Supreme Court New South Wales

• Medium Neutral Citation: Lane Cove Council v Michael Davies & Associates and Others [2012] NSWSC 727
• Hearing dates: 10 April 2012, 11 April, 13 April (further written submissions), 17 April (further written submissions)
• Decision date: 29 June 2012
• Jurisdiction: Equity Division
• Before: Sackar J

Decision

See paragraph 141

• Catchwords: Referee, adoption of report, Uniform Civil Procedure Rules 2005 (NSW) r 20.24, Trade Practices Act 1974 (Cth) s 52, misleading and deceptive conduct, relationship with contract, alleged misrepresentations under contract, time limitation, limitation period in contract and negligence, latent defects, res judicata
• Legislation Cited: Trade Practices Act 1974 (Cth); Limitation Act 1969 (NSW); Uniform Civil Procedure Rules 2005 (NSW); Environmental Planning and Assessment Act 1979 (NSW); Civil Liability Act 2002 (NSW)
• Cases Cited: Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2008] NSWCA 228; BestCare Foods v Origin Energy [2012] NSWSC 574; Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWSC 1302; Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592; Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; Chocolate Factory Apartments v Westpoint Finance and Others [2005] NSWSC 784; Commonwealth v Cornwell (2007) 229 CLR 519; Concrete Constructions Group v Litevale Pty Ltd [2002] NSWSC 670; Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd [2008] NSWSC 1163; Cyril Smith & Associates Pty Ltd v The Owners-Strata Plan No 64970 [2011] NSWCA 181; Franklins Pty Ltd v Metcash Trading Ltd (2009) 264 ALR 15; Honeywood v Munnings [2006] NSWCA 215; HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; McGrath v Australian Naturalcare Products Pty Ltd [2008] 165 FCR 230; New South Wales v Bovis Lend Lease Ltd [2007] NSWSC 1045; Onerati v Phillips Constructions Pty Ltd (In liq) [1989] 16 NSWLR 730; Owners SP 62930 v Kell and Rigby Pty Ltd [2009] NSWSC 1342; Sangain Pty Limited v Italform Pty Limited [2009] NSWSC 74; Scarcella v Lettice [2000] 51 NSWLR 302; Seven Sydney v Fuji Xerox [2004] NSWSC 9023; Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177
• Texts Cited: Spencer, Bower, Turner and Handley, 'The Doctrine of Res Judicata' (3rd Ed.1996)
• Category: Principal judgment
• Parties: Lane Cove Council - plaintiff; Michael Davies Associates Pty Limited - first defendant; Dubel Pty Limited (formerly Belmadar Constructions Pty Limited) - second defendant; Hyder Consulting (Australia) Pty Ltd - third defendant; Gonzalez Fabrication and Erection Pty Ltd - first cross defendant; Central Coast Metal Protectives Pty Limited - sixth cross defendant
• Representation: Counsel: J Robson SC, D Moujalli - plaintiff; P Greenwood SC, I G Robert SC - first defendant; M Gracie, P Hand - second defendant; R Cheney SC - third defendant; F Hicks - first cross defendant; A R Lakeman - sixth cross defendant; Solicitors: Thomson Playford Cutlers - plaintiff; Colin Biggers Paisley - first defendant; Spinks Eagle lawyers - second defendant; Kennedys lawyers - third defendant; Sparke Helmore - first cross defendant; David Roe, lawyers - sixth cross defendant
• File Number(s): 2008/290626

Judgment

1 The proceedings arise from corrosion damage within the Lane Cove Aquatic Leisure Centre (the Centre). The proceedings were commenced on 22 August 2008.

2 The plaintiff (the Council) made claims in relation to design and construction deficiencies relating to the Centre against:

(a) Michael Davies Associates Pty Limited (MDA) which provided architectural and contract administration services to the Council and acted as superintendent under the building contract between the Council and the builder;

(b) Dubel Pty Limited (formerly known as Belmadar Constructions Pty Ltd) (Belmadar) the builder of the Centre; and

(c) Hyder Consulting (Australia) Pty Limited (Hyder) which provided mechanical engineering services in relation to the Centre.

3 The whole of the proceedings were referred to the Referee the Hon R V Gyles QC by order of Justice Hammerschlag made on 27 August 2010. The Referee provided a report dated 30 August 2011 (the Report).

The Proceedings Before the Referee

4 Preliminary conferences were held on 16 August and 17 November 2010 and a site inspection took place before the Referee on 19 November 2010.

5 The hearing commenced on 22 November 2010 and proceeded over fourteen days in November and December 2010 and February 2011.

6 The Referee expressed the opinion that in his view each claim made by the plaintiff against each defendant ought to be dismissed; the amended first cross claim, the amended third cross claim, the fourth cross claim, the amended sixth cross claim, the seventh cross claim, and the eighth cross claim each ought to be dismissed.

7 As the Referee put in his Report:

[7] Corrosion of internal surfaces of the Centre is a problem. The atmosphere of an indoor pool is heated and laden with moisture and chemicals. The risk of corrosion is well known. The damage by corrosion in this case can be divided into two areas - the first is the ceiling space, that is the space between the acoustic ceiling and the roof, and the second is on the members of the structural steel façade, particularly on the south wall. The former primarily relates to corrosion of certain suspension clips. The latter involves two issues - the protective coating system and the connection between transoms and mullions on the south wall.

8 The Referee summarised his findings as follows:

Ceiling

[231] MDA was solely responsible for the use of the unsuitable suspensions clips and would be liable in contract and tort, but is protected from liability by clause 17 of the contract between it and the Council. The s.52 claim against MDA fails. The claims and cross-claims against Hyder and Belmadar fail or are unnecessary.

Protective Coating System

[232] MDA was responsible for the specification of the inadequate system, but was not in breach of the contract between it and the Council in so doing. MDA was in breach of its obligation to administer the contract with Belmadar with due care and skill by not ascertaining that the protective coating system had not been applied to the specified thickness, but makes out defences based upon clause 17 of the contract with the Council (in respect of the claims against it by the Council) and s.14 of the Limitation Act 1969 (NSW). The s.52 claims against MDA fail.

[233] Belmadar was responsible to the Council for the failure to apply the paint to the specified thickness and for the failure to carry out the painting with due care and skill. It makes out a defence based upon s.14 of the Limitation Act 1969 (NSW). The cross-claims against GFE and CCMP are unnecessary.

Transom/Mullion Connection

[234] MDA was in breach of contract and tort in approving the transom/mullion connection and in not picking up the problem prior to or at practical completion and in later wrongly noting that the lack of sealant had been rectified, but is protected from liability by clause 17 of its contract with the Council and s.14 of the Limitation Act.

The Parties Contentions

9 The plaintiff contends that a number of paragraphs namely [63], [72], [73], [77], [78], [154], [162] - [165], [179] and [229] of the Report contain errors which the Court has been invited to correct.

10 All other parties in the proceedings submit that the Referee committed no errors whatsoever and the Court is invited to adopt his Report.

Matters Not Challenged

11 The plaintiff fairly and appropriately sets out a number of findings by the Referee which are not the subject of any challenge by it.

12 In relation to the ceiling the Referee made the following unchallenged findings:

(a) The atmosphere of an indoor pool is heated and laden with moisture and chemicals, thus giving rise to a risk of corrosion: Report [7];

(b) The installation of the Ceiling without a Ceiling vapour barrier exposed the Ceiling space to a corrosive atmosphere: Report [68];

(c) MDA approved the use of Rondo 442 Suspension clips coated with Dacromet 320 plus for the installation of the Ceiling: Report [37] and [65];

(d) On or about 27 November 2000, Mr Kleiss of Renhurst, the manufacturer of the Ceiling, attended site and informed a representative of the builder that the Rondo clips were "not suitable for swimming pool application": Report [43];

(e) The corrosion protection of the Rondo clips was inadequate for the aggressive conditions for corrosion of any exposed metals that exist within the Ceiling space: Report [52];

(f) Belmadar received a facsimile from MDA dated 13 December 2000 which stipulated a requirement that "the installation [of the Ceiling] be signed off by Renhurst upon completion": Report [47];

(g) MDA failed to follow-up on its facsimile to Belmadar of 13 December 2000, in particular, the requirement that the installation of the Ceiling be "signed off by Renhurst upon completion": Report [47]; CB4.1376;

(h) In 2001, Mr Kleiss was asked to "sign off' on the installation of the Ceiling, but declined to do so: Report [50];

(i) Belmadar did not obtain a statement from the installer of the Ceiling about compliance with Renhurst's specifications: Report [50]. (The relevance of this arises from MDA's facsimile to Belmadar of 4 December 2000 which stated that "we shall require a written statement from the installer that the installation is in full compliance with the Contract specification and manufacturer's specifications and recommendations": CB4.1363);

(j) Prior to June 2007, Council was unaware of any corrosion in the Ceiling space: Report [51];

(k) It was necessary for MDA to give special attention to whether the components in the Ceiling space, including the Ceiling suspension system and suspension clips, were adequately protected against the corrosive atmosphere which would enter the Ceiling space but this was not adverted to by MDA: Report [68];

(l) MDA failed to pay attention to the environment in which the Rondo clips would have to operate: Report [71];

(m) MDA simply accepted the builder's nomination of the Rondo clip without any independent checking: Report [69];

(n) The Rondo clips were not suitable for the conditions they are exposed to and MDA is unable to defend its direction to use them. In doing so, it did not exercise the appropriate degree of skill, care and diligence: Report [70];

(o) MDA did not make out its contention of contributory negligence on the part of the Council that the operation of the Centre has led to the atmosphere being more corrosive than might reasonably have been foreseen during the design and construction of the Centre: Report [79] - [80].

