Walton Construction Pty Limited v Illawarra Hotel Company Pty Limited - [2011] NSWSC 534

Supreme Court

New South Wales

Medium Neutral Citation: Walton Construction Pty Limited v Illawarra Hotel Company Pty Limited [2011] NSWSC 534
Hearing dates: 25 and 26 May, 6 June 2011
Decision date: 06 June 2011
Jurisdiction: Equity Division - Technology and Construction List
Before: Einstein J
Decision:
(1) The Referee's Extension of Time findings are to be adopted in full;
(2) The Referee's finding as to delay costs are to be rejected;
(3) The parties are to address the Court on how the delay cost issue should proceed;
(4) The remainder of the Referee's Report is to be adopted, except for her finding in relation to V:29 'The Courtyard Works', which is to be rejected.

Catchwords: ADOPTION of referee's report - Extension of time claims - Delay costs - Principles in Chocolate Factory - Brick by brick analysis - Approach in Kane - Retrospective analysis
Legislation Cited: Civil Procedure Act 2005
Cases Cited: ABB Engineering Construction Pty Limited v Abigroup Contractors Pty Limited [2003] NSWSC 665
ACN 060 559 971 Pty Ltd v O'Brien [2007] QSC 91
Banabelle Electrical v State of New South Wales [2005] NSWSC 714
Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2008] NSWCA 243
Bellevard Constructions Pty Limited v CPC Energy Pty Limited [2008] NSWCA 228
Boyes v Colins [2000] WASCA 344; 23 WAR 123
Chloride Batteries Australia Limited v Glendale Chemical Products Pty Limited (1988) 17 NSWLR 60
Chocolate Factory Apartments v Westpoint Finance & Ors [2005] NSWSC 784
Commissioner for Superannuation v Hastings (1986) 70 ALR 625
Coulton v Holcombe (1986) 162 CLR 1
Glover v Australian Ultra Concrete Floors Pty Ltd [2003] NSWCA 80
Hooker v Gilling [2007] NSWCA 99
John Holland Construction & Engineering Pty Ltd v Kaverner RJ Brown Pty Ltd (1996) 8 VR 681
Kane Constructions Pty Ltd v Sopov [2005] VSC 237
Khan v Armaguard Ltd [1994] 1 WLR 1204
Laing O'Rourke Australia Construction Pty Ltd v H&M Engineering & Construction Pty Ltd [2010] NSWSC 818
McAlpine Humberoak Ltd v McDermott International Inc (No 1) (1992) 58 BLR 1
Mercer v Chief Constable of the Lancashire Constabulary [1991] 1 WLR 367
Nowlan v Marson Transport Pty Ltd (2001) 53 NSWLR 116
Rowe v Australian United Steam Navigation Company Limited (1909) 9 CLR 1
Super Pty Limited v SJP Formwork (Australia) Pty Limited (1992) 29 NSWLR 549
Sutton v Erect Safe Scaffolding (Aust) Pty Ltd [2006] NSWCA 265
Thiess Watkins White Construction Limited v Commonwealth (1992) 14 BCL 61
Timbara Protection Coalition v Ross Mining NL (1999) 46 NSWLR 55
White Constructions (NT) Pty Limited v Commonwealth of Australia (1990) 7 BCL 193
White v Overland [2001] FCA 1333
Category: Procedural and other rulings
Parties: Walton Construction Pty Ltd (Plaintiff)
Illawarra Hotel Company Limited (Defendant)
Representation: Malcolm R Gracie, Daniel A Neggo (Plaintiff)
Stuart Donaldson SC, Helen Durham, Danny A Moujalli (Defendant)
Crisp Legal (Plaintiff)
Norbert Lipton & Co (Defendant)

File Number(s): 2008/290556

Judgment

The notices of motion

The proceedings before the Court arise out of a Court ordered reference determined by Ms Janet Grey ['the Referee'], in her report dated 14 February 2011 ['the Report'].

By notice of motion filed on 18 March 2011, the plaintiff/cross defendant ['Walton'] seeks the adoption of the report in its entirety.

By notice of motion filed on 18 March 2011, the defendant/cross claimant ['Illawarra'] seeks the adoption, variation or rejection of various aspects of the referee's report.

The principles

Although the principles guiding adoption hearings of this nature set out by McDougall J in Chocolate Factory Apartments v Westpoint Finance & Ors [2005] NSWSC 784 [' Chocolate Factory' ] have been restated on numerous occasions by first instance judges of this Court and have received the endorsement of the Court of Appeal, they are in fact summaries of some of the key propositions referable to an adoption hearing identifiable from other (cited) authorities. I accept that it appropriate to refer to some of those primary authorities in further detail given their particular relevance to this adoption hearing.

Notable is the decision of Cole J in Chloride Batteries Australia Limited v Glendale Chemical Products Pty Limited (1988) 17 NSWLR 60 in which his Honour considered the nature of the Court's discretion on an adoption hearing under the former Part 72 Supreme Court Rules . His Honour held:

"The Court will have regard to the futility of a process of relitigating an issue determined by the referee in circumstances where parties have had an opportunity to place before the referee such matters as they desire. It will also have regard to cost. If a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of inquiry, the Court will have a disposition towards acceptance of the report, for to do otherwise would be to negate the purpose of and the facility of referring complex technical issues to independent experts for inquiry and report. This disposition may be enhanced in circumstances where the parties,... have had the opportunity to place before the referee such evidence and technical reports as they may wish. The Court may be more hesitant in this disposition if the report is provided by the expert in the absence of the parties having been given such an opportunity. The disposition must always yield to the requirements of justice, if it becomes apparent for any reason that to adopt the report would result in an injustice or unfairness to a party. These matters reinforce the view that each matter requires its own consideration." [at 67]

His Honour's decision was approved and applied by the Court of Appeal in Super Pty Limited v SJP Formwork (Australia) Pty Limited (1992) 29 NSWLR 549, and in particular the judgement of Gleeson CJ who said:

"What is involved in an application under Part 72 rule 13 is not an appeal, whether by way of a hearing de novo or a more limited re-hearing. This is consistent with the right of the referee to conduct the reference as the referee thinks fit and unconstrained by the rules of evidence. Rather, the judge, in reviewing the report and deciding whether to adopt, vary or reject it, has a judicial discretion to exercise in a manner that is consistent both with the object and purpose of the rules and with the wider setting in which they take their place." [at 563]

The Chief Justice upheld the views of Giles J (at his Honour then was), the first instance judge in that matter, in relation to the correct approach to disputed findings of fact where there is shown to be evidence available to support such findings or where there involves a choice between conflicting evidence [at 564]. The Chief Justice set out the views of Giles J at first instance at pages 553-555 of the judgment which included the following:

"For my own part, in the circumstances of this case I do not think that the referee's findings of fact should be generally re-agitated in the Court. As a broad proposition, depending on the circumstances of each case, 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, particularly where the disputed questions are in a technical area where the referee enjoys an appropriate expertise." [set out at page 553]

Giles J also set out and adopted the views of Cole J in White Constructions (NT) Pty Limited v Commonwealth of Australia (1990) 7 BCL 193 as follows:

"...In this instance the Court should not embark upon a re-examination of the questions of fact upon which the referees have reported. There is obviously a large body of evidence upon which the referees could properly find as they did. The purpose of referees reporting to the Court on disputed questions of fact is rendered futile if the Court is to reconsider disputed questions of fact in circumstances where it is conceded that there is factual material sufficient to enable the referees to reach the findings they did. In circumstances where the Court, having closely scrutinised the referee's report, has a comfortable feeling of satisfaction that the factual issues have been properly explored and considered, in my view the Court should adopt the referee's report on findings of fact ." [page 553-554]

Giles J at first instance had also held as follows:

"The report is a well reasoned report. It leaves me with satisfaction that the referee has carefully applied his mind to the findings of fact required of him, a feeling of satisfaction which is confirmed by the occasions earlier mentioned on which I was taken to the evidence before him, and I do not think that the whole purpose of the reference should be rendered futile by my acceding to the invitation to go to the evidence and make up my own mind, possibly with conclusions different from those to which the referee came. In particular, there must be involved in the fact finding process a large element of the referee's expertise in understanding the practices of the relevant area of the industry, and a large element of his assessment of the reliability of Mr Pejkovic on the one hand and the other witnesses on the other hand, including his assessment of reliability in the light of the documentary material before him. I did not have the benefit of those matters."[page 554-555]

Finally, as per Mahoney JA in Super v SJP (supra):

"The right to be heard does not involve the right to be heard twice. I am conscious that, in order that the judge can exercise a discretionary judgment of this kind, it may be necessary that the parties have the opportunity to refer to the relevant issues of fact and law and the evidence relevant to them. But the extent to which it is necessary for this to be done depends upon the circumstances of the case and the judgment of the judge. The judge has, I think, a broad discretion and may determine what is necessary to enable him to conclude that he has a sufficient understanding of the matters in question and when the argument has been sufficiently presented."[at 567]

More recently the Court of Appeal held in Bellevard Constructions Pty Limited v CPC Energy Pty Limited [2008] NSWCA 228:

"It is important in this context to state how a party should approach the conduct of references. It is for the parties to make clear what their cases are. In appropriate cases, references are a tool for the convenient and expeditious conduct and despatch of controversies. Sometimes in technical matters the referee will not be legally trained. Here, the referees were a highly experienced former commercial judge of this Court and an architect. To effectuate the administration of justice in accordance with the overriding purpose in section 56 of the Civil Procedure Act 2005 , and to make efficient use of referees, parties are obliged to express with clarity the issues that they wish to ventilate and upon which the referee will report.

The nature of the review by the Court on adoption makes it imperative that referees deal with all matters referred to them. This makes it imperative, in turn, that parties express their cases clearly and without equivocation, ambiguity or opacity. If a party complains about how a referee has dealt with the issues on the reference, it may be difficult to persuade a judge that a referee has not dealt with an issue, or not dealt with it adequately, if that issue had not been placed before the referee with the requisite clarity." [per Spigelman CJ and Allsop P at [55] and [56]

Matters not pressed by the defendant/cross claimant

The defendant/cross-claimant no longer presses the rejection or variation of findings in the Report concerning:

(1) credibility and weight of the witnesses' evidence - paragraphs 1 and 2 of Schedule A;

(2) V5 & V14 - paras 50-52 of Schedule A; and

(3) the terrazzo tile defect - paragraph 75 of Schedule A.

The party's approach to the materials presently before the Court

Both parties have taken the Court to numerous documents that were before the Referee.

