New Price Retail Services Pty Limited v David Hanna - [2014] NSWSC 553

Supreme Court

New South Wales

Medium Neutral Citation: New Price Retail Services Pty Limited and Anor v David Hanna [2014] NSWSC 553
Hearing dates: 28, 29, 30 April 2014
Decision date: 09 May 2014
Before: Sackar J
Decision:
See Paragraph [197]

Catchwords: PROCEDURE - adoption of report of referee - allegation of breach of procedural fairness - allegation of apprehended or actual bias - where allegation founded on communications between referee and one party - nature of those communications - whether breach occurred in circumstances where complaining party instrumental in determining regime of reference and engaged in similar communications - whether any breach waived - whether any errors sufficient to prevent adoption of report - whether reconciliation of certain account occurred and effect of any such reconciliation.
Legislation Cited: Civil Procedure Act 2005
Uniform Civil Procedure Rules 2005
Cases Cited: Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2008] NSWCA 228
BestCare Foods v Origin Energy [2012] NSWSC 574
Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWSC 1302
British American Tobacco Australia Services Ltd v Laurie (2011) 242 CLR 283
Carbotech-Australia Limited v Yates [2008] NSWSC 540
Ceccattini v ICM 2000 Pty Ltd [2000] NSWCA 357
Chocolate Factory Apartments v Westpoint Finance [2005] NSWSC 784
Corbett Court Pty Limited v Quasar Constructions (NSW) Pty Ltd [2008] NSWSC 1163
Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337
Escobar v Spindaleri (1986) 7 NSWLR 51
Guillot Enterprises (LE) Pty Ltd v Twin Disc (Pacific) Pty Ltd [2009] VSC 69
Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd [2013] NSWCA 6
MH6 v Mental Health Review Board [2009] VSCA 184; (2009) 25 VR 382
Michael Wilson & Partners Ltd v Nicholls & Ors (2011) 244 CLR 427
Minister for Immigration v SZFDE (2006) 154 FCR 365
New South Wales v Bovis Lend Lease Ltd [2007] NSWSC 1045
Owners Strata Plan 57504 v Building Insurers' Guarantee Corp [2008] NSWSC 1022
Percerep v Minister for Immigration and Multicultural Affairs (1998) 86 FCR 483
Re JRL; ex parte CJL (1986) 161 CLR 342
Rouvinetis v Knoll [2013] NSWCA 24
Ryde City Council v Tourtouras [2007] NSWCA 218
Sangain Pty Limited v Italform Pty Ltd [2009] NSWSC 74
Seven Sydney v Fuji Xerox [2004] NSWSC 902
Smits v Roach (2006) 227 CLR 423
SZFDE v Minister for Immigration (2007) 232 CLR 189
Thompson v Ludwig (1991) 37 IR 437
Vakauta v Kelly (1989) 167 CLR 568
Xuereb v Viola (1989) 18 NSWLR 453
Texts Cited: N/a
Category: Principal judgment
Parties: New Price Retail Services Pty Limited - first plaintiff
Priceline Pty Limited - second plaintiff
David Hanna - defendant
Representation: Counsel:
Plaintiffs - M Condon SC
Defendant - self represented
Solicitors:
Holman Webb - plaintiffs
Self represented - defendant

File Number(s): 2010/356948

Judgment

Proceedings

The proceedings before me concern a Notice of Motion filed on 6 September 2013 by New Price Retail Services Pty Ltd (New Price) and Priceline Pty Ltd (Priceline) (collectively, the plaintiffs).

By that motion, the plaintiffs seek the adoption of reports dated 24 July 2013 and 16 August 2013 by a Referee, Mr Brian Silvia, concerning whether the defendant, Mr David Hanna, owed certain amounts under a franchise agreement on account of goods sold and delivered, and if so in what amount.

The plaintiffs also sought an order that the defendant pay into Court the sums determined by the Referee, and that the defendant pay the costs of the Referee.

In response, Mr Hanna also filed a Notice of Motion dated 6 December 2013 seeking, inter alia, rejection of the reports. In essence, for various reasons he contends the Referee was biased or there was an appearance of bias and/or he was denied procedural fairness.

It should be noted at the outset that Mr Hanna was previously represented by a Mr George Hanna, but was self-represented at the hearing before me. For the sake of clarity, any reference to Mr George Hanna will be made in full to avoid confusion with the defendant.

Background facts

On 16 January 2006, New Price as franchisor and Mr Hanna as retailer entered into a Priceline Pharmacy Franchise Agreement for a site in Liverpool. The commencement date for the franchise agreement was 12 December 2005.

Goods were supplied from Priceline directly as well as from third parties at the direction of Priceline, and in the latter case the fees for these goods would be billed against Mr Hanna by the second plaintiff (rather than the third party who had supplied them).

Priceline had various IT systems that dealt with stock management and ordering for Priceline stores, including franchise stores. Prophet as such was the system used by Priceline to control stock levels within Priceline stores and to automatically replenish goods as necessary (later replaced by the MMS system in November 2007). Storeline was the point of sale and back office system installed at each Priceline store, which included a system called Merman that was used, inter alia, to generate a Stock Receiving Report at the store. Epicor was Priceline's financial system that produced invoices, credit notes and statements from data transmitted to it by the Prophet system.

It seems uncontroversial that a number of disputes arose between the parties concerning delivery and payment for goods from as early as 2006.

One of the major concerns of the defendant was that the automatic replenishment of stock occurred by virtue of an algorithm that took into account not only actual sales, but also projected sales (T68.3-T68.39). More generally though, his concern was that the automated purchase orders and invoices, and the actual delivery of stock to his store at Liverpool, were not consistent.

The defendant asserts that in or about January 2009, a full account reconciliation was conducted by the plaintiffs regarding the Franchise Sundry Account (described below) up to 31 January 2009 and the defendant had paid all amounts outstanding on the Franchise Sundry Account up to that date.

Following the escalation of these disputes over a number of years, the franchise agreement was terminated on 31 July 2009.

The plaintiffs filed an Amended Commercial List Statement on 30 April 2012, and in relation to the claim for goods sold the first outstanding invoice claimed is dated 2 January 2008.

A Cross Claim had already been filed for Mr Hanna on 5 April 2012, and a Further Amended Commercial List Response was filed on 15 June 2012. The Cross Claim alleges that the cross-defendants, being New Price and Priceline, had engaged in misleading and deceptive conduct or unconscionable conduct and made other ancillary claims.

On 4 May 2012, orders were made that certain questions be the subject of enquiry and report (the Reference) by Mr Brian Silvia (the Referee), an accountant and principal of the firm BRI Ferrier (CB1/89). It should be noted that any reference in this judgment to the Referee also includes members of his staff such as Mr Caine Hemsworth or Mr Peter Sheppard as examples.

The questions relevantly for determination by the Referee were:

1. Whether there are any fees owing, if any, if so in what amount in relation to the Franchise Sundry Account maintained in relation to the Franchise between the parties between 15 November 2005 to 24 September 2009.

2. Whether there are any monies owing, if any, if so in what amount in relation to the Designated Stock Account maintained in relation to the Franchise between the parties between 15 November 2005 to 24 September 2009.

[emphasis added]

The terms of the order also contained the following:

5.3 The Referee consider and implement such manner of conducting proceedings under the reference as will, without undue formality or delay, enable a just determination to be made including, if the Referee thinks fit:

5.3.1 The making of enquiries by telephone;

5.3.2 Inspecting the primary stock documentation or other documents (to the extent available) including:

...

5.3.2.4 The Proof of Delivery records of the Designated Stock to the Defendant's pharmacy;

5.3.3 Communication with experts retained on behalf of the party.

The Designated Stock Account records all stock related invoices and credit notes issued to Mr Hanna, and all payments made by him on account of such invoices.

The Franchise Sundry Account records all non-stock related invoices and credit notes issued to Mr Hanna, and all payments made by him on account of such invoices (this account is also referred to at certain points as the Sundry Debtor Account). The invoices that were the subject of the Franchise Sundry Account included a Franchise Fee, Catalogue Fee, Club Card Fee and a Support and Maintenance Fee.

Briefly (although I will deal with this in greater detail below) the Reference took the following course.

On 6 June 2012, the Referee emailed the parties outlining his proposed approach to the Reference.

On 5 July 2012, Mr Stephen Rogers, solicitor for the plaintiff, sought from the Referee copies of the documents and information supplied to him by Mr Hanna

In response, Mr Hanna's then solicitor Mr George Hanna wrote to the Referee on 9 July 2012 effectively rebuking him and opposing such a course (the 9 July email) (CB9/3865). In the letter, Mr George Hanna wrote:

We have not sought the documents provided to the Referee by the Plaintiffs, and we are of the opinion that the Referee process should not be circumvented and utilised by the Plaintiffs as a form of quasi-Discovery. There are processes within the court system for the orderly process of Discovery to occur between the parties, and this does not involve the referee.

We respectfully request that the Referee refrain from providing the documents given to it by the Defendants to any of the parties to this proceeding.

On 13 July 2012 and 3 August 2012, Mr Rogers wrote to the Referee and raised the importance of procedural fairness, and drew his attention to the commentary in Ritchies at 20.20.20 and the decision in Xeureb v Viola (1989) 18 NSWLR 453.

On 3 August 2012, the Referee responded to the concerns expressed by Mr Rogers in a letter which does not seem to have been copied to Mr Hanna (CB9/3869) and relevantly stated:

I am aware of the need to afford both parties fairness in decision-making.

I do not consider that it is necessary at this time for you or your client to review the documents provided by Mr Hanna's client in order to be accorded fairness. Mr Hanna's documents are printed and extend to nearly 40 lever-arch folders.

I am also mindful of the observation made in Mr Hanna's email to me of 9 July 2012, in which he objected to the referral becoming an indirect means of discovery. While I appreciate the comments you have made in response to that email of 13 July 212, it is my view that the efficient and fair conduct of the reference will be best served by disclosure of the documents on which my report will be based in connection with a draft of that report. Should I consider it useful to disclose some or all of the documents sooner, I will revert to you.

On 10 October 2012, the Referee sent an email to Mr George Hanna in respect of queries raised by him (CB5/1773) and relevantly stated:

The Referee has not yet completed his draft report and no draft report has been provided to the plaintiffs. A further request for information has been made of the plaintiffs and I think this is the correspondence to which your letter refers. Mr Hemsworth and I have arranged to interview personnel of the plaintiff on Friday.

That request relates to inquiries about the electronic data provided by the plaintiffs and it seems unlikely that your client will be able to assist in answering the questions raised. Should there be any matters where it is either necessary as a matter of procedural fairness or useful for your client to comment, we will certainly provide you with a set of questions.