13 In relation to the structural steel the Referee made the following unchallenged findings:

(a) The specification for the paint coating to the Structural Steel required:

(i) A first coat (being a zinc rich primer) applied to a dry film thickness of 75 microns;

(ii) A second coat of PSX 700 Poly Siloxane applied to dry film thickness of 125 microns; and

(iii) A total dry film thickness of 200 microns: Report [96].

This was referred to variously in the evidence as the Ameron specification and the Ameron system as it was based on a specification nominated by Ameron (Australia) Pty Ltd, trading under the name Ameron Coatings (Ameron);

(b) The minimum thickness of paint coating (ie, 200 microns) required by the specification was not achieved in a significant number of positions: Report [126];

(c) On 3 April 2001, Ameron provided a warranty for the coating system on the Structural Steel which was limited to the paint coating being applied to a total minimum dry film thickness of 200 microns: Report [109];

(d) It was vital that the paint be applied in accordance with the thicknesses in the Ameron specification, because the Ameron warranty was conditioned upon that being done: Report [127];

(e) Where the paint coating is below the specification, it will not be as effective for corrosion protection as if it were applied in accordance with the specification: Report [128];

(f) The failure to apply the coating in accordance with the required thicknesses amounts to a breach of Contract by Belmadar: Report [148];

(g) MDA was required to test adequately whether the application of the paint coating accorded with the specification before issuing the notices of practical completion and later recording that all rectified work was complete, however, MDA did not do so and failed to carry out its duties with due care and skill: Report [152];

(h) The thin application of the protective paint coating to the Structural Steel resulted in corrosion or rust to the Structural Steel: Report [156];

(I) MDA approved the method of connecting the transoms and the mullions which involved cutting a notch in the back of one end of the transom: Report [193] and [208]; Exhibit G2;

(j) The method of connection between the transoms and mullions has caused significant corrosion. It involved cutting the back out of the ends of the transoms with the result that the air in the Centre could enter the interior of the transom which could and did lead to considerable corrosion: Report [178];

(k) Bearing in mind the importance of corrosion protection to MDA's brief, it was MDA's responsibility to address the problem of connecting the transoms and the mullions. MDA failed to do this. It did not exercise the degree of skill, care and diligence normally exercised by architects in similar circumstances: Report [220];

(l) Mr Godsell of MDA gave no consideration to the effect of the cutting of the transoms upon corrosion protection, or if he did it was completely inadequate: Report [221];

(m) The cutting or notching of the transoms and the method of connection between the transoms and mullions were obvious design failures by MDA: Report [223];

(n) MDA was also negligent in carrying out its duty to administer the Contract by not picking up the obvious problems with the connection between the transoms and the mullions by the time of practical completion: Report [224].

The Claims Before the Referee

MDA

14 The plaintiff claimed that MDA engaged in misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) (TPA) by representing to the Council that the design and installation of the ceiling was adequate for the conditions that would be present in an indoor aquatic centre. The Referee found that MDA failed to advert to the corrosive atmosphere which would enter the ceiling space and that it approved the use of the Rondo clip for the ceiling suspension system without independently checking that the Rondo clip was not suitable for the corrosive conditions that it was exposed to. The Referee also found that MDA was unable to defend its direction to use the clip and that it failed to pay attention to the environment in which the Rondo clip would have to operate. The Referee however considered that the existence of a contract between MDA and Council and the surrounding circumstances did not give rise to any express or implied representations and thus the claim was not actionable under the TPA.

15 Council also claimed that MDA engaged in misleading conduct in representing to the Council that:

(a) The design of the structural steel in particular the method of connection of the transoms and the mullions was adequate for the conditions and would be present in an indoor aquatic centre; and

(b) The protective coating had been applied satisfactorily to the structural steel.

16 The Referee found that MDA did not carry out its duties properly in failing to ascertain that the protective paint coating had been applied properly to the structural steel, and by not picking up the obvious problems with the connection of the transoms and the mullions. However the Referee again considered that the conduct relied upon by the plaintiff did not amount to representations such as to engage the TPA.

Belmadar

17 The Council claimed that Belmadar breached its contractual duty to rectify the defective application of the protective paint coating to the structural steel. The Referee found a breach by Belmadar but considered that the six year limitation period for the claim had expired.

18 Council also claimed that Belmadar breached its contractual duty in installing the ceiling with the Rondo clip as the Rondo clip was not approved by the manufacturer of the ceiling. Council claimed that Belmadar breached its contractual duty to comply with directions from MDA to obtain written statement from the installer of the ceiling that the installation of the ceiling was in full compliance with the manufacturers recommendation and a "sign off" on the installation of the ceiling from the ceiling manufacturer. The Referee found that there was no contractual breach.

Hyder

19 Council claimed that Hyder breached its duty of care to Council in failing to advise MDA that the design of the mechanical ventilation system would expose the ceiling space to an aggressive corrosive atmosphere and that the suspension system for the ceiling required a high degree of protection against corrosion. The Referee also found that the design of the mechanical ventilation system in particular the exhaust fans in the ceiling exposed the ceiling space to a corrosive atmosphere. However the Referee considered that Hyder had no responsibility for corrosion protection in relation to the exhaust system designed by it.

Legal Principles on the Adoption of a Referee's Report

20 Uniform Civil Procedure Rules 2005 (UCPR), Regulation 20.24 states:

20.24 Proceedings on the report

(cf SCR Part 72, rule 13)

(1) If a report is made under rule 20.23, the court may on a matter of fact or law, or both, do any of the following:

(a) it may adopt, vary or reject the report in whole or in part,

(b) it may require an explanation by way of report from the referee,

(c) it may, on any ground, remit for further consideration by the referee the whole or any part of the matter referred for a further report,

(d) it may decide any matter on the evidence taken before the referee, with or without additional evidence,

and must, in any event, give such judgment or make such order as the court thinks fit.

(2) Evidence additional to the evidence taken before the referee may not be adduced before the court except by leave of the court.

Insert quote here

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

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

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

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

23 Most recently in BestCare Foods v Origin Energy [2012] NSWSC 574 McDougall J repeated those principles and I respectfully adopt what his Honour there said at [15] - [18]:

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

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

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

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

7 The relevant principles, distilled from those decisions, can be stated as follows:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Alleged Errors

24 The plaintiff has dealt with certain paragraphs in the Referee's report as sources of numerous errors. I will content myself to deal with these paragraphs in the same groupings.

Paragraphs 77, 78, 154

25 The plaintiff claims that the Referee made clear and unequivocal findings not challenged by MDA that MDA was negligent in providing advice and services to Council in relation to the design and installation of the ceiling. The plaintiff correctly asserts that the Referee found that MDA's negligence consisted of its failure to give special attention to whether the components of the ceiling space, including the ceiling suspension system and clips were adequately protected against the corrosive atmosphere that would enter the space. Further that MDA failed to pay attention to the environment in which the clips would be used and that it accepted the builder's nomination of the clips without any independent checking. Further it failed to assess whether the clips were suitable for the conditions that they were exposed to.

26 The plaintiff also asserts (correctly) that the Referee made a clear and unequivocal finding that MDA was negligent in providing advice and services to Council in relation to the design of the structural steel and the application of the protective coating to it. Again the negligence consisted of MDA's failure to test adequately whether the application of paint coating accorded with the specification before issuing the notices of practical completion, its failure to address the problem of connecting the transoms and the mullions with the requisite skill required, its failure to give consideration, or adequate consideration to the effect of the cutting of the transoms upon corrosion protection, and its failure in carrying out its duty to administer the contract to pick up the obvious problems with connection between the transoms and the mullions.