Walton relied upon an affidavit by Mr Brian Crisp sworn on 18 March 2011. This affidavit contains a copy of the Referee's Report plus a series of documents contained at Exhibit "PEX2" relevant to the reference hearing including the following:

(1) Order for Reference made on 5 July 2011 (Tab 1 pages 1 to 6);

(2) the contract between Walton and Illawarra Hotel Company Pty Limited ("Illawarra") dated 26 April 2006 (Tab 2 pages 7 to 77);

(3) joint expert report of the parties' programming experts (Mr Tim Ash on behalf of Walton and Mr Adel Khreich on behalf of Illawarra) (Tab 3 pages 78 to 86);

(4) joint expert report of the parties' quantity surveyor experts relating to costs of variations and provisional sum items (Mr Tony Makin on behalf of Walton and Mr Paul Ratcliff on behalf of Illawarra) (Tab 4 pages 87 to 103).

The other joint expert reports contained in Exhibit "PEX2" relate to certain defective works and structural engineering issues which are not relevant to this adoption hearing.

Exhibit "PEX2" also contains the parties' written submissions to the Referee. The submission process provided for the first round of submissions to be served by Walton in support of its Summons and by Illawarra in support of its Cross-Claim. Closing addresses were made orally to the Referee on 20 December 2010. A copy of the transcript of those closing addresses is also contained in Exhibit "PEX2".

Illawarra's overriding submissions

Illawarra seeks the variance, rejection and adoption of certain aspects of the Report. In seeking these orders, Illawarra accepts that the principles in Chocolate Factory should govern the Court's discretion. Illawarra argued:

(1) The referee's EOT findings should be reduced from 230 days to 28 days;

(2) Following on from the referee's extension of time finding, Ms Grey ruled that Illawarra was to pay Walton $247,959.69 for delay. Illawarra challenges this award, arguing Walton did not discharge its onus in proving its entitlement;

(3) Separate to these arguments, Illawarra disputes the referee's findings in relation to extra payments Illawarra was required to make for variations.

The last two items in Illawarra's submissions were agreed by the parties to be dealt with by consent.

Walton's overriding submissions

The primary submissions put forward by Walton were as follows:

(1) That a proper analysis of the objections to the report by Illawarra are more accurately characterised as a challenge to the referee's preference for the evidence of:

(a) Mr Jerez on behalf of Walton over the evidence of the Superintendent (Ms Indyk) on behalf of Illawarra;

(b) the evidence of Walton's programming expert Mr Ash and quantity surveyor expert Mr Makin over the respective experts called by Illawarra on those issues (Mr Khreich and Mr Ratcliff).

(2) Given the exceptionally thorough and detailed report by the Referee after a full and careful assessment of the evidence before her on questions which were limited to technical matters within the expertise and competence of the referee, the grounds of "perversity" and "manifest unreasonableness" as alleged by Illawarra cannot be sustained.

(3) That is particularly so in the case of numerous challenges to the Referee's report based upon submissions and contentions which were never put to the Referee at the reference and are raised now on the adoption hearing for the first time.

(4) In the exercise of the Court's discretion, these matters ought not be litigated now on the adoption hearing which would in effect impermissibly treat the reference as "some kind of warm up for the real contest".

Background to the extension of time claims

The contract construction period was for commencement of works on 9 January 2006 and practical completion by 5 August 2006. That was a construction period of 30 weeks. Construction work did not commence until 20 February 2006. The Superintendent granted a certificate of Practical completion on 9 July 2007.

Walton submitted several claims which sought extensions of time [EOTs] to the date for practical completion. These claims were EOT Claims A to O and were submitted by Walton in response to a request from the Superintendent to Walton on 7 August 2007. By her determination dated 2 October 2007, the Superintendent granted Walton an extension of 75 days, making the extended date for practical completion under the contract 28 November 2006.

By its Amended Summons, Walton contended that the proper extended date for practical completion should have been 29 June 2007 and claimed 253 days EOT.

One of the questions referred to the Referee pursuant to the Order for Reference was:

"What is the proper adjusted date for practical completion pursuant to the terms of the contract?"

The Referee summarises the EOT claims and her findings at paragraph 477-478 of the Report which totals 230 days EOT thereby extending the date for practical completion to 26 June 2007.

The Referee regarded the approach by the Superintendent to the Walton EOT claims as "unfair and unreasonable." The Referee found that the Superintendent did not appear to consider, and certainly failed to demonstrate, that her deduction of time from the claims made by Walton for alleged concurrent contractor delays, were in fact delays which were on the critical path by reference to the programs current at the time the delays commenced.

The approach to calculating Extensions of Time

Before the Referee, the parties' respective programming experts agreed on the principles to be applied in determining an entitlement to an EOT under clause 35.5 of the contract and the "prospective" methodology to be applied in approaching that task. The agreed principles were:

(1) There has to be actual delay caused by an event referred to in sub-paragraphs (a) or (b) of clause 35.5;

(2) The delay has to be critical, i.e., it has to delay the Contractor in reaching Practical Completion. As Warren CJ said in Kane Constructions Pty Ltd v Sopov [2005] VSC 237 at [661], "any delay that does not affect practical completion is irrelevant";

(3) There cannot be concurrent events causing the delay where at least one of those events is not a cause referred to in sub-paragraphs (a) or (b) of clause 35.5;

(4) In determining a reasonable extension of time for an event causing delay, the Superintendent shall have regard to whether Walton has taken all reasonable steps to preclude the occurrence of the cause and minimise the consequences of the delay. The use of the word "shall" is generally taken to impose a mandatory or imperative obligation: Timbara Protection Coalition v Ross Mining NL (1999) 46 NSWLR 55 at [77] and [99]; Commissioner for Superannuation v Hastings (1986) 70 ALR 625 at 631. That is clearly the case with clause 35.5 as the use of the imperative "shall" can be contrasted with the permissive "may" in the penultimate paragraph of that clause.

The Referee referred to expert programming evidence and noted that the experts were generally agreed that:

(1) The EOT claims were to be assessed by reference to Walton's particular construction programme that was current at the time any delay causing event was said to have commenced:

(2) the relevant programme was to be adjusted to reflect the actual progress at the time the delay event was said to have commenced: and

(3) the EOT claims were to be assessed "prospectively", i.e., from the perspective of when the delay-causing event was said to have commenced, and not retrospectively, i.e., with the benefit of hindsight.

A fundamental criticism made by Illawarra of the Referee's findings and her approach to several individual EOT claims is the contention that the Referee applied a "retrospective analysis".

This is submitted by Illawarra to be contrary to the agreed approach to a determination of an extension of time entitlement under clause 35.5.

However to my mind, the Referee at all times sought to apply a prospective approach to her determinations, and simply preferred the evidence of Walton's expert Mr Ash to the evidence of Illawarra's Mr Khreich.

Illawarra makes this criticism of "retrospectivity" in respect of several EOTs. While I adumbrate the key contentions below, each argument arose on the basis of a different factual circumstance and a different finding. For this reason, each claim is dealt with separately within the relevant EOT claim.

The "heresy of retrospectivity "

Both parties and the Referee acknowledged that the principles set out above in relation to interpreting clause 35.5 of the contract should govern the Referee's approach to determining EOT claims. This is clear from paragraphs 48 to 51 of the Report.

Central to conducting this analysis is the observations of Warren CJ, who summarises the approach of the United Kingdom Court of Appeal in McAlpine Humberoak Ltd v McDermott International Inc (No 1) (1992) 58 BLR 1, in Kane Constructions Pty Ltd v Sopov [2005] VSC 237 [' Kane' ] at [673-675]:

"McAlpine outlines the general approach which should be taken with respect to EOT claims. ... the burden of proof is on the claimant to establish actual delay. Whilst theoretical calculations, particularly those contained in computer software programs, are useful tools in the building industry, ...it behoved the plaintiff for the purposes of the EOT claims to establish that it had actually been delayed and that damage was actually suffered by reason of that delay. ... McAlpine casts the necessary approach as one that requires a builder, in this instance the plaintiff, to present a drawing by drawing, beam by beam, column by column, gutter by gutter factual analysis to show how a particular event had the effect of delaying other identified work."

Illawarra argued that in assessing the duration of delay, the referee failed to adopt this approach and as such made the errors detailed by McDougall J in Chocolate Factory at paragraph 7 (6), (13) and (14).

Walton dismisses this argument, claiming the referee's approach was prospective and understood the onus of causation lay with Walton. The plaintiff submitted that the use of the as built data does not indicate a retrospective analysis but rather provides evidence of the parties' contemporaneous knowledge on a day-to-day basis during the progress of the works, and is an essential tool for a proper approach in applying a prospective methodology.

I accept that the Referee's approach was at all times correct in this regard.

Question 3 of Order for Reference: What is the Proper Adjusted Date for Practical Completion?

The main challenges to the Referee's report by Illawarra arise in respect of this question referred to the Referee. Illawarra challenges 7 findings of the referee in relation to extensions of time. This amounts to a claimed reduction of 202 days out of a total of 230. It is important to have regard to the principles already adumbrated in respect of an adoption hearing. For Illawarra to succeed it is not sufficient to create doubt as to the correctness of the Referee's finding, rather Illawarra has to meet the requirements set out by McDougall J in Chocolate Factory. I reiterate his Honour's summary at [7(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".

EOT A - Construction Certificate delay Referee's Finding: 16 days EOT

The referee extended time by 16 days because of Illawarra's failure to issue a construction certificate. This was legally required for building to commence. The assessment was based on Mr Ash's (Walton's expert) findings. Mr Khreich, on behalf of Illawarra, assessed the delay at 0 days.

The period of delay was found to be 30 January 2006 to 20 February 2006. That period is referable to 30 January 2006 being the date on the relevant Walton program by which Walton was to commence actual work on the site.

It was common ground that Walton was not issued with the construction certificate by Illawarra until 20 February 2006. Since construction could not commence prior to the provision of the construction certificate on 20 February 2007, Walton contended that it was delayed in its works.

Illawarra's allegation of concurrent delay in respect of EOT A

Illawarra sought to raise an argument of concurrency by contending that Walton had failed to commence the preparation of a dilapidation report and a demolition report. These reports were also required before building could commence.

In considering this argument the referee found:

(1) There were revised staging issues preventing completion of the demolition plans as at 17 January 2006 (and up to 8 February 2006) and until staging was finalised the plans could not be completed; and

(2) the only factor practically driving the delay in commencement as at 20 February 2006 was the absence of a construction certificate, and this had been the case since 9 February at the latest. Demolition commenced on the very day that the construction certificate was provided, namely 20 February 2006.

The irrelevancy of the delay of the reports and the primacy of the construction certificate in causing the delay was a factual finding open to the referee on the basis of the evidence before her and no cause to disturb this finding was shown.

Waiver

Illawarra further contend that the Referee erred in finding that the Superintendent "waived" the requirement for the dilapidation and demolition reports as a precondition to demolition. In support of their case, the parties undertook complex legal analyses relying on the legal principles required for a waiver and whether an estoppel should rise.

As Mr Gracie explained in oral submissions, ultimately recourse to these issues is not necessary. The finding in question is contained in paragraph 117 of the Report. The relevant part reads:

"On the following day the Superintendent instructed the Contractor to commence demolition as soon as the construction certificate was provided, thus waiving the requirement for the dilapidation and demolition reports as a precondition to demolition. The critical intervening delay was, therefore, the failure of the Principal to advise the work that was to be carried out at each stage, including the work to be demolished, and not the failure of the Contractor to commence preparation of a demolition report."