The Referee wrote to the Court on 11 October 2012 (CB9/3873), explaining a delay in producing his report and noting that:

I have corresponded with the plaintiffs about the data, but have not considered it necessary to refer my questions to the defendants because it is unlikely that the defendants will be able to assist me with the questions I have raised with the plaintiffs.

Regrettably I do not consider my current understanding of the plaintiff's electronic data to be sufficiently sound to allow me to report to the court.

[emphasis added]

Mr Silvia prepared a number of reports, initially in draft form and provided them to the parties. The first draft was dated February 2013 and found that Mr Hanna owed $132,962.98 on the Franchise Sundry Account and $574,223.56 on the Designated Stock Account but did not provide detailed reasoning or annexures (CB1/91).

A further draft dated 29 April 2013 was provided, which included detailed reasons and copious annexures (CB1/105). The Referee found that Mr Hanna owed $98,542.92 on the Franchise Sundry Account and $634,476.80 on the Designated Stock Account.

Both parties were given an opportunity to comment on the findings and analysis contained within each draft report.

On 22 May 2013, the Referee provided a report on his progress to the Court (CB9/3878). The Referee stated the following under a heading of Review and Procedural Fairness:

Early in the course of the Reference I decided that I would meet and communicate separately with the parties and their representatives. This drew some criticism from one party, which sought to be involved in each meeting and to review each document or communication to ensure procedural fairness.

I declined to permit attendance on the basis that I intended to provide sufficient opportunities for review once the draft of the Report had been prepared.

The party referred to by the Referee was the plaintiffs.

A principal report dated 24 July 2013 (CB1/235) and a supplementary report dated 16 August 2013 (CB2/478) were provided to the parties by the Referee, and are the subject of the plaintiffs' Notice of Motion.

The Referee in the July report answered the first question in relation to the Sundry Debtor Account by quantifying the liability of Mr Hanna to the Franchisor as $98,542.92. The Franchisor is defined collectively as New Price and Priceline collectively (CB1/246).

The Referee answered the second question in relation to the Designated Stock Debtor Account by quantifying the liability of Mr Hanna to the Franchisor as $634,256.52.

There were further communications between the Referee and Mr Hanna following the provision of the 24 July 2013 report.

In his supplementary report dated 16 August 2013, the Referee stated that in relation to the Sundry Debtor Account:

In response to Question 1, I am of the view that the Retailer's liability to the Franchisor in respect of the Sundry Debtor Account is either $98,542.92 or, if the account was reconciled and settled in early 2009 as contended by the Retailer, $46,626.73.

Which is the case depends on whether the Retailer reconciled and settled the account with the Franchisor in early 2009. Having reviewed the documents provided to me by each party, I am of the view that no settlement was concluded. However, it may be that the material provided to me is incomplete. This issue has emerged as controversial comparatively late in the course of the Reference and I have not thought it appropriate to conduct that examination as a lay Referee. The issue requiring determination is whether either:

The Retailer and the Franchisor settled the Sundry Debtor Account; or

Whether, notwithstanding that it did not intend to settle the account, the Franchisor is required, by reason of estoppel or otherwise, to treat the account as settled.

The defendant relies on a number of communications between the plaintiffs and the Referee to which he was not privy, in order to support his contention of apprehended bias and/or breaches of procedural fairness. Some of these are set out in paragraph [9] of his affidavit dated 21 March 2014 (CB4/1279).

I deal with the various communications about which complaint is made in some detail but what follows is a brief summary.

The first communication is a letter dated 27 July 2012 from the Referee to the plaintiffs' solicitors, in which the Referee stated 'that overwhelmingly the total value of credits recorded does not appear to reconcile with the component parts' (CB5/1748).

The second communication is an email again to the plaintiffs dated 13 September 2012 in which the Referee stated that 'a randomly generated sample of SKU data' shows 'a significant number of instances where of apparent incongruous [sic]. Some 20 of the 50 randomly sampled SKUs present with this incongruity' (CB5/1756).

The third communication again to the plaintiffs occurred on 28 September 2012, when the Referee emailed a document titled 'Review of Inventory by SKU Final.pdf' to the plaintiffs (CB5/1762).

The fourth communication again to the plaintiffs is an email dated 18 December 2012 in which the Referee, according to Mr Hanna's interpretation, highlighted significant discrepancies within the plaintiffs' data (CB8/3243).

Apart from communications in writing, the Referee met separately with the plaintiffs' representatives on a number of occasions.

In response, the plaintiffs point to several examples of communications over this time period between Mr Hanna, or Mr George Hanna on his behalf, and the Referee (without being copied to the plaintiffs). These include a letter dated 18 June 2012, a letter dated 28 June 2012, a teleconference on 14 March 2013, a meeting on 7 August 2013 and the provision of further written submissions on 15 August 2013. It is also common ground that the defendant, sometimes in company with Mr George Hanna, also had meetings separately with the Referee.

In August 2013, the retainer of Mr George Hanna appears to have come to an end, although a notice of removal as solicitor was not filed until 1 April 2014.

Issues in dispute

The defendant contends that, by reason of the Referee's communications with the plaintiffs, there arises an apprehension of bias or indeed as I understand it actual bias that should result in the rejection of the Referee's report. He also alleges there have been breaches of the rules of natural justice which as I understand it should lead to the same result.

Mr Hanna also asserts that certain of the Referee's findings were erroneous. In relation to errors made by the Referee, there are four specific complaints. The first relates to the assertion that no proof of deliveries were presented by the plaintiffs. The second relates to the treatment of third party invoices and a number of alleged examples of overcharging. The third relates to an alleged incomplete analysis of Club Card overcharging (where the Club Card appears to have been a rebate program in relation to non-pharmaceutical products). The fourth complaint relates to the supply of stock at the commencement of the franchise relationship.

It should be noted that the claims made by Mr Hanna in his cross-claim, relating to allegations of misleading and deceptive conduct and unconscionability, formed no part of the Reference and remain to be determined in due course.

Legal principles

Adoption of a referee's report

Rule 20.24 of the Uniform Civil Procedure Rules 2005 (UCPR) provides:

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 is clear that the relevant rule involves the Court exercising a discretion. The principles relating to the Court's discretion in the adoption or rejection of a report were canvassed initially by McDougall J in Seven Sydney v Fuji Xerox [2004] NSWSC 9023 at [11] - [13]. His Honour ultimately consolidated those propositions and amplified them in Chocolate Factory Apartments v Westpoint Finance and Others [2005] NSWSC 784 at [7] (Chocolate Factory). Those principles have been adopted regularly by judges of the Court for example, New South Wales v Bovis Lend Lease Ltd [2007] NSWSC 1045 per Einstein J at [7]; White J in Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWSC 1302 at [12]; Rein J in Sangain Pty Limited v Italform Pty Ltd [2009] NSWSC 74 at [14]; Hammerschlag J in Corbett Court Pty Limited v Quasar Constructions (NSW) Pty Ltd [2008] NSWSC 1163 at [30] - [31].

In Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2008] NSWCA 228 Spigelman CJ and Allsop P (with whom Campbell JA agreed) did not take issue with the adoption of this approach by Einstein J as the primary judge. Their Honours merely added at [47] to [48] that:

[47] No issue was taken with this expression of the approach to the task of the primary judge. That is not said with any unstated reservation or criticism of how McDougall J expressed the matter. We would only add that the approach of a judge faced with the requested adoption of a referee's report should be determined according to the nature of the issues and the circumstances of the case.

[48] Highly relevant to that general overall consideration is the historical context of the rules concerning references, the recognition of the reference as a special form of hearing or trial (though not one leading, without more, to a verdict or judgment) over which the Court has a power of review, and the recognition of the place of references within the wider modern framework of alternative dispute resolution: see the discussion of these matters in the reasons for judgment of Gleeson CJ in Super v SJP Formwork at 558-564. The history of references under an order of the Court in the disposition of justiciable controversies that is the subject of discussion by Stephen J and Jacobs J in Buckley v Bennell Design & Constructions Pty Limited (1978) 140 CLR 1 at 15-22 and 28-38, respectively, by Gleeson CJ in Super v SPJ Formwork and by Brooking J in Nicholls v Stamer [1980] VR 479 illuminates the wide general power available to the Court in the review and adoption process.

In BestCare Foods v Origin Energy [2012] NSWSC 574 McDougall J repeated and amplified the principles set out in Chocolate Factory and I respectfully adopt what his Honour there said at [15] - [18]:

[15] The discretions conferred by r 20.24 are not subject to limitations or conditions stated in the rule itself. It follows that they are to be exercised judicially, and in accordance with the dictates of, in particular, s 56 of the Civil Procedure Act 2005 (NSW) (see s 56(2)).

[16] Nonetheless, over the years, guidelines relevant to the exercise of the r 20.24 discretions (or the equivalent discretions under SCR pt 72 r 13) have been developed in many decided cases. I sought to collect the principles emerging from those cases in my judgment in Chocolate Factory Apartments v Westpoint Finance [2005] NSWSC 784 at [6] to [8].

[17] Since what I there said has received some measure of support in subsequent decisions, I venture to repeat those paragraphs:

"6 The principles to be applied, in exercising the discretion conferred upon the Court by Pt 72 r 13 to adopt, vary or reject in whole or in part a report of a referee, are well established. There are a number of cases to which, customarily, reference is made. They include Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549; the unreported proceedings in that case before Giles J (19 May 1992: the relevant considerations referred to by his Honour are sufficiently extracted in the decision of the Court of Appeal); Chloride Batteries Australia Ltd v Glendale Chemical Products Pty Ltd (1988) 17 NSWLR 60; White Constructions (NT) Pty Ltd v Commonwealth of Australia (1990) 7 BCL 193; and Foxman Holdings Pty Ltd v NMBE Pty Ltd (1994) 38 NSWLR 615. As to the nature and content of the referee's obligation to give reasons, the relevant authorities include Xuereb v Viola (1989) 18 NSWLR 453 and Hughes Bros Pty Ltd v Minister for Public Works (Rolfe J, 17 August 1994, unreported; BC 9402885).

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.