27 It is asserted that the Referee considered that the existence of the contract between MDA and Council excluded the operation of s 52 of the TPA to any misleading conduct and hence the Referee fell into error.

28 In [74] of his Report the Referee expressed the view that he saw no room for the application of s 52 of the TPA. He then set out the two sets of representations pleaded by the Council said to have founded breaches of s 52. The first set he described as the vapour barrier representations and the second he called the ceiling installation representations.

29 In [75] he expressed the view that the vapour barrier representations all arose directly out of the design obligations owed by MDA to Council pursuant to the contract for professional services between them, as indeed the Council had pleaded. In [76] he observed that the ceiling installation representations were prefaced by the same introductory words and again were said to arise directly out of the contractual obligations.

30 At [77] the Referee said:

[77] The existence of a contract between the parties does not necessarily exclude the application of s.52 to contractual promises and pre-contractual promises. However, the issue should be approached with caution, and normally the contractual or pre-contractual provisions would need to be part of a wider course of conduct to warrant regarding them as leading to actionable representations. Where, as here, there is a formal contract between the parties which is obviously intended to cover the four corners of their arrangement with consequential subcontracts, and where the alleged representations are not different in kind from the contractual obligations and are based on the same facts and circumstances, there is little scope for the statutory provisions to apply. (Concrete Constructions Group v Litervale P/L (2002) NSWSC 670; 170 FLR 290 at [151]-[177]; McGrath v Australian Naturalcare Products P/L [2008] FCAFC 2; 165 FLR 230 per Allsop J at [137]-[138] and the authorities discussed therein.) The construction of major projects is normally governed by a network of contracts with risk carefully allocated between the parties. It is both unnecessary and undesirable to disturb that pattern with the imposition of another overlay of obligations in the absence of special circumstances. (In a different but similar context, see McHugh J in Perre v Apand Ltd (1999) 198 CLR 180 at [120]-[122]). Of course, it is not appropriate to impose statutory obligations in order to avoid contractual restraints.

31 Further at [78] he said:

[78] On analysis, the pleaded representations amount, in substance, to a representation that the contract for services would be carried out in various respects. That would apply to all contracts. This was an unremarkable engagement of a professional architect for a single project pursuant to a written agreement governing the engagement. To scour what was done in performance of the contract in order to tease out actionable representations is not appropriate. If viewed as representations as to future conduct in the relevant sense (contrary to my opinion) then, even with the benefit of S.51A, there is no proper basis for concluding that MDA did not have reasonable grounds for entering into the contract for services. It had the appropriate expertise and experience. Its actions thereafter are solely related to carrying out that contract and do not amount to express or implied representations. It would be different if it could have been shown that the pre-contractual representations about MDA's experience, repeated in the contractual preamble, were misleading or deceptive. That case was not made. Nor is this a case where contractual warranties were given without any proper basis at the time they were given (cf Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 238 CLR 304 per French CJ at [34]-[36]).

32 At [154] he expressed the view that as the alleged representations were said (and pleaded accordingly) to arise directly out of the contractual obligations of MDA and "do not go beyond the same facts and circumstances pleaded as the breach of those obligations", and "in his view" s 52 of the TPA was not engaged.

33 The plaintiffs complain that the Referee's findings are contrary to principle because they impose a limitation on the application of s 52. Further the plaintiffs submit that what the Referee did is not supported by authority. Lastly it is said to be contrary to public policy.

34 I do not agree with those submissions.

35 What the Referee was at pains to say and indeed did so expressly at [77] is that the existence of a contract between the parties "does not necessarily exclude the operation of s 52 to contractual promises..."

36 The pleading alleged certain representations made during the course of the performance of the contract. Each of the representations was said to have been made expressly or partly expressly and partly impliedly. The various documents relied upon by Council, such as site minutes, recorded various things which MDA personnel had done in the course of carrying out their contractual obligations.

37 The s 52 pleading was to the effect that the breach of that provision was said to be the conveying to the Council of the pleaded representations, and that they were based on reasonable grounds or were the product of skill care and diligence. In short the Council could rely upon them.

38 There were no alleged promises additional to the conduct which one would expect in the carrying out of MDA's contractual obligations. That is clearly what prompted the Referee to comment that "to scour what was done in performance of the contract in order to tease out actionable representations is not appropriate".

39 It is clear that the Referee found as a fact that MDA had appropriate expertise and experience. It did not make representations which were misleading or deceptive about that experience or expertise. Indeed as he observes at [78] that case was not made out.

Misleading or Deceptive Conduct

40 Whether particular conduct is misleading or deceptive is a question of fact to be determined in the context of the evidence as to the alleged conduct and to the relevant surrounding facts and circumstances. It was noted by Deane and Fitzgerald JJ in Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 199 to 200; that:

The question whether particular conduct of which complaint is made is misleading or deceptive or likely to mislead or deceive is, in the ordinary case, a question to be answered in the context of the evidence as to the alleged conduct and as to relevant surrounding facts and circumstances. If the resolution of the question were entrusted to a jury, the question whether a respondent had engaged in conduct of the type described in s 52 would be susceptible of a simple monosyllabic answer without disclosure or record of reasoning processes. Where resolution of the question is entrusted to a court constituted by a judge without a jury, however, it is incumbent upon the court to indicate the process of reasoning which has led to the answer which is given. It is inevitable that that process of reasoning will tend to be worded in the language of a lawyer and that the path to decision of the factual question will be paved with generalizations which, particularly when enshrined in volumes of law reports bear a superficial resemblance to formulations of legal principle but which are, in truth, no more than part of an exposed process of reasoning in the course of deciding the question of fact.

41 And in Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at 625 [109] McHugh J said:

The question whether conduct is misleading or deceptive or is likely to mislead or deceive is a question of fact. In determining whether a contravention has occurred the task of the court is to examine the relevant course of conduct as a whole. It is determined by reference to the alleged conduct in light of the relevant surrounding facts and circumstances. It is an objective question that the court must determine for itself.

42 As Mason P makes clear in Concrete Constructions Group v Litevale Pty Ltd [2002] NSWSC 670, failure to keep a promise is not itself misleading or deceptive conduct, [155] As his Honour pointed out [167] - [169]:

[167] I readily accept that it will be comparatively easy to establish that a contracting party is implicitly representing a present intention to perform it according to its tenor. If the other party can establish causation and loss then damages should ensue, although there is usually little point in addressing such a claim because the law of contract will compensate the innocent party for the consequences of non-performance without even having to prove misleading intent from the inception.

[168] But when one turns to an alleged implicit representation as to capacity to perform things are not so simple, nor should they be. There are policy reasons for restraint. The law arms the parties to a contract with rights to damages and other forms of relief if breach occurs or is threatened. A complex set of common law, equitable and statutory rights are superimposed on the terms of the bargain chosen by the parties. That bargain may have the simplicity as a contract to sell a loaf of bread or the complexity of a building agreement such as the one in question in this case.

[169] Why should the parties be found or presumed to have intended more by what they expressly represented and understood? Of course, s 52 goes beyond intentionally misleading or deceptive conduct, but it does not follow that the innocent party understood or relied upon anything more than the express representations and the usually adequate consequences stemming from breach of them stemming from the law touching the mutually chosen regime, that is, contract.

43 As Allsop J said in McGrath v Australian Naturalcare Products Pty Ltd [2008] 165 FCR 230 at 265:

[137] I do not see this representation as arising out of the precise formulation of an express or implied term of the Manufacturing Agreement. Rather, I see it as arising out of all the circumstances of the case and the legitimate expectations of honest commercial people in all the circumstances and upon the entry by Pan into the Manufacturing Agreement on 3 April 2002.

[138] I do not think that the comments of the majority of the High Court in Effem Foods Pty Ltd (t/as Uncle Ben's of Australia) v Lake Cumberline Pty Ltd (1999) 161 ALR 599 at [34] or of Tamberlin J at first instance assist. The representation there asserted, arising from the entry into the contract, was quite different. Nothing said in Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217 at 233-241; Wright v TNT Management Australia Pty Ltd (t/as Comet Overnight Transport) (1989) 15 NSWLR 679[PDF]; Wheeler Grace & Pierucci Pty Ltd v Wright (1989) 16 IPR 189; or Adelaide Petroleum NL v Poseidon Ltd [1988] ATPR 49,695 (40-901) requires any different conclusion. Without setting any artificial constraints on the operation of ss 51A and 52 and the balance of Div 1 of Pt V, it is appropriate to say that the divining of representations from the making of contractual promises and the entry into contracts is a task to be approached with caution and with an eye to all the facts and not by reference to implying representations mechanistically from equivalent promises: see Concrete Constructions Group v Litevale Pty Ltd (2002) 170 FLR 290[PDF] at [156]-[168] per Mason P. That said, I agree with the primary judge that in all the circumstances here, the entry into the Manufacturing Agreement represented to ANP the matters in the QAR.