A close reading of the paragraph indicates that the Referee did not find a waiver in the sense of a contractual obligation being waived but rather the Referee recognised that the superintendent gave an instruction to commence work on receiving a construction certificate and this effectively waived the requirement for these reports. It is apparent from the Report that the term 'waiver' was used in a loose sense, rather than implying any legal waiver of contractual obligations. The Referee expressed this as a waiver, but really it was a direction to commence work, which Walton was obliged to comply with.

Under clause 35.1, the Superintendent may extend the time by which the contractor is obliged to commence work on the site. That in turn empowers the Superintendent to issue directions or instructions as defined in clause 23 on matters relevant to the contractor's commencement of work on the site. In this case, it was the Superintendent's instruction to Walton to commence demolition as soon as the construction certificate was provided that dispensed of the need for the reports. On a true construction of the Superintendent's instruction, issues concerning the Superintendent's authority to waive contractual requirements do not arise. Rather, the reports were no longer required due to a valid exercise of the Superintendent's power. This instruction rendered Illawarra's failure to issue a construction certificate critical.

Alleged retrospective analysis in respect of EOT A

Finally Illawarra contented that the Referee inappropriately quantified the EOT by conducting a retrospective analysis. Mr Donaldson focused on the assertion that as at January 2006 it was not known that the requirement for the reports would be 'waived', thus any account for it could only be as a result of a retrospective analysis. The real question however is not when the 'waiver' was given but rather whether absence of the certificate was a critical delaying factor. The Referee found it was. Absent of a finding of concurrent delay, the failure to produce the certificate caused the delay.

The critical activity on the relevant Walton program was for the procurement of trades, which was programmed to occur between 7 and 25 January 2006. It was known by reason of a meeting on 17 January 2006 that there were revised staging issues, which required resolution prior to the demolition plans being completed. The Referee found that the demolition plans could not have been completed until staging was finalised and that the instruction on staging was not given until 8 February 2006.

There was a requirement for the demolition report to show "demolition procedure in reference to the staging". The Referee described Mr Ash's reasoning as "self evident, namely that the work to be carried out in each stage would affect the management of the project including how demolition was to be carried out so that it would not be reasonable to expect the contractor to commence work on the report before being advised of the construction and demolition work to be carried out in each stage. The Referee held:

"In any event, from Ms Indyk's evidence by 8 February 2006 she had sufficient information to permit commencement of demolition. From a prospective analysis at that date, the failure to either commence or provide a demolition report could not, therefore, constitute a delay."

The Referee rejected the attempt by Illawarra to impose a concurrent delay on Walton. To the contrary, the Referee found that between 14 January 2006 and 8 February 2006 during which time the preparation of demolition plan should have commenced, Walton had been delayed by Illawarra's failure to advise on staging. The reports, even if commenced, would not have been completed by 30 January 2007 in the absence of the revised staging information from the Superintendent. The critical date from which the extension of time was awarded was 30 January 2006 when Walton planned to commence demolition but was prevented by the failure by the principal to issue a construction certificate until 20 February 2006. This was clearly a prospective analysis.

EOT claim C - void and office Referee's Finding: 69 days EOT

The Referee found that Walton was entitled to an extension of time of 69 days for delay in relation to the void and basement office. It was not disputed by Illawarra that the existence of the void gave rise to variations and to an extended construction period, but at issue between the parties was the complexity of the variations and the extent of the delay that followed.

Walton contended that the impact extended generally across the stage 1 works and therefore the entire job. In effect there was a need for a complete redesign of the structural elements of the job which changed the conceptual nature of the project from a hotel refurbishment to a major structural undertaking. Illawarra, sought to diminish the significance of the void by arguing that there was:

(a) A concurrent delay; and

(b) A lack of evidence on behalf of Walton to establish the length of the delay.

The circumstances surrounding the void can be summarised as follows:

(1) The void was discovered on or about 20 February 2006 immediately upon the commencement of demolition works. There seems to be no issue that the engineer's drawings showed the slab of the area of the hotel in the stage 1 concrete floor to be a slab bearing on ground. In fact it was an area under which there existed a large and deep void which required the construction of a suspended slab with associated reinforcing and related variation works. The Superintendent described the void as a "significant latent condition". Mr Ash described the delay associated with the discovery of the void as a "delay to the stage 1 works".

(2) The ground floor slab for stage 1 was to have been completed by 9 March 2006. However the void necessitated a suspended slab and associated works. The pouring of the ground floor suspended slab did not occur until 14 July 2006. Stage 2 was to have commenced on 15 April 2006 but as the Superintendent agreed, stage 2 could not start until stage 1 was completed. It was generally accepted that the discovery of the void caused significant complications to the job.

Illawarra's arguments

Concurrent delay in respect of EOT claim C

Illawarra relied on Mr Khreich's evidence that questioned the significance of the void, due to an alleged concurrent delay caused by Walton arising out of the fabrication and erection of the structural steel and construction of the works along the Y4 grid.

The Referee referred to the effect of the evidence of Mr Khreich as follows:

"Mr Khreich said that the contractor had not accounted for significant gaps in the as built chart. He also said that demolition, installation of board piers and underpinning, pouring of footings and erection of structural steel were well behind schedule and that he considered that delay relating to these activities to be critical, concurrent and contractor generated. He relied for this on an assumption that all these activities were structurally independent of the void and the resulting amended design. ... Mr Khreich said a major component of the contractor generated concurrent delay related to the fabrication and installation of structural steel."

In reaching her conclusion, the Referee noted that Mr Ash was critical of the analysis by Mr Khreich because it had been provided without a critical path impact analysis of the alleged concurrent delays or of the whole of the structural work to stage 1. The Referee also found that Mr Khreich continued to refer to an earlier and irrelevant program rather than the program, which was proximate to the actual and critical delay caused, by the void.

Illawarra also contended that the Y4 wall could in fact have been constructed prior to the suspended slab being completed. At the time of the discovery of the void it was not known to Walton in what respects the design of the structural steel or the foundations along the Y4 grid would be altered. The Referee found that the engineering design for the structure along the Y4 grid was not completed until 27 March 2006 and that Walton was not in a position to substantially commence this construction until after that date. The Referee further found that the engineering design for the suspended slabs was not completed until May 2006 and that Walton was not in a position to substantially commence construction until after that date.

The Referee accepted the expert evidence of Mr Ash on behalf of Walton in the following terms and as set out at paragraph 179 of the report:

"...Until the structural design for the whole of the structural support over and surrounding the void was completed, it was unreasonable and inappropriate to expect the contractor to commence work on the structural steelwork along gridline Y4."

The Referee rejected Mr Khreich's view that the structural work along the Y4 grid in which the major steel columns were located was unrelated to any works occasioned by the discovery of the void. The Referee noted that structural drawing S07 was amended on three occasions (28 February, 1 March and 27 March 2006) and found that "all amendments showed changes to the structural steel support for the first floor immediately above the void area".

These were conclusions open to the Referee and should not be disturbed.

Evidentiary claim in respect EOT claim C

Illawarra also sought to argue that there was no evidentiary basis for the Referee's finding because the Referee made a finding on the basis of insufficient evidence or misapprehended the evidence of Walton's principal witness Mr Jerez and the structural engineer called on behalf of Illawarra, Mr Matiszik.

Illawarra claimed that Mr Jerez's evidence establishes that Walton's delay in erecting the structural steel was unrelated to any changes in the void works. In this regard, Illawarra focused on inconsistencies in Mr Jerez's evidence and his recanting of certain statements in cross-examination. It was argued that the Referee's finding that the structural steel work was delayed by the void was contrary to the evidence given by Mr Jerez and demonstrates starkly that the Referee misapprehended the evidence. However, these inconsistencies were clarified in re-examination. The Referee clearly did not misconstrue the nature of Mr Jerez's evidence, she was acutely aware of the inconsistencies in his evidence in chief and made reference to this fact in the Report.

The Referee was also criticised for having misapprehended the evidence of Mr Matiszik. The Referee found that Mr Matiszik's evidence was that "only limited work could be carried out before the revised design relating to the void was completed". Illawarra suggests that the evidence of Mr Matiszik was to the effect that "ground floor works between grids Y4 and Y6 could be progressed subject to site access requirements". In my opinion this is not an accurate characterisation of Mr Matiszik's evidence.

Mr Matiszik first identified four areas in his affidavit where he was of the opinion that limited work could be performed, notwithstanding the existence of the void. These were:

(1) on the first floor as indicated by Mr Jerez;

(2) new stairs detailed on my drawing 041003 S11... and generally in the areas between grids Y1 to Y3;

(3) new ground floor and basement works between grids X7 and X11, although these may have been programmed for a later stage in order to keep the hotel trading operations open; and

(4) ground floor works between grids Y4 to Y6 and X1 to X7, although this may have been required for site access.

I accept Walton's submission that the work on the first floor was ancillary work. It was not work referable to this part of the stage 1 works and was not on the critical path. Secondly, the new stairs were a new design and were also in an area completely unrelated to the void and again not on the critical path and in no way relevant to the stage 1 works. As to the third, the transcript at page 947:19-20 records that counsel for Illawarra chose not to read that part of Mr Matiszik's evidence. As to the final and fourth area, it is qualified by the words "although this may have been required for site access". In cross-examination at the Reference Mr Matiszik agreed that if the builder had said that those relevant grid areas were required for site access he would have no reason to dispute that. The unchallenged evidence of Mr Jerez was that the "works in grids Y4 to Y6 and X1 to X7 could not be undertaken during this time as the area was Walton's only access to the project. They had to be left open so as to have reasonable access for workers, materials and machinery.

Alleged retrospective analysis in respect of EOT claim C

Finally, Illawarra submitted that The Referee erred in undertaking a retrospective analysis to determine the extent of the entitlement to an extension of time. Illawarra claimed the Referee inappropriately determined the entitlement for an extension of time on the basis of the "actual duration" of the works and by inserting the "as-built" activities into the relevant programme, rather than approaching the task in accordance with the principles set out in Kane .

I reject this claim and accept Walton's submission that the Referee did not determine the entitlement on the basis of the actual duration of the works. In using the "as built" chart, the Referee was merely quantifying the time in respect of which the delay was critical for the purpose of determining the number of EOT days to be awarded. That had no bearing on her prospective approach as to whether there was a delay to Walton's critical path. That was a question which the Referee dealt with in her finding that it was reasonable for Walton to await the final design before performing works in the area of the void.

As to the reasonableness of Walton's conduct, the Referee reviewed the as-built chart and the photographic record provided by Mr Jerez of Walton as to the "complexity of the structural difficulty" of some of the related demolition work. The Referee accepted the evidence of Mr Ash on behalf of Walton "that the time taken by Walton for the varied work was reasonable in the circumstances" and rejected Illawarra's contention that there were contractor generated concurrent delays which would disentitle Walton to an extension.