8.The twelfth point restates the aphorism of Mahoney JA in Super at 567. The thirteenth, fourteenth and fifteenth points are drawn (and include direct quotations) from the judgment of Hodgson CJ in Eq (with whom Priestley JA agreed and with whom, as to the relevant principles, Fitzgerald AJ also agreed) in Franks & Anor v Berem Constructions Pty Ltd (NSWCA 2 December 1998, unreported; BC 9806367). If I may say so with respect, I regard what his Honour said as giving content, on the facts of the particular case, to the operation of relevant principles rather than as stating any new principle. "

[18] I emphasise, however, that those guidelines do not confine or restrict the discretions. Nor do they override the central significance of s 56 of Civil Procedure Act. Having said that, in general and subject to the particular circumstances of each case, I remain of the view that those guidelines are relevant when considering the exercise of the r 20.24 discretions. In this case, the parties did not suggest otherwise.

The principles which determine whether the Court should adopt, vary or reject a referee's report were also recently accepted by the Court of Appeal in Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd [2013] NSWCA 6, where Barrett JA (with whom Meagher and Ward JJA agreed) also observed at [16] that:

a judge considering whether or not to adopt a referee's report is called upon to exercise a discretion - whether to give the court's imprimatur to a decision made outside the normal curial process by a person charged with the duty of assessing a particular question in the light of the evidence and coming to an informed conclusion, often as to matters lying within a field in which that person has special expertise.

The nature and purpose of the discretion is such that rejection of a referee's report may not be justified for example by a mere disagreement with the referee's factual findings or the inferences drawn from those findings: Ryde City Council v Tourtouras [2007] NSWCA 218 per Basten JA (Santow and McColl JJA agreeing).

Counsel for the plaintiff also referred me to the decision of the Court of Appeal in Ceccattini v ICM 2000 Pty Ltd [2000] NSWCA 357, on the issue of whether a report should be remitted to a referee. Heydon JA (Mason P and Giles JA agreeing) referred to the reasoning of the trial judge, Santow J as His Honour then was, who had concluded that the referee had made errors which constituted procedural unfairness but did not give rise to a reasonable apprehension of bias at [29]:

29 That left a choice between, on the one hand, disqualifying the Referee and appointing another person to conduct the inquiry, and, on the other hand, remitting the matter to the Referee. A need to make the choice raised the second issue. Santow J expressed the following views about it (Red 107J-T):

"The second issue is whether the Referee's prior finding in those circumstances, coupled as it was by procedural unfairness though unwitting, would lead a fair-minded observer to conclude that the Referee was parti pris, and thus might not bring a genuinely impartial mind to bear on any new evidence or submissions so generated, however hard he tried. While we all know that psychologically, admitting error is not easy, here the Referee is simply required to take account of new evidence and further submissions. If it be the case that, with all the other circumstances, a different conclusion by the Referee were warranted, there can be no embarrassment such as to disincline the Referee from that course. That is reinforced by the strictures expressed in this judgment of the importance of giving fair and proper weight to all relevant facts and submissions, retaining an open mind free of prejudgment. In saying that, I do not of course express any view one way or the other on the subject matter of the Referee's determination or whether the further facts and submissions will require a different conclusion to the Referee's previous one. The Referee must simply do his job in an impartial, open-minded way."

Later, at paragraph [59], Heydon JA observed:

...The work done by the Referee ought not to be wasted if that outcome can be avoided. In evaluating the appellants' arguments against remittal of the reference to the Referee, it must be borne in mind that if they succeeded the result would be a complete waste of the work done so far by the Referee. The strength of the appellants' arguments is not such that in law they compel that outcome.

Counsel for the plaintiffs suggested that the costs incurred by the referee (in excess of $300,000) would militate against referring the dispute back to Mr Silvia (T42.25-T42.41), even if I was of the view that there were irregularities.

Although requested to do so, the defendant had no practical suggestion for the future were I to reject the Referee's reports. I infer he simply wants the whole process to be undertaken afresh.

Apprehension of Bias and Natural Justice

Bias

The test for apprehended bias is described in Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337 at [8]:

The apprehension of bias principle admits of the possibility of human frailty. Its application is as diverse as human frailty. Its application requires two steps. First, it requires the identification of what it is said might lead a judge (or juror) to decide a case other than on its legal and factual merits. The second step is no less important. There must be an articulation of the logical connection between the matter and the feared deviation from the course of deciding the case on its merits. The bare assertion that a judge (or juror) has an "interest" in litigation, or an interest in a party to it, will be of no assistance until the nature of the interest, and the asserted connection with the possibility of departure from impartial decision making, is articulated. Only then can the reasonableness of the asserted apprehension of bias be assessed.

This test has been confirmed in British American Tobacco Australia Services Ltd v Laurie (2011) 242 CLR 283 and Michael Wilson & Partners Ltd v Nicholls & Ors (2011) 244 CLR 427 (per Gummow ACJ, Hayne, Crennan and Bell JJ). In the latter case, the majority observed at [31]:

It has been established by a series of decisions of this Court that the test to be applied in Australia in determining whether a judge is disqualified by reason of the appearance of bias (in this case, in the form of prejudgment) is whether a fair-minded lay observer might reasonably apprehend that the judge might not bring an impartial and unprejudiced mind to the resolution of the question the judge is required to decide.

Clearly, the test for apprehension of bias requires identification of what it is said might lead a decision-maker to decide a question other than on its merits and articulation of the logical connection between that matter and the feared deviation from the course of deciding the question other than on its merits.

In the context of a reference, in Carbotech-Australia Limited v Yates [2008] NSWSC 540 Brereton J considered whether a reasonable apprehension of bias on the part of a referee arose, in circumstances where the referee communicated with one party only on matter of administration and procedure. The case also concerned the issue of waiver of a complaint of bias in circumstances where a party engaged with referee on merits of report after becoming aware of possibility of apprehended bias.

Brereton J set out relevant passages from Re JRL; ex parte CJL (1986) 161 CLR 342 and Xuereb v Viola (1989) 18 NSWLR 453, and observed at [39] that "it is undoubted that a Referee under Part 20 is bound by the rules of natural justice... [however] a Referee is not required to conduct his inquiry as if it were a trial by a judge; subject to any directions of the Court, the Referee may conduct proceedings in such manner as he thinks fit, and is not bound by the rules of evidence but is at liberty to inform himself in such manner as he thinks fit. Nonetheless, the Referee must be actually and apparently impartial, and an appearance of impartiality may be compromised if the Referee has private dealings with one of the parties".

Subsequently, Brereton J observed at [47] that 'the process by which that conclusion [of bias in the Re JRL case] was reached illuminates the relevance and importance of the circumstances of the individual case in determining whether an inference of apparent bias will be drawn from the fact of communications between a judicial officer and one only of the parties".

At [52]-[53], his Honour observed:

[52] The passages to which I have referred in JRL establish that while the (mere) fact that an ex parte communication takes place is an important one, it is not decisive, and closer examination may show that the informed reasonable lay observer might not form an apprehension of bias despite such communications. It will depend on the facts of each case whether communications between a judicial officer and one party to the exclusion of the other give rise to a reasonable apprehension of bias, and one must look to the whole of what happened to establish whether such an apprehension should be inferred. The reasonable and fair minded lay observer according to whose standards the question of ostensible bias is judged is taken to have knowledge of the material objective facts. In S&M Motor Repairs [(1988) 12 NSWLR 358], Priestley and Clarke JJA, said (at 380F-G) that for the apprehension of the parties or the public to be reasonable, it must arise upon an understanding of the actual circumstances in which the claim of possible bias is made, and added (at 381D-E):

We stress that whenever a court is called on to decide whether disqualifying bias or apprehension of bias exists all the circumstances of the particular case must be looked at.

[53] Moreover, where a judge is concerned, the mere fact of an ex parte communication is of importance, though not decisive, because it is such an obvious departure from the norms of behaviour understood by judges and the legal profession alike. The same cannot be said of a Referee who is not a lawyer let alone a judicial officer, who is not required to conduct the proceedings as if he were a judge, and who may be quite unfamiliar with the practices and protocols of lawyers. In my view, less significance attends the mere fact of such a communication in that context than in the context of a judicial officer. Accordingly, it is necessary to look beyond the mere fact of the communications to see whether the reasonably informed bystander would apprehend bias, knowing of their contents. Thus in JRL, it was of decisive importance that the court counsellor - a person whose opinion might be thought to carry weight with the judge - had made strong representations to the judge on the merits, in private, which it was not unreasonable to suppose may have influenced the judge adversely to the husband's case.

[citations omitted]

In the circumstances of that particular case, Brereton J concluded at [66] that the Associate Judge had erred in concluding that a reasonable apprehension of bias arose from the mere fact of the single party communications, without examining the context and content of the communications. Upon such an examination, his Honour concluded that no reasonable apprehension of bias arose.

The authorities in this area clearly establish that a party may be taken to have waived its rights in the event that there were circumstances giving rise to an apprehension of bias.

In Vakauta v Kelly (1989) 167 CLR 568, Brennan, Deane and Gaudron JJ held at 572:

...a party who has legal representation is not entitled to stand by until the contents of the final judgment are known and then, if those contents prove unpalatable, attack the judgment on the ground that, by reason of those earlier comments, there has been a failure to observe the requirement of the appearance of impartial judgment. By standing by, such a party has waived the right subsequently to object.

Toohey J observed at 588:

Waiver involves a decision by the party against whose case bias is shown to raise no objection... The situation is one in which the law prevents a party to litigation from taking up two inconsistent positions; he is held to his election.

In Smits v Roach (2006) 227 CLR 423, Gleeson CJ, Heydon and Crennan JJ stated at 439:

[43] It has been held in this Court, on a number of occasions, that an objection to the constitution of a court or tribunal on the ground of apprehended bias may be waived, and that, if a litigant who is aware of the circumstances constituting a ground for such objection fails to object, then waiver will result.

In respect of waiver in Carbotech, although not strictly necessary for Brereton J to consider given the conclusion described above, His Honour applied these authorities at [68] and noted that "it is well-established that a party cannot sit on its hands - or reserve its rights - in respect of an allegation of apprehended bias. It cannot argue the merits, reserving its rights to take the bias point later: it must take the bias point, or waive it. If it continues to engage on the merits, and loses, it cannot then belatedly raise the bias point".

In Rouvinetis v Knoll [2013] NSWCA 24, Basten JA (Barrett and Ward JJA agreeing) set out at [32]-[33] the authorities described above and then turned to the issue of legal representation:

[34] The reference to legal representation implied that a litigant in person might not be expected to recognise that comments capable of conveying bias to the fair-minded lay observer might disqualify the judge from continuing to sit. That qualification does not apply where the source of the concern is well known to the litigant at an early stage of the proceedings and the possible means of avoiding the difficulty have been adverted to, both in an interlocutory judgment and in his own correspondence with the Chief Justice.