44 The Referee also made reference to Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 per French CJ at [34] - [36]. At [35] French CJ said:

[35] The term "conduct which is misleading or deceptive or likely to mislead or deceive" is apt to cover a large variety of possible circumstances in which the conduct of one has a tendency to lead another into error. There is no reason in principle why the fact that a false statement is contained in a contractual document thereby takes the use of that statement in the document out of the scope of "misleading or deceptive conduct". Whether the proffering of a contractual document containing a false statement amounts to a misrepresentation or to misleading or deceptive conduct, is a matter of fact to be determined by reference to all the circumstances. The circumstance that such a representation is the subject of a contractual warranty does not, as a matter of law, exclude the making of it from the purview of the statutory prohibition. This is consistent with the observation by Lockhart and Gummow JJ in Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia; "the making of a statement as to a presently existing state of affairs, if false, may be the engaging in misleading or deceptive conduct, where the statement is embodied as a provision of a contract."

45 Here of course, the Referee observed that contractual warranties were not relied upon as a basis for liability in this case (cf. HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 at 649 [13]).

46 In this case the Referee noted that the pleaded representations amounted to a representation that the contract for services would be carried out in various respects. The Referee found that there was little scope for the statutory provisions to apply because of the nature of those representations and the fact that they were not different in kind from the contractual obligations, and were based on the same facts and circumstances. The Referee did not find in my opinion that the contract ousted the statutory norm, but rather as a fact no promises were made additional to the contractual obligations which had been entered into. Hence the promises did not amount to actionable representations, as a matter of fact.

47 It seems to me the Referee made what was a perfectly orthodox finding of fact, namely that in his opinion in the circumstances as a whole and the context in which the alleged representations were said to have arisen, what MDA did related solely to the carrying out of the contract and "did not amount to express or implied representations". It would follow inexorably that the TPA would not therefore be engaged. That was his express finding at [154].

48 In my opinion the Referee did not fall into any error and that there was a proper basis for his conclusion and he had sufficient material upon which to make those findings.

Report Paragraph 229 - Limitation period for Claim Against MDA in Relation to Structural Steel

49 The plaintiff further submits that the Referee erred when he concluded that the limitation period had expired for any such claim in any event. In particular it is contended that the Referee erred in concluding that the six year limitation period provided by section 82 of the TPA would bar any claim against MDA in relation to the structural steel. The time bar here as the plaintiff points out cannot apply to the claim against MDA for misleading conduct in relation to the ceiling.

50 This issue of course does not strictly arise because of my view as to the correctness of the Referee's views on the TPA claim as set out above. However in the event that I am wrong I will deal with it.

51 At [225] the Referee found the following unchallenged facts:

The substantive fault was the method of construction exposing the inner surface of the transoms. That was manifest in all senses of the word no later than 20 February 2001, and was consistently noted thereafter until July 2002 (Cyril Smith and Associates). It, was never altered. It and the consequent rust, was noted by the Council engineer well before 22 August 2002. The directions to remedy the lack of sealant were given and breached prior to 22 August 2002.

52 In Cyril Smith & Associates Pty Ltd v The Owners-Strata Plan No 64970 [2011] NSWCA 181 the plaintiffs were an owners corporation and developer who brought proceedings against a builder; architect and engineer for a defective 8 story residential building. The plaintiffs alleged latent defects in the building consisting primarily of rust and water penetration. The proceedings were referred to a Referee who delivered a report in 2008. In 2009 Bergin CJ gave judgment in which her Honour adopted the same approach as the Referee in order to determine the time at which the limitation period commenced. Her Honour adopted a test that required the cause of the physical defect to be manifest before commencement of the limitation period. The Court of Appeal found that her Honour had applied an incorrect test in adopting that approach, and clarified the principles

53 The Court made in my view a number of pertinent remarks in Cyril Smith as follows:

[13] This analysis leaves open a critical question: a structural defect may reveal itself over time, progressively. The first indications may be minor cracking requiring superficial repair, whereas the underlying problem requires far greater expenditure, assuming it to be capable of correction. If the superficial cracking should put the owner on notice of inquiry as to its cause and if reasonable inquiry would have revealed the cause, the underlying defect has become manifest, even though it did not in fact become known to the owner at that time. In Sutherland Shire Council, Deane J had described as "consequential damage" the physical effects on the fabric of the house caused by movement resulting from the inadequate footings. (The courts below had not permitted recovery on that account.) His Honour stated (at p 512):

"It seems to me, as at present advised, that any such consequential damage to the building itself resulting from inherent defect in the foundations is properly to be seen as falling within the same category as the damage involved in the inadequacy of the actual foundations, that is to say, as economic loss sustained by reason of the erection or purchase of the unsound building."

[14] Describing damage as consequential invites the question, consequential upon what? Given the context, the answer must be consequential upon the inadequacy of the footings. In other words, the damage, whether appreciated at the time or not, constituted a physical manifestation, as later proved, of the structural defect. The ambiguity in his Honour's language may be identified in the following way. On the one hand, a defect may be manifest before any physical damage eventuates. For example, the inadequacy of the footings may become known upon inspection by a prospective purchaser. In that case, the economic loss will accrue prior to the damage. That is one operation of the concept of a latent defect becoming known or manifest. The other possible operation is where the physical damage accrues first, but it is not known nor manifest that that damage is a result of the latent defect. In this latter case, it is the underlying cause of the damage which is neither known nor manifest. What is unclear is whether Deane J intended to encompass both cases within his explanation. The first would involve no departure from the ordinary principle of accrual of a cause of action in negligence; the latter would.

....

[26] This material demonstrates that the referee was searching for material, in the relevant period, indicating that the Owners Corporation either did, or should have, identified not merely that the windows were defective (a physical condition) but that responsibility lay in the design of the windows (the cause of the defect). The authorities do not support that approach. For example, there was no suggestion in Sutherland Shire Council, or Pullen, that the cause of action did not accrue until the owner knew or ought to have known, not merely that the footings of the buildings were inadequate, but the cause of the inadequacy. The appellant's submissions were partly correct in alleging that the referee had erroneously sought, not merely signs of the defect, but that "those defects were due to the act or omission of the alleged tortfeasor": see judgment, at [72]. The referee did not go so far as to require knowledge that responsibility lay with the architect, rather than the engineer or the builder, but he did erroneously look not merely for knowledge of the defect, but also the cause of the defect. Her Honour was, therefore, in error in rejecting that aspect of the submission: at [73].

...

[37] With respect to knowledge of the defect, it is clear that the approach adopted by the referee was precisely that identified above with respect to the windows, only more starkly expressed. The defect was not latent for long: what took time to be revealed was the element of responsibility attaching to the respective parties. For reasons already explained, accrual of the cause of action did not depend upon that knowledge. Accordingly the limitation defence should have succeeded on this basis in respect of the steel rooftop structure.

54 In this matter the Referee found that observations had been made during the course of the contract which revealed areas of thin paint and rust. The Referee also found that it was clear enough that the failure to properly apply the paint, which was picked up almost immediately after application, was never rectified. [162]. The Referee also found that there was evidence of rusting from an early stage which would have included corrosion of areas of thin paint, [163]. In particular in relation to the transom connection the Referee refers to the evidence of Mr Selleck from the Council and his knowledge of rust having previously been identified in the transoms, [195]. Unsurprisingly Cyril Smith was bound to feature prominently.

55 The plaintiff however relies upon the decision of Onerati v Phillips Constructions Pty Ltd (In liq) [1989] 16 NSWLR 730. That decision was approved by the Court of Appeal in Honeywood v Munnings [2006] NSWCA 215. The plaintiff sought to rely on these cases to suggest error on the part of the Referee. It submits these cases support a proposition that the failure to construct a building in accordance with certain specifications results in a single breach of contract and the question of whether it has been performed is to be decided by the state in which the building was, when it was handed over by the defendant to the plaintiff as complete. However the plaintiff's argument is (it seems to me by reference to these cases) that the unchallenged fact that the Council was aware, for example, of the rust on the inner surface of the transoms from 20 February 2001 is irrelevant to determining the limitation period for the TPA claim against MDA. I do not consider that to be correct.