Also, as explained above, a proper assessment of the evidence of Mr Matiszik was to the effect that there were only two areas of non-critical work unrelated to stage 1 in the area of the void where work could have progressed. There was no misapprehension of the evidence by the Referee and it was clearly open to her, where there was competing expert evidence, to prefer one expert witness' evidence over the other.

EOT claim K and L: stage 2/bar 1 structural steelworks

Referee's Finding: 37 days EOT

The Referee found that Walton was entitled to an extension of time of 37 days for delay in the Bar 1 structural steel-works.

In the experts joint report, both agree that the bar 1 works were on the critical path as programmed from 28 August 2006 until completion of the erection of the structural steel on 31 October 2006. However, there were two differences between the experts which led to Illawarra's expert concluding no extension of time should be allowed. The differences were:

(1) Illawarra's expert did not include the time taken to remove the support structures in his calculations; and

(2) The effects of concurrent delays

Support structures

The difference between the two approaches concerning the support structures was set out by the Referee at paragraph 227 of the Report:

"Both experts had inserted the 2 delays (the Lounge & Dance Floor and Bar 1) into their programmes. When comparing these, to test which was critical, it was apparent that Mr Ash had inserted the full duration (37-working days) for the varied Bar 1 work (including the removal of needles and repair of brickwork) for the period from 26 August 2006 to 26 November 2006 and that Mr Khreich had included only the delay for the period from 26 September and 31 October 2006. Mr Khreich had excluded the time taken to remove the support structure, to repair the brickwork and to fix a new angle to the face of the repaired brickwork. I found above that all this work was linked to the varied work and that the whole delay ran from 26 August 2006 to 26 November 2006 (although part was concurrent with the asbestos delay)."

Despite Illawarra's contentions to the contrary, the Referee did not conclude that 37 days was the appropriate extension on the basis of a retrospective analysis. She simply preferred Mr Ash's evidence to Mr Khreich's, finding it reasonable in conducting a prospective analysis, to include the time taken to remove the support structure. This is a finding that should not be disturbed.

Further, there was no submission to the Referee, as now put by Illawarra, that Walton had failed to take all reasonable steps to minimise the delay associated with removal of the support structure. The Referee approached the evidence by the programming experts with great care. She was critical of the conclusion of Mr Khreich that the support to the external wall was independent of the structural steel variation design and that, accordingly, it was said by Mr Khreich that Walton could have commenced removal of support structures on the ground earlier than it did. The Referee's opinion was that Mr Khreich must not have reviewed the variations to the design that were an inherent part of this structural steel variation work in expressing that opinion. In the circumstances it was open to the Referee to prefer the evidence of Mr Ash to the evidence of Mr Khreich and to have not given any weight to the evidence of Mr Ratcliff which was not adduced squarely on this issue or relied upon by Illawarra in submissions to the Referee.

Concurrent delay in respect of Bar 1 claim

In a further report prepared by Mr Khreich just prior to his oral evidence, the expert stated that no EOT was warranted because bar 1 was not on the critical path. He said that Walton was responsible for a concurrent critical delay in the lounge and dance floor area.

This assessment depends on the referee's earlier finding as to the day on which the delay concluded. The Referee accepted the evidence of Mr Ash as to the date on which the delay concluded, namely 16 November 2006, in preference to the date determined by Mr Khreich of 31 October 2006.

It therefore follows that the analysis by Mr Ash that the critical path ran through the bar 1 work must be accepted in preference to Mr Khreich's program showing the dance floor and lounge on the critical path. That was the natural effect of the Referee's preference for Mr Ash's evidence over the evidence of Mr Khreich. That was because the latter did not include in his assessment the removal of the support structure on the ground, which he had discounted in his calculation of time because he asserted that it was unrelated to the approved variation works which were necessary because of the redesign of the works. The Referee's analysis was self evidently prospective, using the as-built chart to determine the length of delay, but at all times having in mind the essentiality of a causative link between the critical event and the duration of the delay.

EOT claim F - upgrade of permanent power

Referee's Finding: 65 days EOT

The Referee found that Walton was entitled to an extension of time of 65 days for the delay in providing the site with a permanent power supply, and that this delay extended the Date for Practical Completion from 23 February 2007 to 28 May 2007. The start-date of 23 February 2007 is the date by which Walton was programmed to complete its works as at 6 December 2006, being the date of the program in existence at the time the delay became critical. The end-date is derived by the provision of upgraded power mains by Integral Energy to the hotel premises and power being reconnected on 24 May 2007 and then a 3 day period for completion of the new coolroom which could not be built earlier because it was to contain the new switchboard after the reconnection of the upgraded power.

I accept it was a necessary precondition to Walton being able to undertake and complete its commissioning works that Illawarra provide upgraded power to the hotel premises by Integral Energy. This related to the provision of upgraded service mains which ran from the Integral system to the hotel switchboard installed on the premises to enable the hotel to draw in excess of 200 amps per phase. This work was solely within the hands of the principal and was not in any way within Walton's scope of works.

I do not accept Illawarra's submission that the Referee accounted for "expected delay", rather than an actual delay. The Referee found an actual delay at paragraph 311 of her report. This included moving the switchboard and installing the coolroom, which was to contain the new switchboard. That could only realistically be done after the upgraded power had been reconnected to the hotel on 24 May 2007. It was impossible to disconnect the power prior to the upgraded works being completed because Integral would not have permitted re-connection until the upgrade was completed.

The testing and commissioning of the various electrical works was programmed to occur during January and February 2007 and was to proceed progressively. However, Illawarra had not even submitted its design to Integral for the increase in the power supply from Integral to the hotel until 19 February 2007 and the upgraded power was not connected to the new switchboard until 24 May 2007 . By a proper application of clause 35.5, the Referee found that the principal's delay in making a timely application to Integral caused a delay to Walton in reaching practical completion by which Walton was entitled to an EOT from the date by which it had programmed to complete, namely 23 February 2007.

Further, Illawarra raised an argument concerning Mr Ash's "unorthodox" approach to programming. They complained that Mr Ash included in his programme an event which was not properly the role of the contractor. While this approach may not be the usual course, it was merely a tool used to calculate the delay caused by absence of power. As the Referee noted at paragraph 336 of the Report, clause 35.5 allows extensions of time for delays caused by the principal. A proper application of clause 35.5 concerns the effect of a delaying event on a contractor's scope of work that is to be assessed, not whether it is within the contractor's scope. In this circumstance, the method used by Mr Ash was entirely appropriate and produced an accurate estimation of the delay caused by the principle's failure.

Looking beyond the criticisms of the approach to calculation, the real question is: Why could Walton not commence its critical activity of final commissioning of the plant and equipment prior to 28 May 2007? The reason given by the Referee is that as at 23 February 2007, when it was programmed to reach practical completion with commissioning as the last activity, Illawarra had only just submitted its application to upgrade the mains power to the hotel to Integral Energy some four days earlier. Until that upgraded power was achieved on 24 May 2007 (and then there was 3 further days work to complete the coolroom works), final commissioning with the new power supply and on the increased amperage could not have even been started.

Illawarra's supplementary submissions concerning an evidentiary lacuna, is not sufficient to displace the Court's finding that the Referee's decision had a clear evidentiary basis and for this reason her finding should not be disturbed.

EOT claim J - acoustic panels

Referee's Finding: 39 days EOT

In the event that Walton is not entitled to an extension of time in respect of the Power-on claim, the Referee found that Walton was entitled to an extension of time of 39 days for delay in the installation of acoustic panels. Given my finding above it is not strictly necessary I deal with this element, but for completeness it is dealt with shortly below.

Illawarra questioned whether the acoustic panels were a critical delay. Illawarra criticised the Referee for any implied finding that the delay was critical as being perverse and patently misapprehending the evidence.

Ultimately it was open to the Referee to find that sanding could not take place without the installation of the acoustic panels. In reaching this finding, the Referee did not impermissibly reverse the onus of proof, but rather noted that no evidence was put to the contrary by Illawarra to challenge Mr Ash's evidence about the need to sand last to avoid damage to the floor. There is no apparent misapprehension in this conclusion.

EOT claim I - commissioning of electrical installation:

Referee's Finding: 10 days

The Referee found that Walton was entitled to an extension of time of 10 days for delays in testing and commissioning the electrical installation.

Illawarra argues that there is no basis for the Referee finding the delay was critical, nor was there adequate reasons to explain why a 10 day allowance is reasonable.

There are several difficulties with that submission. The first is that the criticality of this work is necessarily implied by the determination of Mr Ash in his reports and joint report with Mr Khreich claiming an EOT in respect of this activity. Commissioning was the last activity on Walton's program before practical completion and as such critically is a given. Further, Mr Khreich agreed that practical completion could not occur without commissioning and at some point commissioning therefore had to be on the critical path.

Secondly, the evidence was heavily weighted towards the proposition that this work was critical. Two expert electrical engineers and Mr Hill on behalf of Walton gave evidence to this effect. Mr Greenfield, who was the expert called on behalf of Illawarra agreed, explaining that Walton could not fully commission until there was reconnection of the power supply from Integral. Only Mr Jerez expressed some doubt.

Ms Indyk, the Superintendent, also agreed that it was impossible to have final commissioning of all the hotel plant under full operational load prior to 24 May 2007, being the date that Integral affected the upgrade and the switchover to the new distribution board. The Superintendent also agreed that final commissioning was always necessary for practical completion.

As to reasonableness of the delay, the Referee deals with the 10 days granted for commissioning at paragraph 314 of the report. The initial 1-day allowance referred to by Illawarra in an earlier Walton program was based on an assumption that commissioning would proceed progressively as equipment or services became available for commissioning. This was prior to Illawarra deciding to upgrade its power service mains. The evidence which was not disputed by the Superintendent was that Mr Jerez advised on several occasions, that after the connection of the upgraded power Walton would need 10 days for testing and commissioning. This is not a retrospective approach. This was during the period of the power delay.

Finally, it is important to appreciate that this claim relates to commissioning work and not the connection of power to enable commissioning to commence. Final commissioning could not be undertaken prior to 28 May 2007 (allowing 3 days for the coolroom from the date of the power upgrade works being completed) and whatever Walton could have done in relation to other works, could not have enabled commissioning to be completed at any time prior to 28 May 2007. The Referee found that the reasonable time was the 10 days foreshadowed by Mr Jerez to the Superintendent. The 10 days also equated to what Mr Ash determined as the actual extent of the delay by reference to the as-built data.

On the basis of the above evidence there is no cause shown to disturb the Referee's finding.