[35] The High Court returned to the question of waiver in Michael Wilson & Partners at [74]-[86]. Gummow ACJ, Hayne, Crennan and Bell JJ stated at [76]:

"It is well established that a party to civil proceedings may waive an objection to a judge who would otherwise be disqualified on the ground of actual bias or reasonable apprehension of bias. ... If a party to civil proceedings, or the legal representative of that party, knows of the circumstances that give rise to the disqualification but acquiesces in the proceedings by not taking objection, it will likely be held that the party has waived the objection."

[36] In Michael Wilson & Partners the parties did object but, when the trial judge failed to recuse himself they allowed the matter to proceed without seeking to appeal against an interlocutory order. The reasons continued at [84]:

"Whether failure to seek leave to appeal against refusal of an application that a judge not try the case on account of a reasonable apprehension of bias precluded maintenance of the complaint in an appeal against the final judgment would require consideration of whether the failure to seek that leave was reasonable."

Natural Justice

In MH6 v Mental Health Review Board [2009] VSCA 184; (2009) 25 VR 382, Redlich JA and Hargrave AJA observed:

29 The common law rules of natural justice and procedural fairness are 'neither standardized nor immutable'. Their content may vary, requiring adjustment according to the circumstances of the particular case. In Mobil Oil Australia Pty Ltd v The Commissioner of Taxation, Kitto J spoke of the 'impossibility of laying down a universally valid test by which to ascertain what may constitute ... an opportunity [to be heard] in the infinite variety of circumstances that may exist'. Stephen J, to like effect, said of the requirements of procedural fairness in Salemi v MacKellar (No 2):

not only will their effect and application thus vary depending upon the character and function of the particular statutory tribunal or person in relation to whose deliberations they are invoked (Ridge v. Baldwin per Lord Reid (11)), they may also vary from case to case although each be conducted before one and the same tribunal or person.

30 What may constitute an opportunity to be heard may be informed by the conduct of the parties prior to or during a hearing. An evaluation of the realities and not the legalities of the situation is required when dealing with the question of what fairness demands in the circumstances.

...

32 The applicant focused upon the unfairness that was said to arise at the final hearing of the proceedings. Whether procedural unfairness can be said to arise from a particular determination or step in the decision-making process must be viewed in the context of the proceedings as a whole. As this Court said in Dura (Aust) Constructions Pty Ltd v VMIA & Anor:

where a decision-making process involves different steps and stages before a final decision is made, the requirements of natural justice may be satisfied if the decision-making process, viewed in its entirety, entails procedural fairness.

33 In our view, the procedure that was followed did not in any sense deny the applicant the opportunity to fully address the material that was submitted in support of the continuance of his involuntary treatment. The applicant was well aware of the case against him and had a full and fair opportunity to be heard in respect of that case. The prior proceeding before the Board was by way of a full hearing at which the material upon which each party relied was fully exposed and tested. The agreement or acquiescence by the applicant through his legal advisors to the pre trial orders required both parties to disclose the material upon which they relied and from which they could not depart during the hearing without leave of the Tribunal. These were relevant factors in determining whether the applicant received a fair and adequate opportunity to be heard.

[footnotes omitted]

In Owners Strata Plan 57504 v Building Insurers' Guarantee Corp [2008] NSWSC 1022, McDougall J held that there was a breach of natural justice in circumstances where a referee expressed an interim or tentative view and halted otherwise relevant evidence, then later changed that view without giving the parties the opportunity to respond. His Honour observed at [158]:

Of course, a referee who forms an interim or tentative view is no more bound to adhere to it, at the conclusion of all of the evidence and all of the submissions, than a judge in the same position. But where a judge proposes to change an interim or tentative view that has been intimated to the parties, natural justice requires that she or he inform the parties of this and give them an opportunity to address the situation. That is so a fortiori where, on the basis of that view, the judge has halted otherwise relevant evidence. No different principle should apply to a referee.

The decision stands in stark contrast to the circumstances in this case, where the interim views expressed by the Referee in February and April 2013 were the subject of further and detailed communications that allowed in my view each party to address their concerns.

In Guillot Enterprises (LE) Pty Ltd v Twin Disc (Pacific) Pty Ltd [2009] VSC 69, Byrne J also considered the requirement for a referee to comply with the requirements of natural justice at [10]-[11]:

[10] The special referee was given by the court order wide powers to investigate the cause of the January failure. Moreover, it is clear from the affidavit of Ronald John Salter sworn 20 November 2008, that the parties were content that he conduct an inquiry that was more inquisitorial than a conventional adversarial hearing. Mr Frew decided what he should look at and whom he should speak to, and he did so in the absence of the parties or their representatives. It is clear, too, that he brought to bear his own experience and expertise in examining the parts of the engine and transmission which were available and he was ready to draw inferences based on this. Let me say immediately that this was not the subject of criticism by any party. Nor do I say a word against this; in a technical area such as this, the ability of a special referee to approach the task in this way is a strength of the Order 50 procedure.

[11] Nevertheless, as paragraph 3 of the order makes clear, the special referee must comply with the requirements of natural justice. The application of these requirements will, however, depend upon the nature of the inquiry. In a inquisitorial inquiry such as this into a conflict which is essentially one of technical fact, a technically qualified special referee is given considerable latitude. In the present case, however, natural justice would require the special referee to give each of the parties the opportunity to address contentions which may affect its case.

In Minister for Immigration v SZFDE (2006) 154 FCR 365, French J (as His Honour then was) observed at 387 that a party "could hardly be heard to complain when, having established the ground rules, an adverse decision was made".

As will be seen below, the force of this observation has particular resonance in this case.

On appeal to the High Court in SZFDE v Minister for Immigration (2007) 232 CLR 189, a unanimous High Court observed at 207 at [53] that "in the Full Court French J correctly emphasised that there are sound reasons of policy why a person whose conduct before an administrative tribunal has been affected, to the detriment of that person, by bad or negligent advice or some other mishap should not be heard to complain that the detriment vitiates the decision made". However, the Court then observed "the outcome in the present appeal stands apart from and above such considerations".

There is no reason in principle why waiver could not occur where there may otherwise be a breach of the rules of natural justice or procedural fairness.

It was noted by Weinberg J in Percerep v Minister for Immigration and Multicultural Affairs (1998) 86 FCR 483 at 503-504 that:

There is a relative paucity of authority dealing with the question of waiver in relation to the operation of the rules of natural justice. There are cases where courts have held that failure to give due notice is immaterial if, in fact, the person affected has had a proper opportunity to be heard. These cases suggest that minor aspects of the rule may be impliedly waived. In other cases courts have refused discretionary relief where there has been breach of the requirements of natural justice.

A similar view was expressed by Gray J in Thompson v Ludwig (1991) 37 IR 437 (although an appeal was allowed by the Full Court, there was no discussion on the point of waiver):

The respondents then sought to argue that the applicant had waived his right to natural justice. There is little doubt that such a right is capable of waiver. It was held in Vakauta v Kelly (1989) 167 CLR 568 that the right to an unbiased tribunal is capable of waiver. It is more difficult to find authority to the effect that a right to procedural fairness is capable of waiver. On principle, and on the assumption that a decision vitiated by want of natural justice is voidable, and not wholly void in the sense that it can be ignored, there is no reason why waiver should not be possible. Perhaps examples are difficult to find because it will be a rare case in which a person will be held to have waived the right to procedural fairness, simply by continuing to participate in the proceeding concerned. This is especially so if, in accordance with the modern trend, natural justice is to be judged according to the test of overall fairness, and not to be regarded as an expanding code of intricate rules.

Returning to MH6 v Mental Health Review Board [2009] VSCA 184; (2009) 25 VR 382, Redlich JA and Hargrave AJA also observed at [39]-[50]:

39 Silence can amount to a waiver of the requirements of procedural fairness, although whether it will do so may depend on the forensic circumstances. So it has been said that 'By standing by ... a party has waived the right subsequently to object.' This principle may also apply in certain circumstances where objections to the way a hearing has proceeded were not raised until after an adverse decision was given against that party.

40 It is therefore necessary to consider whether the applicant's legal representative's willingness to comply with the pre trial procedure, ordered without objection by the Tribunal, and his counsel's acceptance of the sequence in which the evidence was to be given, constitute a waiver of any right to require a different course or preclude him from asserting there was a denial of procedural fairness.

...

42 The applicant contended that the conduct of his counsel did not constitute a waiver. It was said that he was faced with a 'ruling' by the Tribunal and was bound to accept the ruling and to not 'quarrel further'. That submission cannot be sustained. The Deputy President had given no ruling. If counsel considered there to be any procedural unfairness in the proposed course, his obligation as counsel was to oppose it. He did not. Once the problem of the availability of the applicant's witnesses was resolved, counsel appeared entirely content with the course proposed. The judge below correctly described the conduct of counsel in these terms:

he did not object to the "ruling", claim that it was erroneous as a matter of proper procedure in the circumstances, or contend that it was unfair to the plaintiff in the conduct of his case. He accepted the ruling and the discussion concluded with him thanking the Deputy President for the arrangement for the order of witnesses.

...

44 It is convenient to deal with an allied argument before expressing our conclusion on this issue. The applicant submitted that the failure to take exception to the adoption of the inappropriate procedure did not necessarily preclude an appeal in respect of the point not taken. The applicant referred to decisions of intermediate courts of appeal, where failure to take a point at trial was observed as being not fatal to success upon appeal. The following passage from the judgment of Dixon J in Burston v Melbourne and Metropolitan Tramways Board was relied upon:

the question whether the failure of counsel to raise a contention at the trial precludes an application for a new trial is not in my opinion to be determined as an abstract proposition of law. The court's jurisdiction to order a new trial depends upon the demands of justice. Often it would be unjust to set aside a verdict for a reason which but for the default of the party moving would never have existed. What is done and omitted at the trial is an important consideration to be weighed in determining a new trial application, but in the absence of a specific enactment or rule, it affects the exercise of discretion but does not amount always to a positive bar. There is not a rigid rule of law or practice.

...

48 Moreover, both the tribunal and this court are entitled to assume that a party's legal representatives are aware of their client's basic rights and will seek to enforce them when they see fit. McInerney J in R v Lilydale Magistrates' Court; Ex Parte Ciccone considered that one must impute to a party's solicitor and counsel the extent of knowledge of their client's legal rights 'which a reasonably equipped solicitor and counsel would have'. As Lord MacNaghten stated in Blackburn, Low & Co v Vigors:

There is nothing unreasonable in imputing to a [litigant] all the information with regard to [proceedings] which the [barrister] to whom the management of [those proceedings] is committed possessed at the time and might in the ordinary course of things have communicated to [the litigant].