56 In Onerati, Giles J had to consider whether in the context of an arbitration a subsequent arbitration between the same parties was barred by reason of the judgment given in the first. He posed the question at 738[B] as follows:

The question therefore is whether the cause of action which the proprietors wish to maintain by their claim in a fresh arbitration is the same cause of action as that which has already "passed into judgment" by virtue of the award of 25 January 1988, that award not being impugned and being enforceable as a judgment of the Court.

....

57 Giles J set out four propositions (at 746 [C] - [D]) as follows:

The position relevant to the circumstances with which I am concerned appearing from these decisions can be summarised as follows:

1. In curial proceedings, for the purposes of the principle of res judicata there is but one cause of action for breach of contract founded upon breach of a promise such as to carry out the work in a good and workmanlike manner. There is not a number of causes of action according to particular defects or classes of defect resulting from the breach.

2. Accordingly, judgment in one proceedings will be a bar to second proceedings to recover damages with respect to defects or classes of defect not the subject of the first proceedings.

3. This will be so even where the defects or classes of defects the subject of the second proceedings were not apparent to the plaintiff at the time of the first proceedings.

4. The same position obtains for arbitrations unless on the proper construction of the agreement for reference or the reference the parties have agreed that the award shall determine their rights and obligations only with respect to the defects or classes of defect referred while leaving their rights and obligations with respect to other defects or classes of defect unaffected.

58 He found the second arbitration was barred because (at 748 [G]):

The proprietors had the opportunity of recovering in the arbitration with respect to the defects of which they now complain, in the sense that the appropriate kind of relief was open to them. In my view the proprietors had the opportunity of recovering in the arbitration with respect to the defects of which they now complain in a more general sense.

59 He therefore found that there was a res judicata operative because the owners had attempted in the second proceedings to litigate a cause of action which had merged into judgment in the prior proceedings. He said nothing in my view about when a cause of action in contract accrues let alone when a cause of action in negligence accrues, nor did he consider the TPA.

60 In my view Onerati does not support the plaintiff for at least three reasons.

61 First, the case is about the peculiarities of the doctrines of merger and res judicata. Second it says nothing about when a cause of action based on contract or negligence or the TPA accrues. Third, Giles J's proposition number four makes it abundantly plain that the position with arbitrations can be merely altered by agreement between the parties. See Handley in Spencer Bower, Turner and Handley, The Doctrine of Res Judicata, (3rd ed, 1996) at [412].

62 The plaintiff also relies upon Commonwealth v Cornwell (2007) 229 CLR 519. In that case the respondent had brought proceedings in negligent misstatement, breach of contract, breach of statutory duty and estoppel. The trial judge found the cause of action in estoppel did not arise, the contract was barred by the relevant limitation statute, but that negligent reinstatement was made out and not time barred. The only question for the High Court was whether the action in negligence had been commenced after the expiration of six years arising from the date on which the cause of action had "first accrued" to him, the majority said at 523:

[5] However, to show the existence of a completely constituted cause of action in negligence, a plaintiff must be able to show duty, breach, and damage caused by the breach; accordingly, in the ordinary case, it is at the time when that damage is sustained that the cause of action "first accrues" for the purposes of a provision such as s 11 of the Limitation Act.

[6] In Hawkins v Clayton, which turned upon a provision of the New South Wales legislation relevantly indistinguishable from the Territory legislation, this Court refused to place a particular gloss upon the statutory text. The Court rejected the proposition that, at least in the case of claims in negligence for economic loss, time does not run until the plaintiff discovers, or could on reasonable inquiry have discovered, that damage has been sustained.

63 The majority also said at 526:

[17] In Law Society v Sephton & Co, Lord Mance said, with reference to Wardley, that he saw the attraction of an approach: "the effect of which is that unless and until a remote contingency eventuates the claimant is not expected to issue proceedings which he would not normally issue or wish to issue unless and until that point arrives.

64 In particular however the plaintiff relies upon the following passages:

[16] In Hawkins v Clayton, Gaudron J emphasised the importance for actions for negligence causing economic loss in identifying the interest said to be infringed, whether it be the value of property, the physical integrity of property, or the recoupment of moneys advanced. Thereafter, in Wardley Australia Ltd v Western Australia, Mason CJ, Dawson, Gaudron and McHugh JJ observed:

"To compel a plaintiff to institute proceedings before the existence of his or her loss is ascertained or ascertainable would be unjust. Moreover, it would increase the possibility that the courts would be forced to estimate damages on the basis of likelihood or probability instead of assessing damages by reference to established events. In such a situation, there would be an ever-present risk of undercompensation or overcompensation, the risk of the former being the greater."

Their Honours also said:

"The kind of economic loss which is sustained and the time when it is first sustained depend upon the nature of the interest infringed and, perhaps, the nature of the interference to which it is subjected. With economic loss, as with other forms of damage, there has to be some actual damage. Prospective loss is not enough."

65 I do not consider that authority or those passages especially relied upon by the plaintiff as assisting the plaintiff's case. That is because of the decision of the Court of Appeal in Cyril Smith, quoted above, which it seems to me is directly on point.

66 I also accept MDA's submission that the plaintiffs at least in their written submissions appear to conflate the position of Belmadar and MDA. Seemingly they submit that any cause of action against MDA could not arise until after a cause of action has arisen against Belmadar. That cannot be accepted.

67 In relation to MDA I observe that the same facts and circumstances were relied upon by the plaintiff to support its claims for breach of contract, negligence and breach of the TPA. The alleged representations were relevantly indistinguishable from the contractual obligations. (see the Referee's report. [227]). Any attempt therefore in my opinion to suggest that somehow the cause of action against MDA is interconnected with a cause of action against Belmadar is simply erroneous. The case against each party needs to be determined and considered quite separately. The Council's knowledge of the problem (eg the rust) was not only relevant but critical for the Referee when considering the claims brought against MDA. Nor do I see any substance in the argument advanced by the plaintiff in relation to the release of Belmadar from its security as having anything to do with MDA.

68 The cause of action in contract arose when the breach occurred - namely the acceptance by the architect of the proposed method of construction by the builder. The cause of action in negligence arose when the defective method of construction used by the builder became known or otherwise manifest and damage was thereby suffered. As the Referee found, each cause of action arose prior to 22 August 2002 and was statute barred. In my opinion the Referee was correct in finding that the six year limitation period provided by s 82 of the TPA expired before the proceedings were commenced.

69 For completeness I also do not accept the plaintiff's criticism of the Referee for not specifying precisely when the relevant cause of action accrued. He made it abundantly plain it was from 20 February 2001 that the plaintiff was aware of rust on the surface of the transoms as set out in [225] of the Report.

70 In any event, a further answer in my opinion to the plaintiffs claim would be that it would be out of time by reason of clause 17 of the contract. Clause 17 is in the following terms:

MDA's liability in respect of the services whether under law of contract, in tort or otherwise shall cease after the expiration of one year from the date of the invoice of the final amount claimed pursuant to clause 1, 2 and 3, the date of Practical Completion or the date of termination of the architectural services whichever is the earlier.

71 The project reached practical completion in all respects on 21 September 2001 hence if the clause operates the plaintiff was barred as it were pursuant to the contract from 22 September 2002.

72 It seems to me that the ordinary meaning of those words in clause 17 would include liability under a statute such as a claim for misleading and deceptive conduct. In Owners SP 62930 v Kell & Rigby Pty Ltd [2009] NSWSC 1342 McDougall J said at [27] and [28] when dealing with clauses similar to here, (clause 16 and clause 17 of the contract):

[26] To my mind, looking at the matter objectively, what the parties sought to achieve was to specify precisely and exclusively, so far as the law allows, the monetary and temporal limits of any liability that George Floth might have with the developers under the contract between them.

[27] To say that they did so in respect of all causes of action apart from those that might arise under the Trade Practices Act is in my view to give the contract and in particular part 4 an artificial and non commercial construction. On the other hand to construe it as George Floth submits seems to me to be, looking at it objectively, no more than an effectuation of the intent of the parties.

[28] Nor do I think that the view that I have expressed requires some violence to the language of the clause as a whole. On the contrary, I think the words "or otherwise" are wide enough in their ordinary meaning to pick up liability under statute and nothing in what follows (either in clause 4.3 or in clause 4.5) cuts down the available width of those words.