EOT claims G, H and M - certification delay:

Referee's Finding: 22 days

The Referee found that Walton was entitled to an extension of time of 22 days for delays due to the certification of the building. Illawarra submitted that no allowance should be made because there were concurrent outstanding works caused by the contractor that simultaneously delayed practical completion. In its supplementary submissions Illawarra stated that the Referee ignored the critical evidence of Mr Anzani and for this reason there is no credibility in her finding.

The Referee did not accept there was critical concurrent delay. Instead at paragraph 401 of the Report she outlined the three components, which she determined, were critical delays. The Referee had careful regard to each of the claims and the components of outstanding works referable to each of those claims. In relation to the list of outstanding work summarised in Illawarra's submissions, the Referee stated:

"[The list of outstanding work issued by the Superintendent] ... were not detailed and in most instances Illawarra led no evidence to support a conclusion that they delayed or prevented practical completion. There was also no analysis from which I can conclude that the rectification work fell on the critical path. It will be seen below that the Superintendent acknowledged on 6 July 2007 that the only matter preventing her from issuing the certificate of practical completion was the non-provision of the occupation certificate. All other defects and outstanding work preventing Walton from achieving practical completion must, therefore, have been completed by this date."

It was open to the Referee to accept the evidence of Mr Ash, which she accepted as being "able to show that Walton was critically delayed between 6 June 2007 and 6 July 2007 by a combination of the three certification causes". This was the only analysis that the Referee determined involved critical path analysis. The acceptance of Mr Ash's evidence was not on the basis of a retrospective analysis and thus no cause to disturb the Referee's finding was shown.

Question 4 of Order for reference :

To what payment or allowance is the plaintiff entitled with respect to any extension of time?

Delay costs

Referee's finding

The Referee concluded Walton's entitlement with respect to extensions of time to be $247.959.69. This figure was arrived at by multiplying the EOT delay by what the Referee termed "agreed rates". These rates were derived from Attachments 1 and 6 to the contract. The approach was substantially similar to the approach of Mr Makin.

Illawarra's submissions

In this hearing, Illawarra argued that the Referee made a mistake of law by applying the rates in Attachments 1 and 6 to calculate delay costs. Illawarra submitted that the correct approach would have been to follow the contractually agreed position to calculating delay costs as set out at clause 36 of the contract. Clause 36 provides:

Where the Contractor has been granted an extension of time under Clause 35.5 for any delay caused by any of the events referred to in Clause 35.5(b)(i) ( the Extension of Time clause ) the Principal shall pay to the Contractor such extra costs as are necessarily incurred by the Contractor by reason of the delay .

According to Illawarra, the agreed approach by the parties is clear. Where an amount for delay is payable, it is only to be the extra costs that are necessarily incurred by reason of the delay . It is trite to observe, that the burden of proving these extra costs and their necessity, lies with claimant on the balance of probabilities.

Addressing the Referee's findings, Illawarra submitted:

(1) The rates and prices set out in Attachments 1 and 6 are not contractually agreed costs. The Contract does not contain any agreement as to the costs of delay. The Contract provides only that Walton is entitled to such extra costs as are necessarily incurred by the Contractor by reason of various delays.

(2) Attachment 1 of the Contract is a breakdown of the Lump Sum for Construction Manager's Preliminaries. The Lump Sum for Construction Manager's Preliminaries forms part of the Contract Sum. It is, in effect, part of the original contract price .

(3) Attachment 6 is a schedule of rates for supervisory staff. The Contract does not make any express reference to attachment 6, but Clause 3.1 of the Contract contemplates that work, for which the Principal accepted rates, may be priced by reference to accepted rates and Clause 40.5 provides that, where the Contract provides that a valuation is to be made under Clause 40.5, rates that have been prescribed shall be used. The rates in Attachment 6 are therefore also prices .

(4) Cost and price are distinct concepts. From Walton's perspective, costs are what it incurs and prices are what it charges. Prices agreed or otherwise, have no role in any assessment of costs (except, perhaps, as a guide to the upper limit or reasonableness of costs, a factor that is not relevant here).

(5) Once it is accepted that the rates and prices set out in Attachments 1 and 6 are not "contractually agreed costs", then, to be entitled to any amount under Clause 36 of the Contract, Walton must establish that it incurred extra costs and that these extra costs were necessarily incurred by reason of a qualifying delay. Walton must also establish the quantum of the extra costs allegedly incurred. Walton has not established any of these things.

(6) In Thiess Watkins White Construction Ltd v Commonwealth (1998) 14 BCL 61 , Giles J construed a clause similarly worded to Clause 36 of the Contract. His Honour considered that pursuant to such a clause:

(a) Whether a contractor had incurred extra costs by reason of delay is a question of fact (at 67); and

(b) There is a distinction to be drawn between:

(i) Costs incurred which would not have been incurred at all but for the delay; and

(ii) Costs incurred as would have been incurred had there not been delay but the effect of the delay is that other work cannot be undertaken and the contractor's income is less (at 77) [emphasis added].

(7) Giles J considered that only the costs falling within sub-paragraph (b)(i) above are extra costs incurred by reason of delay to which a contractor would be entitled to payment pursuant to a clause such as Clause 36.

(8) Giles J's reasoning has been subsequently approved: see Banabelle Electrical v State of New South Wales [ 2005] NSWSC 714 at [142]; ACN 060 559 971 Pty Ltd v O'Brien [ 2007] QSC 91 at [54] .

(9) The Referee construed Clause 36 in a manner that was contrary to both of the principles expounded by Giles J as set out above. Consequently, she made an error of law of the type recognised in Chocolate Factory [4] .

Walton's submissions

Walton replied to Illawarra's submissions arguing that it would be unfair for Illawarra to now contend that the Referee construed clause 36 in a manner that was contrary to the principles expounded by Giles J in Thiess Watkins White Construction Limited v Commonwealth (1992) 14 BCL 61 where the referee was never afforded the opportunity of considering such submissions and the parties conducted themselves on the basis of the contract schedules being referable to Walton's claims for costs. In support of this proposition, Walton submitted:

(1) At no time during the course of the reference was there any evidence adduced by Illawarra or by the Superintendent to suggest that the parties did not at all times proceed during the contract works on the understanding that the schedules comprising attachments 1 and 6 to the contract were to be used for the purpose of assessing extra costs, variations and delay costs in any claims submitted by Walton to the Superintendent. In that context, Illawarra did not adduce expert evidence in response to the expert evidence of Mr Makin on delay costs.

(2) The submission now made by Illawarra is a new submission and was not advanced at any time in opposition to the approach to delay costs taken by Walton based on the application of those contract attachments and in the circumstances in which they were incorporated into the contract for use by the Superintendent.

(3) The only point made by Illawarra in its submissions to the Referee was that, having accepted that the schedule of rates were appropriate where the project manager or leading hand engaged in "additional work", Illawarra submitted that they were not appropriate for periods when "these resources were idle" such as where a delay caused there to be no work performed by those personnel. However, while accepting the appropriateness of the schedule of rates for extra costs and variations, Illawarra somehow seemed to submit that the contract rates may not be appropriate in respect of certain time-related claims submitted by Walton because the supervisory staff were in such cases, "idle". That notion is completely contrary to the Superintendent's requirement for Walton to provide in the contract for supervisory rates for a determination of time-related claims including under clause 36 for delays.

(4) The submissions now raised by Illawarra were never put to the Referee. They should have been if Illawarra now seeks to challenge the Referee's determination on delay costs. It is not necessary to restate the recognised principles set out earlier in these submissions (by McDougall J that the purpose of a reference would be "frustrated if the reference were to be treated as some kind of warm up for the real contest".

(5) Illawarra accepted certain time-related preliminary costs from Attachment 1 to the contract and merely took issue with the inclusion of certain non time-related costs in the daily delay figure derived by Mr Makin of $176.97. Illawarra proffered a daily rate for preliminaries of $82.42 in respect of Walton's delay costs claim.

(6) In the case of the project manager and leading hand rates obtained from Attachment 6 of the contract for supervision, Illawarra did not take issue with Mr Makin's reference to the contract rates for calculating this aspect of Walton's costs in relation to alleged periods of delay.

The parties conduct during a reference

The determination of this issue rests on the question of in what circumstances should parties be bound by their conduct at a reference. The authorities take a somewhat strict approach to the principle that parties "must be bound by the conduct of their case at the trial":

(1) In Coulton v Holcombe (1986) 162 CLR 1 at page 7 the matter was put this way:

" It is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at the trial. If it were not so the main arena for the settlement of disputes would move from the Court of first instance to the appellate Court, tending to reduce the proceedings in the former Court to little more than preliminary skirmish."

(2) In Rowe v Australian United Steam Navigation Company Limited (1909) 9 CLR 1 at page 24 Sir Isaac Isaacs said:

"... it is a sound general principle, leading not only to the maintenance of fair play, but also to the repression of unnecessary litigation, that parties must be bound by the course they deliberately adopted at the trial."

(3) In White v Overland [2001] FCA 1333 Allsop J said at par [4]:

"...in the efficient and proper conduct of civil litigation, even civil litigation hard fought between the parties, it should always be recognised that in the propounding of issues for trial the parties should take steps to ensure that all relevant parties to the dispute are cognizant of what the issues are. Even if something has been said, where it is evident, or indeed suspected, that the other side is proceeding on the basis of a misconception or has not appreciated something, as a general rule, efficiency, common sense and an appreciation of the costs and resources ( both public and private) likely to be wasted by confusion in litigation will mandate that a party through his or her representative ensure that the other is not proceeding on a misconception or that the other does appreciate something that has been said. Litigation is not a game. It is costly and stressful, though necessary, evil."

(4) In Nowlan v Marson Transport Pty Ltd (2001) 53 NSWLR 116, Heydon JA said :

"[26] Fourthly, the conduct of litigation as if it were a card game in which opponent's never see some of each other's cards until the last moment is out of line with modern trends. Those trends were developed because the expense of Courts to the public is so great that their use must be made as efficient as is compatible with just conclusions. Civil litigation is too important an activity to be left solely in the hands of those who conduct it."

(5) Similarly in Glover v Australian Ultra Concrete Floors Pty Ltd [2003] NSWCA 80, Ipp JA said:

"The "cards on the table" approach is now common practice in many jurisdictions..."

(6) Similar observations were made by Allsop P [with whom Beazley and Campbell JA] agreed in Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff L td [2008] NSWCA 243 to the following effect

[160] Giving due weight to the realities of life in running a long and complex trial and the vicissitudes of the appreciation of the evidence given, it cannot be emphasised too strongly that it is the responsibility of the parties, through their legal representatives, to exercise a degree of co-operation to express the issues for trial before and during the trial. Such co-operation can now be taken as an essential aspect of modern civil procedure in the running of any civil litigation, including hard-fought commercial cases. The need for clarity, precision and openness as part of this co-operation has been emphasised in the context of ambush or surprise: White v Overland [2001] FCA 1333 at [4], expressly approved in Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346 ; 53 NSWLR 116 (Heydon JA, with whom Mason P and Young CJ in Eq agreed); Glover v Australian Ultra Concrete Floors Pty Ltd [2003] NSWCA 80 at [59]-[60] (Ipp JA, with whom Sheller and Hodgson JJA agreed); Sutton v Erect Safe Scaffolding (Aust) Pty Ltd [2006] NSWCA 265 at [4] (Bryson JA with whom Basten JA agreed); and Hooker v Gilling [2007] NSWCA 99 at [52] (McColl JA, with whom Ipp and Basten JJA agreed).