49 Where a party is legally represented, a court or tribunal in ordinary circumstances is entitled to assume that the party's representative is fully aware of their client's rights. Here, the very likely explanation must be that counsel perceived no unfairness in the proposed course and for that reason took no objection. Any entitlement to have Austin Health's witnesses called first was consciously and effectively waived.

50 Finally, the applicant contended that it was 'irrelevant' whether counsel intended to waive the applicant's right to procedural fairness, as the adoption of the proper procedure was so fundamental to the proceedings that it would be impossible to waive insistence upon it. The applicant referred to the observations of Gleeson CJ in Nudd v R that a miscarriage of justice may occur where there 'is a failure of process which departs from the essential requirements of a fair trial' and that where the conduct of counsel is said to give rise to a miscarriage of justice, 'ordinarily it is what was done or omitted that is of significance rather than why that occurred'.

Their Honours referred to the decision of Samuels JA in Escobar v Spindaleri (1986) 7 NSWLR 51, and in particular to a passage in which His Honour considered whether a rule of natural justice that goes to the very basis of judicature cannot be waived. Samuels JA observed at 62:

With respect, I do not think that this proposition is sound. Counsel can always, I would have thought, waive, in the sense of not wishing to exercise, some procedural or other forensic rights. If he does so voluntarily, and with knowledge of the options open to him, it follows that he has not been deprived of any right or privilege and hence has not been denied justice.

Their Honours concluded that:

53 There is no reason in principle and no authority to doubt that full observance of the hearing rule may be waived. It follows that if, contrary to our conclusion and that of the judge below, the opportunity to be heard was inadequate, the course followed by the applicant's legal representatives constituted a waiver of any right to require the respondent's witnesses to first confirm the content of their witness statements and be cross-examined.

[footnotes omitted]

Discussion

The substantial debate which took place before me centred around the defendant's motion which sought in effect that I should reject and hence not adopt the reports of the Referee. Essentially it was said that either the Referee in the manner in which he conducted the Reference would reasonably give rise to an apprehension of bias or indeed an allegation which I consider amounted to actual bias.

In addition, but sometimes put interchangeably, was the suggestion that there had been a breach of the rules of natural justice. Again that turned upon particular conduct of the Referee from time to time.

For reasons which follow I am unpersuaded that the Referee's conduct in any respect could reasonably give rise to an apprehension of bias, let alone any suggestion that at any point he was actually biased. For reasons which will also emerge below I am unpersuaded that there was at any point a breach of the rules of natural justice or if there was, for reasons which I shall detail, I cannot see what if any effect it would have had on the outcome. In any event again Mr Hanna's failure to complain at the appropriate times about any of these matters has meant he has waived his right to complain.

To a large extent the defendant bases the argument that the rules of natural justice for example have been breached on the Referee's failure on a number of occasions to provide him with materials received from the plaintiffs and hence give him an opportunity to analyse and comment upon them. By not seeing such materials at the time Mr Hanna says he could not have waived his rights about what he did not see. In my view that misconstrues the facts and indeed the relevant legal principles.

It is important to recognise the function that the Referee was ordered to fulfil. He was to enquire whether there were any fees owing and if so in what amount in relation to the Franchise Sundry Account maintained in relation to the franchise between the plaintiff and Mr Hanna between 15 November 2005 to 24 September 2009 and further to determine whether there were any monies owing, if so, in what amount in relation to the Designated Stock Account maintained in relation to the franchise between the parties covering the same period.

The Referee's expertise in accounting made him particularly suitable to undertake the task. Unlike some references, he was not going to have the benefit of sworn testimony nor did he wish to conduct any hearings and he decided to rely entirely upon the co-operation of the parties in the provision of information to him and any explanation if that was required. Unsurprisingly he was not so concerned with what people believed was the position but rather he wanted to utilise his accounting and forensic skills in that regard to analyse such contemporaneous accounting documents and business records as the parties possessed. As will be clear from my analysis below, it was not as if either side had an entirely clear set of records or data which could prove unequivocally and without too much difficulty what the position was at any point in time. The nub of the issue with which the Referee was wrestling was whether or not and if so to what extent monies were owed by the defendant in relation to the supply of goods in particular and whether the defendant had been over charged. It was simply not in issue that the defendant had received goods from the plaintiffs from time to time during the relevant period of the franchise and on sold them (except for the credits given from time to time to the defendant and at the termination of the franchise agreement). The question was whether he was overcharged for stock that had not in fact been delivered.

Shortly after the orders for Reference were made, the solicitors for the plaintiffs provided significant amounts of documentation to the Referee and also to the defendant (CB9/3850). The communication described the disc as containing the "bulk of our client's documents". It would seem however from the index provided with the disc that it did not contain any proof of delivery documents. The defendant also supplied materials to the Referee and provided $9,000 towards the Referee's fees, which had been part of the order of the Court made on 4 May 2012.

The Referee indicated to both parties in early June 2012 that he would be issuing a questionnaire to them to try to understand their internal processes and subject to what was received the Referee would then determine the best way to proceed (CB9/3853).

Further materials were supplied by the solicitors for the plaintiffs on 5 June which included amongst other things "delivery manifests" (CB9/3854). They were described as transport route documents given to the delivery truck driver to show which pallets were to be delivered to each store.

On 6 June the Referee set out a very detailed plan of approach having had separate discussions with the representatives of each party (CB9/3857). He made it plain that what he was trying to do was to determine for each calendar month the amounts said by the electronic data to have been ordered by the franchisee. He would then determine how and when that inventory was said to have been delivered, again by reference to electronic data. He then proposed to deduct from that amount returns, non supplies or other transactions requiring adjustment such as the application of rebates and the effect of transfers of stock to any other shop again only as recorded in the electronic data. He then indicated that he would try to class transactions as agreed or not agreed and thereafter obtain a random sample to form a view as to the reliability of the electronic data and to investigate the sources of disagreement.

He set out in some considerable detail the methodology that he would propose in terms of analysing the data and additional investigations that he may well wish to undertake. He invited comment about the reliability of the data used to arrive at what he described as the ostensible liability thereafter to determine what if any amount might be owed by the parties to each other.

The letter went on to request specific categories and/or types of documents and then a number of questions were posed for the parties to answer.

On 7 June the solicitor for the plaintiffs indicated that his clients were collating material and attempting a number of reconciliations for the purposes of answering the questions (CB9/3863).

On 5 July, the solicitor for the plaintiffs wrote to the Referee and referred to the Referee's view that some of the documents furnished were deficient and/or the data was confusing and required explanation (CB9/3864). The solicitor for the plaintiffs expressed the view that the matter was best dealt with by having Mr Lanyon and Ms Tan who were employees of the plaintiffs attend upon the Referee in conference to provide appropriate explanations. The solicitor also noted that it had come to his attention that Mr Hanna from the defendants had provided certain documents and information to the Referee copies of which had not been provided to the plaintiffs. A request was made that they be made available, and a copy of this communication was sent to the solicitor for the defendant.

On 9 July and undoubtedly as a result of the request for documentation, Mr George Hanna on behalf of the defendant specifically requested that the Referee refrain from providing documents given by Mr Hanna to the Referee to the plaintiffs (CB9/3865). An appropriate inference to draw is that Mr Hanna consulted with his solicitor and Mr George Hanna then wrote that email on instructions. Mr George Hanna made it clear that he had not sought documents provided to the Referee by the plaintiffs and that the process should not be circumvented and utilised as a form of discovery. If there was to be any request for documents Mr Hanna indicated that resort to court processes was open to both parties should they wish to avail themselves of that opportunity. This was undoubtedly out of a desire to save time and expense amongst other things. Mr George Hanna would have fully expected that the Referee might as a matter of commonsense want to engage with the parties to understand their respective positions. It would be well accepted that any analysis and/or findings which affected the outcome would be circulated to all for comment, as indeed it was.

The solicitor for the plaintiffs however on 13 July effectively rebuked the Referee and reminded him that procedural fairness needed to be afforded to the parties and that it was important that the parties be aware of the materials which he proposed to rely upon (CB9/3866). It was said that that was the reason why access had been sought for documents provided by Mr Hanna. Further on 3 August another letter was written by the plaintiffs' solicitors reminding the Referee of his obligations pursuant to natural justice and indicated that his client remained "gravely concerned" that it had not been provided with documents produced to the Referee (CB9/3868).

On 3 August the Referee wrote to the plaintiffs' solicitor indicating that he was well aware of the need to afford both parties fairness in the decision making process (CB9/3869). However he expressed the view clearly that he did not consider it necessary to permit the plaintiffs' lawyers to analyse and review documents provided by Mr Hanna. He noted that the documents provided by Mr Hanna were printed and extended to nearly 40 lever arch volumes. He also indicated that he was mindful of the observation made in Mr George Hanna's email of 9 July a copy of which had been sent to the plaintiffs solicitors and his comments about discovery by indirect means. The Referee made it plain that any draft report would indicate the reasoning and which documents had been utilised. This communication from the Referee does not appear to have been sent to Mr George Hanna.

On 6 August the plaintiffs' solicitor wrote again to the Referee (copied to Mr George Hanna) referring to the letter of 3 August and continuing the complaint that some access should be given to documents "sourced from Mr Hanna" (CB9/3871). A request was made that the Referee identify the substance of "all" communications the Referee may have had with Mr Hanna and further identified the categories of documents Mr Hanna had provided. On the same day the Referee responded by indicating that he proposed to disclose material obtained from discussions and would explicitly refer to documents upon which he relied which would ensure fairness to both parties (CB9/3872). He suggested this would occur near the completion of the draft report. The Referee indicated that he had not supplied to Mr George Hanna his letters of 27 July or 3 August although he noted that the solicitor for the plaintiffs had copied Mr Hanna in on the recent email to the Referee of 6 August. He asked whether the plaintiffs' solicitor wanted the Referee to supply copies of those letters to Mr George Hanna.

There is no indication one way or the other whether the plaintiffs' solicitor responded to that request. However what is clear is that Mr George Hanna made no request whatsoever for any of the communication between the plaintiffs and the Referee and the only fair inference to draw is that had he been aware of the plaintiffs' attitude he would have been in entire agreement with the position adopted by the Referee. In other words, the defendant and his solicitor were well aware that private communications were going to take place between themselves and the Referee (and for that matter the plaintiffs and their staff and the Referee) and that unless and until documents were disclosed in any draft report, documents provided for example by the defendants would not be supplied to the plaintiffs during the course of the Reference.

