on that date. In the meantime, the parties are to bring in an agreed calculation of interest and a minute of the judgment that is to be entered pursuant to these reasons.
I make the following orders:

direct the parties to bring in draft orders to give effect to these reasons;

List the proceedings at 9:30am on 28 June 2018 before me for entry of judgment accordingly; liberty to apply in chambers if the form of orders is agreed before then.

Reserve all questions of costs.

List the proceedings for directions in the Technology and Construction List at 12 noon on 29 June 2018 for allocation of a date for hearing of argument on costs (subject to the views of the judge conducting the directions list) and for directions in relation to that hearing.

**********

Endnotes

Decision last updated: 19 June 2018

Medium Neutral Citation:	Harris v Morabito Holdings [2018] NSWSC 912
Hearing dates:	30/05/2018
Date of orders:	19 June 2018
Decision date:	19 June 2018
Jurisdiction:	Equity - Technology and Construction List
Before:	McDougall J
Decision:	See at [155] – [158].
Catchwords:	BUILDING AND CONSTRUCTION – adoption of referee’s report – discretion to adopt to be exercised judicially and with regard to the purpose for which discretion to refer is given – where report is factually thorough and reaches conclusions open on the evidence – where most errors complained of involve an attempt to reargue on the merits – exception regarding conclusions on delay and variations where there was a denial of natural justice – referee’s report adopted in whole with the exception of conclusions regarding delay and variations. CONTRACT – interpretation of building contract –distinction between the interpretation of the terms of a contract and standard or extent of performance required to satisfy those terms.
Legislation Cited:	Civil Procedure Act 2005 (NSW) Home Building Act 1989 (NSW) Supreme Court Rules 1970 (NSW) Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570 Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2008] NSWCA 228 Bellgrove v Eldridge (1954) 90 CLR 613 Chocolate Factory Apartments Pty Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784 Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd (2013) 84 NSWLR 410 Jazabas Pty Ltd v Haddad (2007) 65 ACSR 276 Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104 Norbis v Norbis (1986) 161 CLR 513 Plant Construction PLC v Clive Adams & Associates [2000] BLR 137 Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 Wenco Industrial Pty Ltd v WW Industries Pty Ltd (2009) 25 VR 119
Category:	Principal judgment
Parties:	Anne Harris as executor of the estate of the late Arthur Harris (First Plaintiff) Anne Harris (Second Plaintiff) Morabito Holdings Pty Ltd t/as Marc Morabito Constructions (Defendant)
Representation:	Counsel: P J Bambagiotti (Plaintiffs) L Shipway (Defendant) Solicitors: Kreisson Legal Pty Limited (Plaintiffs) HWL Ebsworth Lawyers (Defendant)
File Number(s):	2016/160508