[161] The need for clarity, precision and openness in the conduct of litigation and the responsibility of parties and their legal representatives therefor flows most clearly from the statutory duty of a party and his, her or its legal representatives in civil proceedings to assist the Court to further the overriding purpose to facilitate the just, quick and cheap resolution of the real issues in dispute and to participate in the processes of the Court to that end: see Civil Procedure Act 2005 (NSW), 56. It may be that the provision no more than restates the proper approach of the modern law of procedure reflected in cases such as Nowlan v Marson Transport . It places the proper approach, however, on a firm statutory foundation. These principles can be seen to be reflected in the longstanding rules of pleading requiring any matter that may cause surprise to be pleaded.

[162] An enhanced requirement of clarity and disclosure in modern civil litigation can be seen in Australia and England from at least the early 1990s: see the discussion of the "cards on the table" approach by Ipp J (as his Honour then was) in An enhanced requirement of clarity and disclosure in modern civil litigation can be seen in Australia and England from at least the early 1990s: see the discussion of the "cards on the table" approach by Ipp J (as his Honour then was) in Boyes v Colins [2000] WASCA 344; 23 WAR 123 (with whom Pidgeon and Wallwork JJ agreed), citing Mercer v Chief Constable of the Lancashire Constabulary [1991] 1 WLR 367 and Khan v Armaguard Ltd [1994] 1 WLR 1204. Indeed, from the late 1970s and early 1980s, the Commercial List of this Court (in which List this hearing took place) has been sought to be run on the strict basis of the clear and full enunciation of issues for trial, in a way that has always demanded the fullest co-operation among parties and legal practitioners to delineate and illuminate the real issues in dispute.

[163] The clear statutory duty to assist the Court, and, in a practical way, to co-operate to bring forward the real issues in dispute, encompasses the requirement to be clear and precise in the illumination of the issues for trial. The occasion for this is not merely pleading (using the word broadly to encompass the modern commercial list summons and defence), it extends to all aspects of the engagement in the Court's processes. For similar responsibilities in the conduct of references, see Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2008] NSWCA 228 at [55]-[56].

[164] This does not deny the possibility, as occurs in real life in litigation, that issues will develop. Litigation is a dynamic human activity. Changes in how a case is put can be expected. This often occurs in large commercial cases. Such change, and the potential for it, makes it, however, all the more important that legal practitioners and parties ensure that the clear enunciation of issues keeps pace with that growth and change. This responsibility will encompass parties and their legal representatives making clear what is being put and also what they regard as not legitimately part of the controversy, if it is apparent to them that an issue not pleaded or presented is being relied on

The evidence

It is common ground that although the formal contract was signed on 26 April 2006, the parties had earlier exchanged a letter of intent dated 6 January 2006.

The particularly important controversy which has now been litigated undercover of the notices of motion before the Court concerns whether or not, after the contract had been signed and notwithstanding the terms thereof, the parties agreed that the prices and rates set out in Attachments 1 and 6 to the contract were to be used for the purpose of calculating all claims made by Walton in respect of the works including Time related delay costs and were inserted in the contract for that purpose at the insistence of the superintendent.

Walton importantly contends that the now approach by Illawarra is contrary to the position parties had both taken before the referee so that in the exercise of the Court's discretion, the referee's approach to the quantification of Time related delay costs was proper and should not be disturbed.

On Walton's case :

(1) As can be seen from the variations submitted by Walton and dealt with by the Superintendent, Walton's delay claims were submitted as variation claims.

(2) To put the inclusion of those two attachments to the contract in context, at a meeting on 3 February 2006, at which were present Ms Indyk, Mr Kam and Mr Jerez, the minutes record: "discussed variations/delays and how they will be addressed in contract".

(3) Thereafter, in an email dated 1 April 2006, the Superintendent requested Walton to include as an attachment to the contract "trade rates - to assess any variations that are Walton's labour etc. ie. foreman rates, second hand, labourers etc.".

(4) In an email from the Superintendent to Walton dated 19 April 2006, she confirmed that she had "requested the hourly time rate for Chris Jerez and his leading hand - to be attached to the contract".

In a further email of the same date, the Superintendent informed Walton:

"Chris [ie. Jerez] should be able to advise you of the rate for delay. I want to know Chris' rate and his leading hand's rate per day and per hour AND it needs to be in the contract documents please - so please add them... If you add the rates please to one of the attachments and resend to me ... and then Gary Kam should sign the contract and send to you and vice versa please."

(5) Those rates became Attachment 6 to the contact. Walton's claims which included delay claims submitted to the Superintendent as variation claims were dealt with by the Superintendent in the Final Certificate (Progress Claim 18) dated 27 February 2008. It can be seen that where an EOT had been granted by the Superintendent by her EOT determination of 2 October 2007, the Superintendent applied attachment 6 of the contract for determining Walton's clause 36 contractual delay costs. This can be seen for example in "Variation 1 Construction Certificate Delay" which is dealt with as follows in the Final Certificate:

"V1 Construction Certificate Delay - this variation is a delay claim under clause 35.5 of the contract. It was originally valued at $10,175 and has now been increased to $11,475.

The assessment as issued on 8 November 2007:

7 days delay with project manager cost of 7 days.

$675 x 7 days = $4,725.

Total delay costs incurred as per Cl 36 of the Contract

Contract sum adjustment of $4,725 ex GST."

(6) In the Superintendent's determination, she stated in the Final Certificate, the following:

"Supervision costs have not been allowed within the individual variations as these have been claimed to be in the extension of time claims pursuant to clause 35.5. The rates for supervision are an appendix in the contract, under attachment 6 - rates / rates per day: project manager $675 / leading hand $450. And rates per hour: project manager $75 / leading hand $50."

It has been stated previously in claim 16 payment schedule that the new rate of site manager not specified in the contract nor used previously in any variation from February 2006 until July 200 [sic], could not be supported by the Superintendent. As no further supporting information has been presented, the Superintendent upholds this assessment. The foreman on the site has been regarded as the leading hand at the rates as described in the original attachment of the contract. ...".

I have closely considered the evidence that Walton claims constitutes an agreement by the parties to use the rates in the Attachments as rates for delay. On no reading of the evidence can these communications be said to indicate a departure from the position agreed in clause 36. In the Report, the Referee adopted this approach at paragraph 516 but did not provide adequate reasons for doing so. Indeed the Referee made no clear reference to the communications between the parties, which was said to constitute the agreement to use the rates. In these circumstances her factual finding is a "patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding, that would ordinarily be a reason for rejection" per Chocolate Factory [7(6)].

Turning with more specificity to certain sections of the referee's report essentially dealing with reasonable daily rates for delay

The referee dealt carefully and methodically with this claim. In particular her report includes the following:

The Reasonable Daily Rate for Delay

Walton's Submission and Expert Evidence

483 Walton's submission in chief was that Mr Makin's calculation was appropriate and should be adopted. This calculation is described below.

484 To assess a daily rate for delay, Mr Makin first referred to the contract and noted that Attachment 1 was headed "Preliminaries Breakdown, revised 6 January 2006" . The costs listed in this breakdown totalled $55,210.00, exclusive of GST. Mr Makin divided these costs into time related and non-time related costs as follows:

Item

Time Related

Non time related

Plant and Shed Hire

Miscellaneous plant hire

$ 3,600.00

Temporary Services

Electrical Services

Temporary site sub-boards

$ 800.00

Fax & telephone lines

$ 500.00

Temporary lighting

$ 800.00

Site Facilities

Toilet and Site Facilities

$ 720.00

Site and telephone/fax

rental charges

$ 4,320.00

Mobile telephone charges

$ 2,160.00

First aid kit

$ 500.00

Site safety signs

$ 750.00

Plan printing

$ 1,500.00

Temporary protection

$ 1,500.00

Rubbish Removal & Final Clean

Rubbish bins

$ 18,000.00

Insurance/Guarantees

Insurances

$ 12,800.00

Hoardings

Hoarding material

$ 1,500.00

Labour

5,760.00

Total

$29,200.00

485 Based on the calculation set out above, Mr Makin concluded that $29,200.00, exclusive of GST, of the total cost of Preliminaries was time-related and therefore relevant to a calculation of delay costs. He then assumed an 11-day working fortnight (which I found above to be appropriate). The contract period was for 30 weeks. Mr Makin divided $29,200.00 by 30 and further divided the result by 5.5 to arrive at a daily rate for time-related preliminaries of $176.97, exclusive of GST.

486 Mr Makin next referred to Attachment 6 of the Contract, which was headed "Rates for Supervision" and which contained the following daily rates, exclusive of GST:

Project manager $675.00

Leading hand $450.00

487 Based on the addition of these two rates, for supervision he allowed a daily time-related cost of $1,125.00, exclusive of GST.

488 From the above, Mr Makin concluded that the total time-related costs for the project were $1,301.97 per day, exclusive of GST.

489 Mr Makin then applied this rate to a delay period of 228 days (the period assessed by Mr Ash) to arrive at a total delay cost of $296,849.16, exclusive of GST.

Illawarra's Submission

490 Illawarra's submission was:

"116 Illawarra accepts that temporary site sub-boards, fax and telephone lines, toilet and site facilities, telephone and fax rental, and insurances are time-related but submits that miscellaneous plant hire, temporary lighting, telephone and fax charges, mobile telephone charges, first aid kit, temporary protection and hoarding materials are not time-related and ought not to be included. Illawarra also submits that there is no evidence that Walton supplied fax or telephone lines, toilets or other site facilities.

Quantum Issues concerning V15

Illawarra's request to "reject finding [at 584] that the time allowed for Stage 1 propping in Walton's February [2006] program was reasonable.

Illawarra argued that the time allowed for stage 1 propping was not reasonable and therefore no amount was payable to Walton. Illawarra argued that the Referee impermissibly reversed the onus of proof and required Illawarra to prove the time was not reasonable rather than placing the burden on Walton.

It is true that the Referee noted Illawarra did not tender any evidence to suggest that the program was "unrealistic". That, however, was not the core basis for the Referee's ultimate finding. The Referee ultimately concluded, based upon the February 2006 program , that the timings programmed for Stage 1 propping were reasonable. Illawarra argued that the Referee's statement amounted to an impermissible reversal" of the onus of proof. That submission mischaracterises the Referee's statement. The Referee simply meant that in absence of evidence to the contrary which it was open to Illawarra to put forward, she relied upon the February 2006 program. Had Illawarra led evidence to the contrary, no doubt the Referee in the course of her deliberations would have considered it.