73 MDA submits, which I consider to be correct, that clauses 16 and/or 17 do not amount to a contracting out of the TPA. The clauses simply reflect the parties intentions to impose temporal and monetary limits on the damages that may be awarded under provisions such as s 82. This seems to me to be the thrust of McDougall J's judgment.

Paragraphs 162 to 165, 179 - Limitation Period for Claim Against Belmadar in Relation to the Structural Steel

74 The Referee found that Belmadar's breaches in relation to the structural steel had occurred prior to 22 August 2002, so the limitation period had expired. It is submitted on behalf of the plaintiff that the Referee erred in ascertaining the relevant limitation period.

75 Although the Referee found that Belmadar beached its contractual duties in relation to the structural steel (see [126] to [128], [141] and [208] of the Report) he considered that Council's cause of action for breach for contract in this respect was complete at some point prior to 22 August 2002.

76 The plaintiff points out that the duty to rectify defects and omissions in works under a building contract and to comply with superintendent's directions is a continuing obligation. It further submitted that the duty in enures until the completion of the works, as it must be discharged as instances of a defective work are identified. This obligation operates as directions to rectify defective work are given, and having regard to the duty under clause 37 of the contract to carry out rectification work at times and in a manner which causes as little inconvenience to occupants of the works as is reasonably possible. The plaintiff specifically asserts that the Referee misdirected himself in [162] of the Report in characterising the Council's cause of action as one for breach of contract for failure to properly apply the paint to the structural steel. It was submitted further that Council's cause of action is for breach of contract to execute and complete the work under the contract in accordance with the terms of the contract. In this regard the plaintiff again relies upon Onerati (especially at page 746). I have already commented upon the relevance of this authority.

77 The plaintiff submits that on a correct application of principle in Onerati, whether Belmadar had breached its promise to carry out the work in a good and workmanlike manner could only be decided by the condition of the Centre when Belmadar had finished its work. The plaintiffs submitted its cause of action for breach of the contract could not be complete until either:

(a) The defects liability period had run its course (which occurred on 22 August 2001 and 21 September 2002);

(b) Belmadar had attended to defect rectification (which was occurring up to about February 2003); and

(c) The security provided by Belmadar for the purposes of ensuring its proper performance of the contract had been released (which occurred on or about 30 July 2003).

78 Belmadar submits, in my view with justification, that [162] does not expose an error on the part of the Referee in terms of his characterisation of Council's case against it. It points out that the fundamental aspect of the case conducted by Council against Belmadar was directed to the alleged breach of contract for failure to apply paint properly to the structural steel. Indeed as Belmadar further points out, and it is obvious from the amended list statement (paragraph 18), the plaintiff specifically pleaded a breach of sub-clause 30.1 of the contract and, in particular, that Belmadar had failed to use the materials and standards of workmanship required by the contract. In its letter providing particulars on 11 March 2009 the plaintiff specifically drew attention to the "uneven application of the protective paint coating to the structural steel".

79 I agree with the submission of Belmadar that [162] does not expose an error on the part of the Referee.

80 It is also pointed out by Belmadar that all of the particulars contained in the amended list statement in relation to Belmadar's failure to comply with directions given by MDA in respect of defects/omission are referable only to the period prior to the commencement of the defects liability period. That period commenced for 12 months from 22 August 2000. It is plain from that pleading (see paragraph 19) that the last date of any pleaded and particularised failure by Belmadar to comply with any direction by MDA to rectify was 18 July 2001. The Council did not plead any case in respect of a failure to rectify a defect the subject of direction notified to Belmadar during the defects liability period, and not in relation to the issue of inadequate paint fitness. Again that appears tolerably clear from a consideration of the pleading and the particulars supplied.

81 Belmadar submits that two separate and distinct breaches were alleged against it. The first related to clause 30.1 which related to the thickness of the paint that was applied to the structural steel. As to that breach of contract the Referee found that time began to run from the date of the breach occurring in September 2000. In relation to any case in negligence, the Referee found that it was virtually the same date when the Council became aware of the breach. So much is clear from [97], [126] and [162] of the Report.

82 The second breach alleged by Council concerning the failure to rectify was only pleaded in relation to directions to rectify issued by MDA in the period up to practical completion, and before the commencement of the defects liability period on 22 August 2001. This is abundantly plain from the particulars provided pursuant to paragraph 19 of the amended list statement.

83 Belmadar submits (in my view with justification) that there was no direction to rectify the paint thickness at any time during the 12 months defect liability period. The Referee found this as a fact it seems to me. It was corroborated by the Defects Schedules. In [151] he found as a fact that there was no evidence of any outstanding items relating to this particular issue in Defects List Issue E at the time of practical completion and Defects List Issue G dated 9 July 2002, which was just before the end of the defects liability period. Further, as is pointed out by Belmadar, as at the date of the end of the defects liability period there was no breach of any direction to rectify the paintwork.

84 Further, as is pointed out by Belmadar, the Defects Schedule (Issue H) issued on 20 September 2002 after the end of the defects liability period did not contain any item pertaining to the rectification of the paint work either. Again in my opinion the Referee found this as a fact specifically in [119].

The Limitation Defence

85 It was found by the Referee the only issue concerning a breach of Belmadar's contractual duties in relation to the structural steel works was the adequacy of the application of the Ameron coating in accordance with Ameron's specification, [126].

86 In dealing with Belmadar's limitation defence in the context of this breach it is plain that the Referee had regard to the evidence of Mr Selleck of Counsel. Mr Selleck had on 19 September 2000 written to Mr Davies of MDA expressing his concern following an inspection as to the quality and consistency of the paint finish to the steel work. Mr Selleck said he had pointed out the problems to Belmadar and in particular he observed that some areas were not covered with coating while other areas appeared to be translucent. The Referee makes a specific finding about this at [97]. I will return to this matter.

87 At [126] the Referee found that Mr Selleck raised "this very question the first time he saw the painted steel". Testing was then undertaken by the painter Central Coast Metal Protectives Pty Ltd (CCMP) as subcontractor to the structural steel fabricator Gonzalez Fabrication and Erection Pty Ltd (GFE) who in turn was Belmadar's sub-contractor. In addition the Referee found that testing confirmed the inadequacy of the painting as far as thickness was concerned (See [126]). It is plain that the Referee had regard to both the nature of the defect and the time at which the defect was either actually discovered or became manifest in the sense of being discoverable by reasonable diligence. In addition the Referee found in [162] that "it is clear enough that the failure to properly apply the paint which was picked up almost immediately after application was never rectified".

88 It is important in my mind that the Council does not challenge the Referee's findings of fact concerning the knowledge of its officer Mr Selleck as at September 2000, in particular his finding at [97].

89 As I have already observed the Referee approached the limitation issue having regard to the decision in Cyril Smith. In particular at [163] when he said:

Another way of looking at it is to see the thin paint as essentially a breach of contract with no damage occurring until the inadequacy had the physical effect of permitting the commencement of rusting or corrosion. This is the way in which a similar issue is dealt with in Cyril Smith and Associates Pty Ltd at [34] - [37]. Here there was evidence of rusting from the early stage which, as I have said, would include corrosion of the areas of thin paint.

90 The plaintiff however alleges that Belmadar has breached its duty to rectify defects and omissions in the work and particularise that breach by reference to directions issued to Belmadar by MDA. These directions, as is plain from the submissions made by the plaintiff, cover the period from 22 August 2001 to 20 September 2002. All of these directions are made within the 12 month defects liability period. This is in somewhat stark contrast to that which was in fact pleaded.

91 Insofar as the plaintiff contends that there was a failure or refusal to rectify defects the Referee found specifically as follows at [164]:

The Council pleads that Belmadar failed to comply with directions given by MDA to rectify the defects in the paintwork. None of the directions related to the thickness of the paint. Indeed, that issue seems to have been settled in October 2000. The later directions appear to relate to areas requiring touching up, and GFE and CCMP contended at the time that this was due to damage caused by others. If there had been continuing concern about thickness of the paint, other testing could easily have taken place.

92 It seems to me these conclusions were open to the Referee as findings of fact and I am not persuaded that his findings were erroneous. Again I see nothing wrong with the Referee's finding of fact nor his conclusion in this respect.

93 Of course the Referee also found that even if directions did relate to the thickness of paint, directions were given and not complied with before 22 August 2002. Since the thin paint and some consequent corrosion was evident prior to 22 August 2002,"the limitation defence would apply".