It is plain from the above that the attitude adopted by the defendant had a significant effect on the procedural activities of the Referee. He was it seems entirely in accord with the defendant insofar as he opposed wholesale provision of his documents to the plaintiffs and indeed vice versa. The exercise the Referee wanted to undertake required him as soon as he could receiving from each party an explanation of their records so as to come to a view as to who owed who what. One can readily understand that if the Referee provided effectively all documents produced to both parties there would likely be an enormous amount of time taken up both by the Referee and the parties focussing upon irrelevant issues to the point of distracting everyone from the main focus of the inquiry. The Referee made it plainly apparent that in any draft report it would be made clear what document or documents were relied upon undoubtedly for the purposes of encouraging and eliciting debate and illumination if that were possible or required.

Given the task the Referee had to undertake it does seem to me that what he did was not only a practical and realistic approach but also more importantly a fair way of attempting to answer the various questions posed in the Reference. More to the point this particular regime was not only one largely instigated by the defendant but one that made good sense in the context. As will be seen many of the complaints which are now made by the defendant are untenable as a matter of fact and indeed as a matter of law because it does seem to me the defendant can hardly complain of a regime which he was significantly instrumental in creating.

It was plain and obvious indeed at the insistence of the defendant himself that the Referee treat separately with each of the parties especially in terms of understanding their respective documentation and accounting systems. One of the complaints made by the defendant notwithstanding he and/or his solicitor were the architects of the particular regime was that a number of communications between the Referee and the plaintiffs show bias on the part of the Referee or a breach of procedural fairness. Although I will consider these again in some detail, as I have already said I am not persuaded that any of them reasonably and/or objectively give rise to any suggestion of bias, apprehended or otherwise.

Specific Communications

On 27 July 2012 there was a communication between the Referee and the plaintiffs' solicitors (CB5/1746). The letter indicated that there had been a test sample of 400 stock keeping units (SKUs) taken from the plaintiffs' data. The Referee made observation that "overwhelmingly the total value of credits recorded does not appear to reconcile with the component parts". The defendant submits that this is a key indication of the data not reconciling and a flawed system but because the enquiry was made of the plaintiffs somehow or other this gives rise to a demonstration of bias. I regard this proposition, as indeed many others suggested by the defendant, as fallacious. This was a perfectly sensible and relevant enquiry so that the Referee could understand (assuming his analysis was correct) how the plaintiffs' system worked and if it could be reconciled. The mere fact that the defendant had no knowledge of this communication was entirely his own doing. But putting that to one side, it is inconceivable in my view that the defendant could have made any contribution other than speculation as to the interpretation of the sample taken from the plaintiffs' records and/or data. In my view no contribution of any meaningful nature could likely be made by the defendant. It is implausible that an accountant undertaking such an analysis would ask a third party (not an expert nor a former employee familiar with such matters) what he or she thought of the data or indeed any explanation about what the plaintiffs had proffered. I regard the complaint by the defendant in this regard as having no substance.

The defendant points to a further communication on 13 September from the Referee to the plaintiffs' solicitors in which the Referee made a comment again about the incongruous results the Referee had obtained by reviewing a number of instances of SKUs taken randomly (CB5/1756). Again bias is alleged in part because from time to time during the course of his submissions Mr Hanna adverted to what he described as "collaboration" between the Referee and the plaintiffs. He used the term in that context undoubtedly as an epithet. The plain reality is that when one reads the material objectively, and the communication of 13 September is no exception, I regard it as quite a simple request on the part of the Referee to try to understand the data. I do not think it could reasonably be construed otherwise. Again I regard this complaint as having no substance.

The next complaint is made about an email of 26 September (CB5/1758). This is a communication from the plaintiffs' solicitor to the Referee. The source of the complaint is the reference to telephone conversations which apparently occurred between somebody from the plaintiffs' solicitor and the Referee on 19 and 25 September. The response from the Referee is reference to further analysis which would be provided for comment "tomorrow". Again the defendant says as he had no knowledge and he should have had knowledge of this communication it is an example of bias. I reject that proposition. The communication is in my view entirely innocuous. Again it is part of a chain of enquiry being undertaken by the Referee to understand the plaintiffs' data. In my view it is wholly unreasonable to suggest this could be evidence of bias, in any sense.

A further example of bias is said to be evidenced by a communication from the Referee to the plaintiffs' solicitors of 26 September (CB5/1758). This is a repetition of part of the chain of emails that I have previously referred to. The mere fact that the defendant had no knowledge of the communication is simply in my view not relevant given the regime which is in place. There is nothing on the face of the email that could rationally give rise to any suggestion of bias. It goes without saying given the nature of the email that the defendant in my opinion could have done no more than speculate about these materials even if an opportunity had been given to comment on it.

The next complaint is made about an email of 28 September (CB5/1762). The defendant relied heavily upon this email. The email is a communication between the Referee and the plaintiffs' solicitor. The Referee sets out in the communication what he has sought to do, namely compare the electronic inventory supply records extracted from the records of Priceline for "internal consistency" to test the correspondence of inventory ordered, invoiced to and received over the relevant period. This was clearly a relevant line of enquiry. The Referee then set out the exercise he had undertaken and produced a summary of results. In a very large number of cases having examined the complete 26,972 SKUs in various situations there were clear discrepancies shown in the data. The Referee sought further information and assistance from the plaintiff.

In the course of the hearing Mr Hanna who appeared drew my attention to the following phrase used in the letter (CB5/1764):

Requests

The following are sought from Priceline on the basis that they may be the main sources of difference, and allow greater agreement between the data...

There was some suggestion made during the course of the hearing again that this was indicative of some collaboration between the Referee and the plaintiff. Emphasis was placed on the term "agreement". I reject that proposition as a rational and/or objective interpretation of the letter. Again this is plainly and obviously an attempt on the part of the Referee to understand the plaintiffs' system and internal inconsistencies and/or variations in the data which emerged by reason of certain comparisons which the Referee sought to undertake. The Referee was making no finding at this point against any party except to say that he had found inconsistencies. Complaint is made that this analysis was not disclosed and therefore the defendant was not afforded any opportunity to comment. As an example I specifically requested during the course of the hearing that Mr Hanna indicate to me precisely what he could have said or indeed more to the point what he wished to say about the data and about the comments and observations of the Referee. After much prevarication he hinted that he might have had some extra time to employ or retain some expert (which he had never done during the whole course of the Reference) in order to help him interpret the materials. I regard the complaint as having no substance.

The difficulty with this proposition is that it would have required access to the data which the Referee had, and which his own solicitor Mr George Hanna had eschewed any interest in accessing. At best it would have been permitting the defendant an opportunity to speculate on a largely uninformed basis about the inconsistencies or difficulties the Referee had detected. In the first instance it may well have required the Referee taking some considerable time to explain to the defendant how he had come to the views he had come to. I regard this process as bordering on the absurd. Mr Hanna with all his experience of his own internal system and given the number of years he has been in dispute with the plaintiffs was simply unable to articulate in what way he could have made any contribution to this communication between the Referee and the plaintiffs and for that matter the Referee's analysis. Although he knew a great deal about his own internal records and without becoming repetitive he had no expertise in terms of accountancy nor was he familiar at least on the materials I have seen with much of the internal workings of the plaintiffs' systems. That he was not afforded an opportunity to intrude into this communication I do not regard as an indication of bias or for that matter a breach of the rules of natural justice. Again it was in substance a perpetuation of the very regime that he had himself instigated.

In similar fashion the Referee then went on to analyse third party invoices, credit notes and other matters identified including a comparison of stock invoiced and received. In this section of his draft report he again referred to the 64 invoices which had been the subject of enquiry and his analysis this time brought him to the view that there should be a reduction of the amount of $4,517.88 (inclusive of GST) to the defendant's liability to the plaintiffs in respect of the relevant account. He also noted that where possible he had sought to identify supporting documents that corroborated or may verify the accuracy of the Systems independently of the electronic data. He noted that neither party had produced supporting documents that permitted him to undertake an extensive substantive testing of the level of corroboration. However what he had seen suggested to him that there was no data integrity issue. He then undertook an analysis of a comparison of stock delivered and invoiced. He went on to consider other matters including the Sundry Debtor Account reconciliation issue.

As I have already observed, attached to this draft were detailed annexures setting out the calculations and much greater detail as to the methodology undertaken in the context of the concerns expressed by both the defendant and the plaintiffs. In his analysis in Annexure A6 (which dealt with the comparison of stock invoiced and received) he observed that neither party had produced Proof of Delivery or other records directly verifying delivery of the stock supplied to the defendant for the term of the franchise. He took the view that the records were somewhat academic because they would only ever show the receipt of a certain number of pallets. He then set out in some little detail the methodology he adopted in relation to this exercise and on any reading of this section of the report set out in great detail the concerns of both parties, the data that he used, and the exercise which he describes as his initial review and upon analysis came to the view that the invoices showed a very high level of correlation to acknowledged orders.

On 22 May the Referee forwarded a letter to the Court, and to Mr George Hanna and the solicitors for the plaintiffs (CB9/3878). Under the hearing "Review and Procedural Fairness" the Referee set out his position in relation to the issue of procedural fairness. I have quoted from this report earlier in the judgment at paragraph [31]. The "criticism from one party" which the Referee refers to is clearly a criticism from the solicitor for the plaintiffs which I have earlier referred to. The Referee made it abundantly plain to the parties and to the Court the reasons why he chose to communicate separately with the parties and their representatives and his general approach to the gathering of information. He again confirmed, as was plain and obvious, that the parties were to proceed upon the basis that they were invited to make comments upon the report and depending upon those comments he may well be able to report soon to the Court by way of final report. No complaint was made by any party to the Court.

On 12 June Mr Hanna sent a copy of the April report together with detailed marginal criticisms and notes highlighted in yellow in respect of any portions of the report I infer he wished to make comment upon (CB9/4090). He indicated in his email to the Referee that he had pointed out several misstatements in the draft and he would like a meeting in order to discuss them. He had also detected errors in some spreadsheets. It is fair to say that Mr Hanna commented extensively on many sections of the April draft report. As a result no doubt the Referee invited Mr Hanna to produce additional documentation which he had referred to in some of those comments. It is also plain and apparent that the Referee and/or his staff took on board the comments made by Mr Hanna.