Although Illawarra submitted to the Referee that Walton had not adduced any evidence to support the reasonableness of Walton's estimate of the timing required for Stage 1 propping, this fell short of a submission that the estimates were unreasonable, and there was no evidence available which could have supported such a submission.

Ultimately, it was not disputed that the cost of supply of Stage 1 propping was $44,605. Regardless of how that extra cost caused by the latent condition is quantified, it was clear that propping was required for significantly longer than originally intended because of the lengthy redesign and subsequent construction process to take the physical conditions of the void into account. These findings were open to the Referee.

Illawarra's request to reject finding [at 587] that the extra Stage 1 propping costs (supply only) claimed were caused by the unexpected depth of the sub-floor void

Walton's claim related to the need to install longer props than originally anticipated to carry out the propping work, having regard to the unexpected depth of the sub-floor void.

I accept the Walton's submission that the causative link between the need for additional propping and the latent condition was a rational finding open to the Referee. There was ample evidence before the Referee to support the finding that the extra propping costs claimed were caused by the unexpected depth of the void. In particular, the Referee referred to Mr Jerez's explanation, by reference to a propping diagram, of the extra lengths of propping required, as well as photographs of props while they were in place. The Referee noted that:

(1) Mr Jerez's evidence was that, of a total of 42 props in [Stage] 1a, 23 increased in length and of a total of 58 props in [Stage] 1b, approximately 38 increased in length. As Mr Jerez's evidence about the required number of props (as opposed to their height) was taken from a propping diagram, prepared by the engineers who designed the system (and I checked it against this) I accept his evidence on this as accurate.

(2) Gridline Y4 was on the northern boundary of the deeper section of the void and so, in my view, the additional section of props to the south of this boundary was clear evidence that the work and materials required in the void were more than could reasonably have been contemplated at the tender stage.

Illawarra's request to reject the finding [at 587] that Walton is entitled to $29,269.55

Illawarra challenges the Referee's quantum determination arguing:

(1) Walton failed to prove the costs were reasonably incurred; and

(2) They are impermissibly assessed on the basis of the global cost method.

To the extent that Illawarra's challenge rests upon the reasonableness of cost and time, for the reasons discussed immediately above, this challenge fails.

In respect of total or global cost claims, Illawarra submitted that Walton's claim for the alleged cost of additional Stage 1 propping is framed akin to a 'total cost claim', in that Walton starts with the total cost of all Stage 1 propping, then deducts an estimate of the cost of the "contract works" based on time allowed in the original program, and then claims the balance.

Total cost claims were discussed by Byrne J in John Holland Construction & Engineering Pty Ltd v Kaverner RJ Brown Pty Ltd (1996) 8 VR 681 and his Honour's observations were referred to without criticism by McDougall J in Laing O'Rourke Australia Construction Pty Ltd v H&M Engineering & Construction Pty Ltd [2010] NSWSC 818.

Taking his Honour's observations, and applying them to the facts of this matter, the elements required to prove a claim framed in this manner are:

(1) that the contract price was a reasonable price for the work;

(2) that the cost actually incurred was a reasonable cost for performing the work that was done; and

(3) that there was no other non-compensable factor responsible for the cost over-run.

Turning to the Referee's report at [595], the Referee dismissed this global cost claim:

"Walton's approach in estimating the claim was not, in my view, either incorrect or problematic. It was the time-honoured method of assessing a variation claim when such a claim is based on actual, as opposed to quoted costs. Although Illawarra appeared somewhat critical of a "global" approach, it was not, in my view, "global" in the sense that other claims for delay or materials or labour costs were lumped together and could not be readily separated and assessed individually. On the contrary, a Superintendent familiar with the project, who was inspecting it on a weekly basis and who had a specialist quantity surveyor as a support consultant could have readily assessed the value of this work. Walton produced its invoices for actual costs and deducted from these the estimated contract value of the work, claiming the difference. As long as the estimated contract value was reasonable (and no one in the reference, including the Superintendent, disputed this) and as long as the actual cost was reasonable, this process produced the reasonable result. The fact that it might have been double or even treble the original contract value was irrelevant. In my view, a review of the delay by reference to hire costs established that the actual costs were reasonable."

There is no apparent error in the way Walton assessed its costs and the Referee's finding should not be rejected.

V16: Extra Propping Costs Labour and Scaffold Stage 1

V16 directly follows on from V15 and was an additional claim by Walton for the costs of labour associated with the works described above. There is no apparent unreasonableness in the assessment of labour costs nor were they subject to a global assessment. They were made on the basis of unchallenged calculations by Mr Makin and should not be rejected.

V:29 Courtyard Works

Illawarra seeks the rejection of the finding that the courtyard works were varied by the addition of grated drains. The quantum in issue is $3,393.

The Superintendent considered the addition of grated drains to be a variation and assessed its value at $3,393. The Referee's finding mirrored the position taken by the Superintendent:

"The tender drawings illustrated a grated drain along the northern boundary of the courtyard but not on the other three sides. These were the drawings on which the Contractor priced its work. The Letter of Intent was signed on 6 January 2006 and incorporated the agreement to build for the warranted maximum price. The drawing designated by Illawarra as the "contract drawing" and on which it relied in support of its submission that drainage on all four sides was a requirement of the contract, was dated February 2006 and was issued after the contract price had been concluded. As a result, I find that the requirement to build on all four sides was a variation to the Works, which formed the subject of the original agreement."

Under the Contract, the existence of variations is properly assessed by reference to the contract drawings only. The Referee's determination of the matter by recourse to the tender drawings is an error of law of the type recognized in Chocolate Factory [7(4)] and should be rejected for this reason.

V56: Extra Propping Supply Only Stage 2

The Referee found Walton was entitled to $18,564.75 for the supply of an additional 23 props in the vicinity of Bar 1 in Stage 2. Part of the amount claimed stems from the number of additional props required and the balance relates to the extra time propping was on the site.

Illawarra challenges a number of aspects of the Referee's finding.

Illawarra request to reject the implied finding [at 686] that the extra Stage 2 propping costs were necessarily incurred as a result of the asbestos delay

On a proper reading of the Report, there is no such implied finding. The Referee found that:

(1) the parties agreed that a structural steel re-design necessitated a propping re-design;

(2) the temporary supporting structure would be required to remain in place until the permanent columns and beams (the subject of the redesign) were installed;

(3) both the structural steel and the propping re-design, on the one hand, and the discovery of asbestos, on the other, caused delay;

(4) that delay due to the revised structural steel work occurred between 26 August 2006 and 26 November 2006;

(5) that delay caused by asbestos occurred between 1 and 18 September 2006;

(6) installation of needles (which required props) was forecast to commence on 30 August 2006;

(7) that the props the subject of the claim were first provided on 1 September 2006; and

(8) the provision of the props on 1 September 2006 must have been for the propping in the Stage 2 area that was not affected by the re-design (meaning that the props were required from that date).

All of those findings were open to the Referee on the evidence and none are challenged.

The Referee found that it was a combination of the asbestos shutdown and the re-design that delayed the time that the initial propping was required. The propping was on site from 1 September 2006, and was required to be on site for reasons unrelated to the re-design or the asbestos from that date. The re-design delay commenced from 26 August 2006. The comment by the Referee that "[a]fter the asbestos delay, [the] propping was further delayed by the time it took the Illawarra consultants to provide the revised structural design..." should not be interpreted as meaning that the structural steel delay to the propping commenced after the asbestos removed. The structural steel delay was operative from the time the propping was installed on 1 September 2006. This conclusion must follow from the Referee's finding that "Mr Ratcliffe's opinion, that [Walton] should have removed the asbestos before providing the propping, was not supported by reasons and the evidence did [not] support such a conclusion."

Illawarra request to reject implied finding [at 689] that Illawarra had an onus to prove that the Coates Invoices did not relate to the Illawarra project

On a proper reading of the Report, there is no such implied finding. Walton advanced the Coates Invoices as relating to the Illawarra Hotel project. This assertion was not challenged by Illawarra, a matter to which the Referee referred, but which was not critical to her reasoning. The Referee was entitled to proceed on the basis that the Coates Invoices related to the Illawarra Hotel project. Had Illawarra challenged that assumption, no doubt the Referee would have given consideration to that challenge.

Illawarra request to reject the finding [at 692] that Walton is [entitled to] $17,256.40 for the hire cost of extra propping

The Superintendent had valued the work at $2,702.40. Mr Makin valued it at $18,653.33. Mr Ratcliff valued it at $1,861.16. The referee valued the work at $17,256.40.

Illawarra repeats its submissions as to quantum in respect of V15 and V16, arguing the quantum was assessed on the basis of a total cost claim.

Mr Makin estimated the contract value of the original scope of work for propping, and then deducted that value from the total cost of propping to provide a figure of the actual cost for the extra propping work. The Referee considered that that would justify a legitimate claim, subject to reasonableness being established. This was based on the Referee's factual finding that the entire claim was consequential upon the discovery of a latent condition and there was therefore a sufficient causative link between the extra expenses and the latent condition.

Mr Makin did not provide an opinion as to reasonableness. The Referee considered that the evidence before her and her analysis of the delay claims enabled her to reach a view as to whether the cost of the Coates Hire invoices was reasonable. She determined that it was. There was no cause shown to reject this finding.

PROVISIONAL SUMS

Roof Tiling

The contract sum contains a provisional sum for Roof Tiling. Clause 11 of the Contract provides that where, at the direction of the Superintendent, the work or item to which the provisional sum relates is performed or supplied, the Principal is to pay, depending on the circumstances, the value or cost of the work performed or item supplied.

Walton claimed $9,020 for the installation of a roof safety system under the provisional sum for Roof Tiling. The Referee allowed the full amount claimed on the basis that the provisional sum for Roof Tiling included the installation of a roof safety system.

Illawarra submitted that whether the provisional sum for Roof Tiling included the installation of a roof safety system is a question of construction. Illawarra argued that there is a distinction to be drawn between roof tiling and a roof safety system in constructing the contract.

This is not a question of construction, rather as advanced by Walton the true question is whether it was reasonably open to the Referee to find that the provisional sum included a component for the supply and installation of a roof safety system.

The Referee observed that the provisional allowance for "roof tiling" was listed in the Conditions of Contract but not in any of the documents that described the work that Walton was to perform. In Progress Claim 16 Walton had claimed $4,476 against this provisional sum item, indicating that the work was 60% complete, and the Superintendent certified the value of the work at the sum claimed. Two invoices from Roofsafe Industry Safety were in evidence, attached to Mr Makin's report. A roof safety system was in place and was inspected by the Referee at the site view. Walton's internal costings provided for the installation of a Roof Height Safety System under the heading "Trade 20 ROOF TILING (PC SUM)". No roof tiling work was ever carried out.

The fact that the Superintendent certified the value of certain work claimed under this provisional sum item in circumstances where no roof tiling work was ever carried was said by the Referee to strongly supports the factual inference that the reference to "roof tiling" must have been understood by both the parties and the Superintendent to refer to some other item of work.