94 So far as the defects liability period is concerned, there are a number unchallenged facts found by the Referee and pointed to by Belmadar as follows:

(a) On 19 September 2000, Mr Selleck of Council wrote to Mr Davies of MDA to express his concerns, following an inspection of the steelwork that had been delivered to the site, about the quality and consistency of the paint finish. Mr Selleck said he had observed areas of the steelwork that were not covered, and other areas that appeared to be translucent;

(b) On 21 September 2000, Mr Davies of MDA inspected the steelwork and observed that the paintwork had been damaged during transport to the site, and that the coverage of the paint finish was inadequate. Mr Davies informed Mr Gagliano of Belmadar of his concerns;

(c) On 22 September 2000, Mr Gagliano in turn informed Mr Gonzalez of CCMP of Mr Davies' concerns. Mr Gagliano observed that the paint thickness was on the thin side and was not to the required micron thickness;

(d) On 24 October 2000, the minutes of a site meeting record that the issue of paint thickness had been satisfactorily resolved by independent testing, the results of which were presented at the meeting;

(e) Also on 24 October 2000, the site minutes record the commencement of rectification of the damage to the paint on the steelwork caused during transport to the site (thereafter carried out by CCMP);

(f) On 18 July 2001, a minute of a site inspection indicated several positions where the rectification of the damaged paintwork was incomplete. Those items were noted on Issue C of the Defects Schedule;

(g) On 22 August 2001, Issue D of the Defects Schedule was released. It continued to record several positions where the rectification of the damaged paintwork was incomplete;

(h) On 22 August 2001, practical completion under the contract was reached for a portion of the works. It was reached for the remainder of the works on 21 September 2001. Defects Schedule E issued on 13 September 2001, just before practical completion was certified, made no reference to the rectification of the coating;

(i) On 9 July 2002, Issue G of the Defects Schedule recorded the status of all outstanding items of the rectification of the paintwork as "complete";

(j) On 22 August 2002, the defects liability period expired.

95 As Belmadar also points out the Referee made additional findings to the following effect:

(a) that none of the directions given by MDA to Belmadar to rectify the paint work the subject of the Defects Schedules related to the issue of paint thickness. They only related to areas "requiring touching up". [164]; and

(b) That the issue of the paint thickness appeared to have been resolved at the site meeting held on 24 October 2000.

96 The plaintiff purports to challenge these findings of fact. I do not think they are capable of challenge. It is not contended by Council that the findings were either "perverse" or "manifestly unreasonable". I am not persuaded that the Referee was in error in making those findings and I reject that submission.

97 Insofar as the plaintiff seeks again to rely on Onerati I do regard it as misconceived. Giles J held that for the purpose of considering the operation of the principles of merger and res judicata there is only one cause of action for breach of contract in the particular context he was there considering. As I have already said I do not regard that case as authority for the proposition that a known breach of a specific contractual obligation may only be determined at the completion of all contractual works. It seems to me that Belmadar did not have any ongoing defect rectification obligations in respect of the thickness of the coating system, especially in circumstances where rectification of the damaged paint work had been removed from the defects schedule (Issue E) by the time of practical completion. In particular this is made clear in the Referee's Report at [115]. I agree with Belmadar that absent a failure or refusal to rectify a defect identified on a defects schedule during the defects liability period, time cannot run from the end of that period.

98 In the light of the Referee's findings I consider Belmadar's submission namely that the issue of paint thickness did not arise in the context of Belmadar's defects liability obligations, as correct. No direction was issued by MDA to Belmadar to rectify any omission or defect relating to the thickness of the paint applied to the steel work pursuant to clause 37 of the contract.

99 It seems to me it cannot be correct that the plaintiff's cause of action for a breach of contract could not be complete until after the expiration of the defects liability period on 22 August 2002. Prior to that date Belmadar was only required to rectify work of which it had notice by means of a defects list issued by MDA.

100 As to the period "about February 2003" no rectification work undertaken by Belmadar up to this period was referable to the thickness of the paint application. As has already been noted, none of the relevant defects lists identified paint thickness as a defect.

101 The third possible date concerns the release of security which it is accepted was not released until 30 July 2003. I agree with the submission of Belmadar that the timing of the release of security could have no relevance to the accrual or preservation of contractual rights on the part of the plaintiff. As is pointed out by them, the provision of security is a mechanism to ensure performance under a contract and not a means of creating additional contractual obligations or rights over and above those already contained in the contract. In my view the question of the release of the security has nothing whatever to do with the limitation period provided by the relevant statute.

102 I do not accept that the plaintiff has exposed any errors on the part of the Referee either in relation to his relevant fact finding, or to his conclusion in relation to the limitation defence in this context.

Paragraph 73 of the Referee's Report

103 The plaintiff contends that by installing the ceiling with the Rondo clips Belmadar breached its contractual obligation to:

(a) Install the ceiling in accordance with the manufacturer's approved procedure; and

(b) To comply with the direction to obtain confirmation from the installer and manufacturer of the ceiling the installation of the ceiling was in accordance with the manufacturers recommendations.

104 The Referee found that Renhurst did not approve the use of the Rondo clip for the installation of the ceiling: [50]. He also found that the specified confirmation from the installer and manufacturer of the ceiling was not obtained. The Referee however found that Belmadar did not breach its contractual obligation in this respect. The plaintiff submits that the Referee committed an error of law as to the construction of the building contract.

105 The plaintiff submits that the tender specifications required the ceiling to be "installed in accordance with the manufacturers approved procedures". By variation order No 1 dated 14 July 2000 MDA approved a variation to the contract so as to allow for the supply and installation of an acoustic ceiling.

106 Council contends that the original tender specification for the installation of a Renhurst ceiling in accordance with Renhurst's approved procedures was subsequently reinstated as part of the Contract. That relevant evidence is said to be as follows:

(a) MDA's letters of 27 October 1999 (CB3.850) and 22 February 2000 (CB3.881) refer to the reinstatement of the Ceiling as "specified" and that can only be a reference to the original tender specifications at CB1.334, ie, there were no other Ceiling specifications either as at the time of those letters or any later date;

(b) Belmadar's purchase order placed with Renhurst of 28 October 2000 (CB4.1278) ordered "all necessary materials" that constitute the Renhurst ripplesound ceiling;

(c) Ross Selleck of Council indicated to Paul Godsell of MDA by facsimile dated 13 November 2000 that Council agreed to "going back to Renhurst" (CB4.1289) and Mr Godsell understood this to mean "going back to the original specifications for a Renhurst Ceiling": T345.38-39;

(d) On or about 20 November 2000 Belmadar subcontracted to Noot the installation of a Renhurst "ceiling system" with the requirement that Noot provide "manufacturer's warranties and certification of performance" (CB4.1307);

(e) Mr Godsell expected Belmadar to obtain a warranty from Renhurst in relation to the installation of the Ceiling at the completion of the project: T341.46-342.7;

(f) Mr Kleiss, the managing director of Renhurst, attended site in November 2000 for the purpose of ensuring that the Ceiling was being installed in accordance with Renhurt's recommendations: T346.17-20;

(g) By facsimile dated 4 December 2000 (CB4.13 63), MDA directed Belmadar to obtain a written statement from the installer of the Ceiling that the installation of the Ceiling was in full compliance the manufacturer's specifications and recommendations;

(h) By facsimile dated 13 December 2000 (CB4.1376), MDA directed Belmadar to obtain "sign off' on the installation of the Ceiling from Renhurst.

107 The plaintiff submits that the reference for example, in the facsimile dated 13 December 2000 whereby MDA directed Belmadar to obtain "sign off" can only be consistent with contractual requirement that the ceiling was to be installed in accordance with the manufacturers recommendations and approved procedures.

108 The plaintiff accepts that some of the conduct referred to above post dates the variation agreement. The plaintiff nonetheless submits that it is legitimate to have regard to this conduct not to prove what the parties objectively meant by the term of the variation agreement but as relevant surrounding circumstances or in order to ascertain the relevant terms of the variation agreement. In that regard the plaintiff calls in aid Franklins Pty Ltd v Metcash Trading Ltd (2009) 264 ALR 15 at [13] per Allsop P and [324] and [327] per Campbell JA.

109 It is submitted by the plaintiff in the above circumstances that the contract specifications required the ceiling to be installed in accordance with the manufacturers recommendations and procedures. The manufacturer did not approve the use of the Rondo clip. It is further submitted by the plaintiff that clause 30.2 of the contract empowered the Superintendent to give a direction to ensure that work was in accordance with the Contract. It is therefore submitted that the Referee erred in considering that Belmadar did not breach the contract in using the relevant clip. In the alternative the plaintiff asserts that clause 40.1 empowered the superintendent to give relevant directions.