In a letter to Mr George Hanna dated 23 July the Referee in a twelve page letter responded to Mr Hanna's comments (CB9/4005). In a number of areas the Referee indicated that as a result of taking on board Mr Hanna's comments he was proposing to make changes to in particular in relation to the alleged inadequacy of the plaintiffs' internal accounting system. The Referee said:

Timely reconciliation by the Retailer and the Franchisor's bookkeeping staff on a month-to-month basis of Debtor Account Statements ought to have identified the issues in the first instance "picking up" that an invoice or a Credit Note had not been recorded in the relevant month Debtor Account Statement but that the opening "balance of the next months Debtor Account Statement would show a monetary difference being the sum of the "missing entries" from the end of the previous month.

This weakness in the Franchisor's Accounting System may have been frustrating from the Retailer's view point. However Monthly Debtor Account Statements issued subsequently reflected the correct "Debtor Balance" where the Retailers accounting staff ought to have adjusted records accordingly on a progressive basis.

The only incorrect entry identified in the analysis was the allocation of two credit notes for a total of $34,420.06. These were incorrectly credited to the Designated Stock Debtor Account instead of the Sundry Debtor Account. The entries have been adjusted by the Referee.

In a number of respects the Referee also indicated to Mr Hanna that he was proposing to rewrite a number of sections of the annexures as a result of comments made by Mr Hanna.

The Referee however indicated that substantially he thought that the defendant's liability would remain as previously stated. The Referee however did not send this letter to the plaintiffs or their representatives but only to the defendant.

On 24 July the Referee issued what was intended to be a final report but which took into account the various corrections he had indicated he would make (CB1/235). On this occasion as part of the materials attached to this report he included Mr Hanna's detailed criticisms of the April Report.

The Referee met separately with Mr George Hanna and Mr Hanna on 7 August and discussed the various issues and underlying materials.

On 8 August the Referee again responded on a number of issues clearly raised during the course of the meeting described as "three areas" (CB9/4018). Mr Hanna was obviously concerned about the level of proof of delivery, what was said to be initial deliveries in November/December 2005 and the settlement of the sundry account. In relation to the latter he had always maintained that there had been a reconciliation and that a number of employees of the plaintiff had confirmed that liability under that account up to the end of January 2009 had been settled and paid in full.

On 9 August Mr Hanna sent a detailed letter to the Referee articulating in some detail his concerns about each of the issues just mentioned along with others (CB9/4087). He asserted that the report of the Referee contained "serious inaccuracies" and he requested the Referee to take the various matters into account that he had undoubtedly raised both at the meeting and in this email.

In or about August a number of things occurred. At or about this time it is common ground that Mr Hanna dispensed with the services of Mr George Hanna as his solicitor. On 15 August Mr Hanna sent an email to the Referee (CB2/519). In passing I should observe that neither his email of 9 or 15 August were sent to the plaintiffs' representatives. Nonetheless, in the email of 15 August he set out again in some considerable and additional detail further reasons why the Referee should re-consider various aspects of the report. In particular he referred to proof of delivery and provided two specific examples that referred to particular invoices. He contended that proof of delivery was at the "heart" of the dispute, and urged the Referee to pursue third party carriers for information, examples of which he attached to this communication. He asserted that he had been frequently invoiced for stock that did not arrive and he requested that the Referee examine courier company records in order to help accurately determine if stock was actually delivered to his store. Apart from this rather belated request for the Referee to pursue third parties it does not seem to me that Mr Hanna had very much by way of fresh material for the Referee's consideration.

Before the Court and the Referee, Mr Hanna also took exception to the Referee's report having determined contrary to Mr Hanna's assertion that there had been overcharges in relation to third party invoices and that in fact there had been some undercharges. He indicated that he had reviewed a number of them and that the issue had been misinterpreted by the Referee. He gave two examples which he asserted were supported by documentary proof. He made further comment about the settlement of the Sundry Debtor Account and the alleged reconciliation requesting that the Referee adjust his liability based on what he described as "documentary evidence" which amongst other things contained an email from a Mr Ken Carville (relevantly an employee of the plaintiff) purporting to indicate that the relevant account had been reconciled and paid out.

On 16 August the Referee issued a supplementary report (CB2/478). He dealt with each of the issues Mr Hanna had raised.

In relation to proof of delivery documentation he again identified the concern raised by Mr Hanna. Indeed he said (CB2/487):

The Retailer in our meeting suggested that I might seek documents from third parties, in particular the carrier. The Retailer indicated that his inquiries suggested that third parties held such documents.

The Referee then referred to the two examples given by Mr Hanna. Mr Hanna asserts that the Referee misinterpreted the two documents. Even assuming that to be correct, for reasons I will come to I think nothing turns upon this. The Referee said it seems to me quite sensibly:

Moreover although I have not undertaken the enquiry I doubt whether original Delivery Documents from 2005 would be held by third parties. The tendency of my experience and other commercial investigations is that because such records are costly to store they are destroyed as soon as they cease to be of apparent relevance for the parties to the carriage of the contract. That is to say within months of the payment of the account. I note that the delivery slips provided by the retailer are both "Receivers Copy".

In that report the Referee, correctly and appropriately in my view, set out the practical difficulties at that stage of the Reference in attempting to investigate the matter further. Amongst those matters was the identification of the third party carriers, the issue of subpoenas, the time and cost involved in potentially acquiring such records if any did exist and then the inadequacies of the likely comparison that could be made.

In relation to invoices generally and particularly in relation to the initial deliveries in November and December 2005 the Referee noted that there was a system for disputing invoices which Mr Hanna had made extensive use of and that it was not apparent from the materials he had examined that there was any systematic error or refusal by the plaintiffs to honour legitimate and timely claims for credits. Further he thought there was no rational suggestion that the invoices were in fact "inauthentic".

In answers to the original questions, the Referee gave alternative answers to question one on the basis of whether or not a reconciliation of the Sundry Debtor Account had been completed, and confirmed his calculation in relation to question two.

The analysis in relation to the reconciliation and settlement of the Sundry Debtor Account is set out at some detail at CB2/491-492. The Referee formed the view, which I believe was open to him, that on the supporting documents there did not appear to be a final reconciliation in a way evidencing an intention on the part of the plaintiffs to settle and compromise the account. While there were a number of the plaintiffs' employees who made statements regarding reconciliation, in my view the Referee on the available materials and given his expertise as an accountant was perfectly entitled to form the view that there had not been a reconciliation. In doing so, he made express reference to a number of emails which I will set out below. He took those matters into account and formed a different view of the facts from that asserted by Mr Hanna.

On 2 March 2009, Ms Lynne Gallucci wrote an email (CB2/648) regarding a Core Ranging Trial at Liverpool, although the email was not sent by Ms Lynne Gallucci to Mr Hanna. The email relevantly stated:

The reason this store has been selected is primarily due to its ongoing poor trading performance over a number of years...

The first step was for the franchisee to pay the outstanding B account balance as agreed with Fernando [Fernando Calagiore, API National Credit Manager] and this happened as planned last Friday February 27th.

On 9 March 2009, Mr Ken Carville wrote an email to Mr Hanna (CB2/646) which relevantly stated:

Thought you may be interested in seeing the document I prepared to show Ashley Killick [Chief Financial officer of the plaintiffs]... The purpose was to illustrate two matters, one the history of how these matters have been so badly handled and secondly the amount a customer's account can then be subsequently distorted or inflated by the practice of not following through claims in a timely manner.

On 7 July 2009, Mr Hanna emailed Mr Ken Carville and Mr Fernando Calagiore (CB2/709) and attached a letter which relevantly stated:

Regarding the resolution of the outstanding issues I would like to implement a plan similar to that agreed upon in November 2008, but not executed, being to:

...

5. Complete the reconciliation process begun in January 2009; then meet again at this time to put in place the final payment plan for the balance owing.

[emphasis added]

The Referee noted that he had not heard any evidence on this issue from the participants, and neither have I as no oral evidence was presented or was there any cross-examination that would provide material beyond the supporting documents that were before the Referee.

In his submissions on the issue of reconciliation (T101.14-T108.15), the defendant brought my attention to correspondence that was not referred to by the Referee in the supplementary report, but that had occurred between the Referee and the plaintiffs without being copied to the defendant. In an email dated 20 June 2012 from the solicitors for the plaintiffs to the Referee (CB8/3606), in response to a request for information and documents by the Referee dated 6 June 2012, the following appears at CB8/3619:

In a meeting between Mr Hanna and Ms Tan of Priceline, they sought to reconcile Mr Hanna's sundry account with a view to then attempting to reconcile the stock account. The reconciliation of the stock account was not completed. The reconciliation of the sundry account was completed.

[emphasis added]

Counsel for the plaintiffs sought to deal with this letter in the following manner (T159.32-T159.44):

Let it be assumed that the letter of June 2012 when it spoke of a process of reconciliation constituted an admission by API that, not only was there an account reconciliation, but an account stated, a quite separate thing - let that be assumed. It is inconsistent with the pleadings because my client, although it has not filed a reply, has joined issue impliedly on the allegation, but, even if there was an allegation of an account stated and some admission, it was entitled to retract that and it did do that at least and it was plain on the terms of the referee's report that it denied an account stated and it was there for Mr Hanna to comment on. And what the referee did, very fairly, was say, Look, to the extent there is a conversation involving Ms Tan, I am not prepared to deal with that, that is a matter which the Court should deal with, but what I will do, if there was an account stated, is review what the balance owing is, and he found there was a balance owing by Mr Hanna to API.

What has not been provided is a clear and unequivocal acknowledgment on the part of the plaintiffs that the defendant's liability in respect of the Sundry Debtor Account up to January 31 2009 would be satisfied in full by the payment of $29,565.61. More to the point, the materials are entirely ambiguous at best.

In addition, the Referee had clearly formed the view that the parties were arguably mistaken about the amount said to be reconciled. He observed (at CB2/491) that:

Because I identified transactions which had either wrongly been brought to account in the Retailer's favour or which had been omitted from the Reconciliation, I arrive at a higher level of indebtedness on this Debtor Account than what the Retailer contends was agreed in the reconciliation.

The Referee went on to note that:

My view is that the Supporting Documents do not indicate that the account was finally reconciled in a way evidencing an intention on the part of the Franchisor to settle and compromise the account.

As noted above, the parties were content to have the dispute concerning the reconciliation determined by me on the basis of the documents before the Referee. Based on my examination of those documents, I regard the position in relation to reconciliation as at best ambiguous and on balance I consider the view expressed by the Referee is more probably than not correct, namely that there was no final reconciliation.

The Referee in the supplementary report set out what he thought Mr Hanna owed even if he were incorrect in relation to the reconciliation. In short if the account had not been reconciled by compromise he considered the amount outstanding to be $98,542.92. If on the other hand it had been reconciled there would still be an amount outstanding of $46,626.73. On any view I do not consider the Referee fell into error, and I determine that that the account had not been reconciled and the larger amount of $98,542.92 should be adopted.