It is in that context that the Referee described "roof tiling" as a misnomer. That does not suggest that the Referee took the view that the contract was infected by some mistake, only that as a matter of fact the parties proceeded on the common basis that "roof tiling" referred to a roof safety system. There was ample evidence available upon which the Referee relied.

The Referee summarised her findings as resting on four bases:

(1) The internal Walton document;

(2) Invoices describing the work

(3) The Superintendent's certification; and

(4) Walton's untested claim.

While the Court might have been minded to take a different approach to this question, that is not the issue to be determined. The Referee's determination was reasonable on the basis of the evidence. This is very clear from her reasons. As such Illawarra has not met the criteria for rejection set out in Chocolate Factory .

Carpet

The Referee found that Walton was entitled to $19,567 based on a series of invoices that the Referee accepted "as evidence of actual expenditure on the project." Mr Makin had two sources of information concerning the money expended by Walton on the Carpet. He preferred the evidence of cost in invoices issued by the carpet supplier to Walton over some accounting entries which showed a different sum. The Referee also preferred the invoices, believing they were more accurate records of actual expenditure. This was a reasonable conclusion open to the Referee.

Margin on Variations

Amended Clause 40.5 in Part B of the Contract provides that Walton is entitled to a margin of 10% on the difference between the Net Trade Cost of all Variations and Savings, where Savings are defined as the difference between the Warranted Maximum Price and the Actual Trade Costs of the Trade Works.

The Referee found that the Actual Cost of Trade Works exceeded the Warranted Maximum Price by $27,045.31 and that there were accordingly no Savings.

In its written submissions to the Referee, Illawarra accepted that "if there are no savings, a margin is, subject to the amended sub clause (g), payable on the net trade cost of all variations at a rate of 10%." However, Illawarra submitted, Walton had not established that there was no "saving".

In reply, Walton submitted that the evidence of Mr Makin was that there was no "saving".

The Referee stated at [958] that:

"Mr Makin established that Walton's total expenditure on the project, excluding GST, was $3,848.607.00. He did this by a careful and detailed examination of all Walton invoices provided to him, rejecting any that he considered inappropriate. All invoices were annexed to his affidavit. Illawarra did not challenge Mr Makin's calculation and I accept it as accurate."

The Referee noted that the Warranted Maximum Price was $2,459,713. The Referee calculated the actual cost of the trade works to be $2,486,758.31, by deducting non-trade works costs from the total expenditure on the project. The amounts deducted included $55,210 for "construction manager's preliminaries" and $230,200 for "construction management fee."

As the actual cost of the trade works exceeded the Warranted Maximum Price, the Referee found that there was no "saving" and that in those circumstances Walton was entitled to 10% on variations.

Illawarra seeks to reject the calculation of the actual trade costs and the consequential finding that Walton is entitled to $44,906.23 for overheads and profits on variations.

First it must be stated that the Referee's reasoning is detailed and scientific. Illawarra does not dispute this, other than to say that, as the amounts deducted for "manager's preliminaries" and "management fee" were prices and not costs they could not properly be deducted from the total costs of the project to determine the actual cost of trade works.

This argument does not bear weight, as the deduction of prices and not costs is actually favourable to Illawarra. What the Referee sought to do by deducting "non-trade works costs" from the total expenditure was arrive at a figure for "actual cost for the trade works". The "deduction" of the preliminaries and management fee was simply to disregard those costs for the purposes of calculating the "actual cost for the trade works". Disputing this process on the basis of the deduction being a price and not a cost is overly technical in circumstances where the deductions produce a considerably more favourable result for Illawarra than would have been achieved if the Referee were to estimate the costs in some other way. Illawarra suffered no prejudice and the Referee's calculation should be accepted.

Allegedly Defective Work: Mechanical Services - Access Panels

Illawarra submitted that Walton should be liable for the cost of rectification in order to bring the access panels up to the required Australian Standards. Illawarra argued that it was incumbent upon Walton to comply with these standards even if the contract drawings are defective.

Illawarra's submissions seem to be an attempt to impose on the contractor an obligation to comply with certain Australian Standards where the design to which it was obliged to perform its works did not do so. That would have the effect of transposing in a "construct only" contract a design obligation onto the builder and impose on the builder a cost which it could never adequately protect itself in a tender on a construct only contract.

As noted by the Referee, the Principal had engaged a specialist consultant to design the mechanical ventilation system. Contrary to Illawarra's submissions, the Referee did not construe the contract as to limit the application of the appropriate Australian Standard but rather has assessed where responsibility for a failure to comply with the Australian Standard should properly lie. This was a matter between the Principal and its specialist mechanical services design consultant. Mr Weiss, who was the expert called by Illawarra on this issue, gave evidence that he did not regard a failure by Walton to install access panels where they were not depicted on the mechanical ventilation drawings as a defect for which Walton as builder should necessarily be liable because such work may in fact constitute additional work for the contractor.

It was open to the Referee to find on the evidence that in respect of those access panels which were not specified on the drawings but which were regarded as desirable, it is not a matter for which Walton should be held liable to ensure the work was performed in accordance with applicable Australian Standards.

Issues at paragraph 20 and 21 of Illawarra's submissions

The remaining issues at paragraphs 20 and 21 of Illawarra's submissions are to be dealt with by the parties as indicated in Court.

Post-script

Following closing arguments, Illawarra was granted leave to hand to the Court subsequent materials. On Friday 27 May 2011, Illawarra's solicitors sent these submissions to my Associate. Subsequently, there was a dispute between the parties as to whether these supplementary materials fell within the scope of the leave.

This dispute culminated in a directions hearing where the parties consented to Illawarra handing up its supplementary submissions, provided Walton was given an opportunity to proffer a response.

The Court has now considered these supplementary materials. They addressed three issues:

(1) EOT F upgrade of power [paragraphs 79-85 of this Judgment];

(2) EOT I, G, H and M power [paragraphs 89-99 of this Judgment]; and

(3) V15 and 16 extra propping power [paragraphs 129-153 of this Judgment]

For the reasons already addressed above, Illawarra's supplementary materials and submissions on these three matters are rejected.

Orders

The Court makes the following orders:

(1) The Referee's Extension of Time findings are to be adopted in full;

(2) The Referee's finding as to delay costs are to be rejected;

(3) The parties are to address the Court on how the delay cost issue should proceed;

(4) The remainder of the Referee's Report is to be adopted, except for her finding in relation to V:29 'The Courtyard Works', which is to be rejected.

**********

Decision last updated: 06 June 2011

Medium Neutral Citation:	Walton Construction Pty Limited v Illawarra Hotel Company Pty Limited [2011] NSWSC 534
Hearing dates:	25 and 26 May, 6 June 2011
Decision date:	06 June 2011
Jurisdiction:	Equity Division - Technology and Construction List
Before:	Einstein J
Decision:	(1) The Referee's Extension of Time findings are to be adopted in full; (2) The Referee's finding as to delay costs are to be rejected; (3) The parties are to address the Court on how the delay cost issue should proceed; (4) The remainder of the Referee's Report is to be adopted, except for her finding in relation to V:29 'The Courtyard Works', which is to be rejected.
Catchwords:	ADOPTION of referee's report - Extension of time claims - Delay costs - Principles in Chocolate Factory - Brick by brick analysis - Approach in Kane - Retrospective analysis
Legislation Cited:	Civil Procedure Act 2005
Cases Cited:	ABB Engineering Construction Pty Limited v Abigroup Contractors Pty Limited [2003] NSWSC 665 ACN 060 559 971 Pty Ltd v O'Brien [2007] QSC 91 Banabelle Electrical v State of New South Wales [2005] NSWSC 714 Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2008] NSWCA 243 Bellevard Constructions Pty Limited v CPC Energy Pty Limited [2008] NSWCA 228 Boyes v Colins [2000] WASCA 344; 23 WAR 123 Chloride Batteries Australia Limited v Glendale Chemical Products Pty Limited (1988) 17 NSWLR 60 Chocolate Factory Apartments v Westpoint Finance & Ors [2005] NSWSC 784 Commissioner for Superannuation v Hastings (1986) 70 ALR 625 Coulton v Holcombe (1986) 162 CLR 1 Glover v Australian Ultra Concrete Floors Pty Ltd [2003] NSWCA 80 Hooker v Gilling [2007] NSWCA 99 John Holland Construction & Engineering Pty Ltd v Kaverner RJ Brown Pty Ltd (1996) 8 VR 681 Kane Constructions Pty Ltd v Sopov [2005] VSC 237 Khan v Armaguard Ltd [1994] 1 WLR 1204 Laing O'Rourke Australia Construction Pty Ltd v H&M Engineering & Construction Pty Ltd [2010] NSWSC 818 McAlpine Humberoak Ltd v McDermott International Inc (No 1) (1992) 58 BLR 1 Mercer v Chief Constable of the Lancashire Constabulary [1991] 1 WLR 367 Nowlan v Marson Transport Pty Ltd (2001) 53 NSWLR 116 Rowe v Australian United Steam Navigation Company Limited (1909) 9 CLR 1 Super Pty Limited v SJP Formwork (Australia) Pty Limited (1992) 29 NSWLR 549 Sutton v Erect Safe Scaffolding (Aust) Pty Ltd [2006] NSWCA 265 Thiess Watkins White Construction Limited v Commonwealth (1992) 14 BCL 61 Timbara Protection Coalition v Ross Mining NL (1999) 46 NSWLR 55 White Constructions (NT) Pty Limited v Commonwealth of Australia (1990) 7 BCL 193 White v Overland [2001] FCA 1333
Category:	Procedural and other rulings
Parties:	Walton Construction Pty Ltd (Plaintiff) Illawarra Hotel Company Limited (Defendant)
Representation:	Malcolm R Gracie, Daniel A Neggo (Plaintiff) Stuart Donaldson SC, Helen Durham, Danny A Moujalli (Defendant) Crisp Legal (Plaintiff) Norbert Lipton & Co (Defendant)
File Number(s):	2008/290556

Item	Time Related	Non time related
Plant and Shed Hire
Miscellaneous plant hire	$ 3,600.00
Temporary Services
Electrical Services
Temporary site sub-boards	$ 800.00
Fax & telephone lines	$ 500.00
Temporary lighting	$ 800.00
Site Facilities
Toilet and Site Facilities	$ 720.00
Site and telephone/fax
rental charges	$ 4,320.00
Mobile telephone charges	$ 2,160.00
First aid kit	$ 500.00
Site safety signs	$ 750.00
Plan printing	$ 1,500.00
Temporary protection	$ 1,500.00
Rubbish Removal & Final Clean
Rubbish bins	$ 18,000.00
Insurance/Guarantees
Insurances	$ 12,800.00
Hoardings
Hoarding material	$ 1,500.00
Labour	5,760.00
Total	$29,200.00