In addition, the defendant also asserts that the Referee made certain specific errors in his reports, to which I have previously referred in [49], in coming to his answers regarding the two questions of the Reference.

I note the relevant principle in Chocolate Factory at 7(7) that generally findings of fact should not be reagitated in the Court, and that the Court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he did. I also note the principle at 7(13) that 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", but rather "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".

In relation to the first complaint regarding proof of deliveries, I refer to the extensive consideration by the Referee in the July report (CB1/291-293) and the August report (CB2/486-489). Given the emphasis placed by the Court on proof of delivery it is understandable why the Referee spent an enormous amount of time trying to understand the documents and I am satisfied that he has conducted a thorough and comprehensive analysis. No error has been demonstrated that would justify the rejection of the report in whole or in part.

The second complaint relates to the treatment of third party invoices. In my view, the Referee conducted a comprehensive examination of the contemporaneous records (CB1/417-423) and committed no error that would necessitate the rejection of the whole or this specific part of his report.

The third complaint relates to an alleged incomplete analysis of Club Charge overcharging (CB2/600-602). In my view, the Referee attempted to resolve this issue as best he could given the limited documents available to him.

The fourth complaint relates to the supply of stock at the beginning of the franchise relationship. The Referee rejected the assertion of the Retailer in relation to initial deliveries at CB2/489-490 and gave his view that the invoices provided the best record available. The Referee stated:

There was a System for disputing invoices; the Retailer made extensive use of it and it is not apparent that there was any systematic error or refusal by the Franchisor to honour legitimate and timely claims for credits;

Accepting the Retailer's contention would deny the Franchisor recovery for all Stock supplied at the beginning of the relationship. Even allowing that there may have been some discrepancies in the initial supply which may not now be capable of being identified or remedied, it would be manifestly wrong to conclude that no stock was supplied when the Franchise was begun.

In my view, it was entirely reasonable for the Referee to form such a view and the defendant has failed in his assertion that any error was committed in relation to the supply of stock at the commencement of the franchise.

In light of my views set out above, the principles enunciated by McDougall J in Chocolate Factory, the protracted nature of the Reference and the comprehensive analysis conducted by the Referee, the significant expense of the Reference and the central significance of section 56 of the Civil Procedure Act I am of the view that there is ample reason to accept the submission of the plaintiffs that those contested findings relate to factual matters and there is no basis to conclude that they were so unreasonable so as to justify the rejection of the report.

Conclusion

A referee is not a judge but of course he or she is bound by the rules of natural justice. He or she is not bound by the rules of evidence. The Referee depending upon which skills he or she brings to the table is entitled, especially with the consent of the Court and/or the parties, to conduct a regime which permits a timely and efficient resolution of the issues in respect of which the reference has been ordered.

In any process if the party wants to allege bias apprehended or otherwise or a breach of the rules of natural justice it seems to me that party is obliged to do so promptly. Mr Hanna did not. He may have argued for a slight change in the regime which he was instrumental in creating in the latter part of 2012 but no complaint was made to the Court or otherwise in which he asserts any bias or any procedural unfairness. In my view he simply waived such an opportunity and got on with the process continuing to deal separately with the Referee both in meetings and in writing. Indeed at no time up to and including the publication of the Referee's supplementary report did Mr Hanna or his solicitor approach the Court whom he understood was clearly monitoring the process to raise any concerns about what had occurred. Again in my view he clearly waived his rights to complain.

In my opinion the methodology and approach adopted by the Referee was both practical and fair. The exercise he was asked to undertake was purely an accounting exercise which in my view both he and his staff undertook thoroughly and comprehensively and if I may say carefully and transparently.

Very early in the Reference the defendant made it very clear that he did not wish to be subjected to an exercise equivalent to that of discovery. It was made very clear from 9 July 2012 that the defendant not only wanted to deal separately and hence privately with the Referee but indeed was insistent that his materials not be provided to the other side nor did he wish to receive the other side's materials. Both parties accepted a regime which would involve their commenting from time to time on the Referee's drafts which exposed the reasoning process and the documents relied upon.

The Referee in my opinion behaved entirely appropriately at all stages and informed the Court and the parties on a number of occasions of precisely the approach he had adopted and why.

The defendant was perfectly content for the process to be engaged in a manner consistent with the view expressed in the 9 July letter until late in 2012 when he specifically requested access to certain information. In rejecting the request of that information again I think the Referee acted appropriately. This is particularly so given the nature of those communications which I have discussed above. He told Mr Hanna and the Court accurately what he had received from the plaintiffs and the reasons why he thought Mr Hanna could not assist. That was not challenged by Mr Hanna or his solicitors before the Court.

In my view this was a long and protracted Reference, partly due to the length of time during which the Referee had to investigate the documentary materials produced by the parties. It was not made easier by the nature of the invoicing process and the absence of clear proof of delivery materials.

I am satisfied however that the Referee applied his appropriate expertise, considered all relevant matters and did so in a way that I do not think could give rise reasonably to any allegation of bias, apprehended or actual. In addition I simply cannot see given the long history of this matter and the way in which the parties dealt with each other and with the Referee that there could be any legitimate complaint about any alleged breach of the rules of procedural fairness, which I do not consider can be made out in any event.

In any event it seems to me that by the time the July and August supplementary reports were issued the defendant was well aware of the way in which the Referee had conducted the process and more to the point was well aware of initially the preliminary views formed by the Referee and the reasoning process behind them. In my view in the circumstances by both instigating the very process described, even if there were theoretically some suggestion of bias or breach of procedural fairness, it seems to me any such breach or allegation was well and truly waived.

Furthermore, I am unpersuaded that the Referee committed any errors that I should, in the exercise of my discretion, find to be a patent misapprehension of the evidence or to demonstrate perversity or manifest unreasonableness. To the contrary, the Referee appears to have demonstrated a thorough, analytical and scientific approach to the Reference and made substantial efforts to ensure that both parties were afforded an opportunity to comment on his findings and analysis.

A large sum has been expended in the conduct of this Reference. I was informed at the hearing that the Referee's costs are over $343,000 (CB3/909). Given my analysis a relitigation would likely be equally costly (depending whether the same Referee determined the matter). On any view, I consider the exercise would be largely futile because given the extensive accounting work done and the type of complaints made by Mr Hanna it is difficult to see that the outcome would or could be materially different from that which the Referee has already arrived at.

In all the circumstances, having carefully considered the history of dealings between the parties including the Referee the various drafts and final reports and having heard in some detail what the alleged defects are, I am satisfied in my discretion that both the principal July report and the supplementary August report should be adopted in their entirety.

It follows from the above that the plaintiffs have succeeded on their Notice of Motion dated 6 September 2013 and I would propose to make the orders contained in paragraph 1 of that motion. It also follows that Mr Hanna has failed on his motion dated 6 December 2013 and I would dismiss that motion.

I would invite the parties to prepare short minutes reflecting these reasons.

I also invite the parties to re-list the matter so that further submissions may be made on the issue of costs of these adoption proceedings. I would also invite further submissions on the issue set out in order 2 of the plaintiffs' Notice of Motion that Mr Hanna pay into court the amount determined by the Referee in his report which I have proposed to adopt in its entirety, and on the issue set out in order 3 that Mr Hanna pay the whole costs of the Reference and provide security for such costs pending their final determination.

**********

Decision last updated: 09 May 2014

Medium Neutral Citation:	New Price Retail Services Pty Limited and Anor v David Hanna [2014] NSWSC 553
Hearing dates:	28, 29, 30 April 2014
Decision date:	09 May 2014
Before:	Sackar J
Decision:	See Paragraph [197]
Catchwords:	PROCEDURE - adoption of report of referee - allegation of breach of procedural fairness - allegation of apprehended or actual bias - where allegation founded on communications between referee and one party - nature of those communications - whether breach occurred in circumstances where complaining party instrumental in determining regime of reference and engaged in similar communications - whether any breach waived - whether any errors sufficient to prevent adoption of report - whether reconciliation of certain account occurred and effect of any such reconciliation.
Legislation Cited:	Civil Procedure Act 2005 Uniform Civil Procedure Rules 2005
Cases Cited:	Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2008] NSWCA 228 BestCare Foods v Origin Energy [2012] NSWSC 574 Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWSC 1302 British American Tobacco Australia Services Ltd v Laurie (2011) 242 CLR 283 Carbotech-Australia Limited v Yates [2008] NSWSC 540 Ceccattini v ICM 2000 Pty Ltd [2000] NSWCA 357 Chocolate Factory Apartments v Westpoint Finance [2005] NSWSC 784 Corbett Court Pty Limited v Quasar Constructions (NSW) Pty Ltd [2008] NSWSC 1163 Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337 Escobar v Spindaleri (1986) 7 NSWLR 51 Guillot Enterprises (LE) Pty Ltd v Twin Disc (Pacific) Pty Ltd [2009] VSC 69 Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd [2013] NSWCA 6 MH6 v Mental Health Review Board [2009] VSCA 184; (2009) 25 VR 382 Michael Wilson & Partners Ltd v Nicholls & Ors (2011) 244 CLR 427 Minister for Immigration v SZFDE (2006) 154 FCR 365 New South Wales v Bovis Lend Lease Ltd [2007] NSWSC 1045 Owners Strata Plan 57504 v Building Insurers' Guarantee Corp [2008] NSWSC 1022 Percerep v Minister for Immigration and Multicultural Affairs (1998) 86 FCR 483 Re JRL; ex parte CJL (1986) 161 CLR 342 Rouvinetis v Knoll [2013] NSWCA 24 Ryde City Council v Tourtouras [2007] NSWCA 218 Sangain Pty Limited v Italform Pty Ltd [2009] NSWSC 74 Seven Sydney v Fuji Xerox [2004] NSWSC 902 Smits v Roach (2006) 227 CLR 423 SZFDE v Minister for Immigration (2007) 232 CLR 189 Thompson v Ludwig (1991) 37 IR 437 Vakauta v Kelly (1989) 167 CLR 568 Xuereb v Viola (1989) 18 NSWLR 453
Texts Cited:	N/a
Category:	Principal judgment
Parties:	New Price Retail Services Pty Limited - first plaintiff Priceline Pty Limited - second plaintiff David Hanna - defendant
Representation:	Counsel: Plaintiffs - M Condon SC Defendant - self represented Solicitors: Holman Webb - plaintiffs Self represented - defendant
File Number(s):	2010/356948