110 There is no dispute at a factual level that Belmadar installed the ceiling using Rondo clips. Nor is there any dispute that the use of the clips was approved by MDA. Belmadar submits that that was a direction by MDA as superintendent under clause 23 of the contract between Belmadar. Belmadar further submits that that direction by MDA was in response to a request by Belmadar for MDA's approval on the acceptability of the Rondo 442 suspension clip coated with "Dacromet 230 plus" on 30 November 2000, before any ceiling installation was commenced. I consider that is correct. It is further pointed out by Belmadar that the issue of the approval of the clips by MDA was also recorded in site construction minutes of Meeting No. 18 held on 20 November 2000. Again that would appear to be correct. MDA approval was dated 6 December 2000. Again I do not consider this could be in issue.

111 Belmadar further submits that following a demonstration by them as to the installation sequence of the ceiling works, including the use of Rondo clips, there is no record of disapproval by MDA or the Council. This is borne out by the minutes of 19 December 2000. On 11 January 2001 Belmadar again had MDA confirm its earlier approval of the particular clip in a letter that it wrote to MDA on that date.

112 Importantly in my mind the Referee made the following finding at [70]:

The Rondo clips were not suitable for the application and MDA is unable to defend its direction to use them. In doing so, it did not exercise the degree of skill, care and diligence which was appropriate. In my opinion that responsibility cannot be laid off either to Belmadar or to Hyder.

113 This finding is not challenged and indeed the Referee found that the type of ceiling clip to be used at the Centre was a matter for the architect and not the builder. Again and equally importantly the Referee made the following finding at [71]:

There may be circumstances in which a builder in proposing a change of materials or components, might assume some responsibility. Here, the builder was proposing to substitute one component for another. Despite the forthright view of Mr Kleiss, it is far from clear that the Rondo clip was not as effective as the Renhurst clip for the purpose. There has been no mechanical failure of the clips. So far as corrosion protection is concerned, Mr Kleiss referred to the need for zinc coating which the Rondo clip had. The problem was that no attention was paid by the architect to the different environment in which the chosen clip would have to operate. That was not the province of the builder. The problem was caused by the deletion of the ceiling system and the reinstatement of it and the change in the mechanical exhaust system, none of which the builder contributed to.

114 These findings are not challenged.

115 It is clear that all relevant times MDA was aware that Renhurst (Mr Kleiss in particular) would not warrant the use of the Rondo suspension clips as they were not supplied by Renhurst.

116 It is important to observe that the Referee found there was no mechanical failure of the clips and, so far as corrosion protection was concerned, the zinc coating which Mr Kleiss of Renhurst referred to was in fact the coating on the Rondo clip. This is made plain by the Referee's findings at [71]. As Belmadar points out the Renhurst literature expressly stated that all Rondo ceiling components were compatible with the Renhurst ceiling system. (Exhibit ZZ).

117 More to the point there is simply no evidence that the utilisation of the particular clip sounded in any loss or damage for the plaintiff over and above or different from that which would have been occasioned by the use of a Renhurst clip. The corrosion of the ceiling clip was as a result of the architect not paying attention to the different environment in which the chosen clip would have to operate. As the Referee made clear, and which I accept, this was not the responsibility of the builder.

118 As found by the Referee, MDA as the architect was responsible for the loss in relation to problems associated with the ceiling installation. Indeed he expressly found MDA responsible for 100% of this loss [83]. In any event having been directed to use the particular Rondo clips the Referee found, again in my view correctly, that that direction provided protection for Belmadar. It seems to me therefore that Belmadar was protected by the direction made by MDA as the superintendent under the contract to the extent that such a direction caused any departure from the original specification for the ceiling.

119 The original specification expressly incorporated a vapour barrier. The amended specification did not. Once the vapour barrier was omitted the ceiling works could never be characterised as a proprietary Renhurst ceiling system entitling the plaintiff to any warranty from Renhurst, and nor could the works ever conform to the original ceiling specification. As found by the Referee, Renhurst would not warrant the ceiling installation works and in particular Mr Kleiss refused to "sign off". The Referee specifically found at [50] the reality was that Mr Kleiss was never going to give any assurances or guarantees of a system which was not his system in at least two significant respects: the absence of a vapour barrier and the use of alternative clips.

120 The experts accepted that the Rondo suspension clip provided adequate protection for normal use in ceilings over a pool. The Referee so found at [68] and [71].

121 Belmadar submits, which I consider to be correct, that the Rondo clip on the evidence was noted to be both fit for the purpose and that it was approved by MDA for use by Belmadar pursuant to a direction under clause 23 of the contract.

122 Again Belmadar in my view correctly submits that the corrosion of the clip occurred solely because of the absence of a vapour barrier and the inadequate mechanical ventilation system which extracted moist and humid air into the ceiling and roof areas causing condensation of the roof and ceiling and saturating the wool insulation in which the clips are located. There is no doubt in my mind that the Referee made such findings or findings to this effect at [68] of his Report which again are unchallenged. Not unimportantly in that paragraph the Referee concluded: "Based upon the corrosion experts' opinions, it is quite likely that the Renhurst clip would not have had sufficient corrosion protection".

123 As Belmadar points out in its submission the plaintiff expressly approved the deletion of the vapour barrier (Variation Number 1 to the contract). Mr Selleck from the plaintiff was aware that a Renhurst proprietary system would not be installed. He knew there was no vapour barrier and that the clips were made by Rondo. The use by Belmadar of the Rondo clips, as Belmadar points out, was not identified by MDA or the plaintiff as a defect or omission and was never the subject of a direction to rectify in any of the defects lists issued by MDA at any time.

124 For completeness I do not consider that an issue of contractual construction, as articulated by the plaintiff in its submission, arises on the facts as unchallenged. In my opinion there was no error of law on the part of the Referee. As I have already said the builder was indeed in my opinion protected by the direction made by MDA as the superintendent under the contract.

Claim Against Hyder - Report Paragraphs 63 and 72

125 The Referee found that Hyder exercised appropriate care and skill in providing mechanical engineering services.

126 The plaintiff submits that the Referee erred in law for the following reasons:

(a) Hyder specifically proposed to review the "fabric of the building" in relation to condensation and to propose "appropriate treatments, either additional mechanical systems or changes to architectural details": CB 1.53-54. It failed to fulfil this;

(b) Hyder had devised a design which was incompatible with the installation of an integral component of the ceiling system as recommended by the manufacturer, ie, a vapour barrier at ceiling level, and without compensating for this deletion with some appropriate measure, for example, ducting of the exhaust air through to the exhaust fans;

(c) The expert evidence establishes that Hyder's design was contrary to common practice, "highly unusual", "a major deficiency" and "perverse" and "not a preferred method";

(d) The deficiencies in Hyder's design were specifically brought to its attention in Solarite's facsimile of 16 November 2000: CB4.1291-1296. Having received such a facsimile, the joint opinion of the mechanical engineering experts is that a reasonably careful and diligent mechanical engineer in the position of Hyder should have specifically advised that if the mechanical ventilation system was not to be changed, the components within the Ceiling space were to be corrosion resistant.

127 The plaintiff therefore submits that the above circumstances enlivened the duty on the part of Hyder to at least enquire as to the type of clips which were to be used to install the ceiling and consider whether those clips had sufficient corrosion resistance, and if they did not to advise MDA of this. Hyder failed to do this, submits the plaintiff, hence it breached its duty of care.

128 It was seemingly common ground before the Referee that Hyder was retained by the first defendant, the architect, MDA. It did not have a contractual relationship with the plaintiff nor did it design or construct the ceiling. Indeed it was not consulted about the design or construction of the ceiling and proffered no advice about it.

129 At [63] the Referee made a number of pertinent comments and findings. In relation to the choice of exhaust system which indeed Hyder designed he specifically found that there were advantages and disadvantages to it. He also found that there was no allegation of any defect in the mechanical operation of the system.

130 At [72] importantly he said:

Hyder was engaged to provide mechanical engineering services and no other. It did so with appropriate care and skill. It is suggested that it had a duty to warn the architect that the change in design meant that all components below the vapour barrier on the under side of the roof would need adequate corrosion protection. Whilst to do so may have been a courtesy out of an overabundance of caution, it was no part of the duty of a mechanical engineer in this situation. The responsibility for corrosion protection lay with the architect. The relevant personnel of MDA were well aware of the problem. Indeed, the solarite proposal spelt it out. MDA is solely responsible for the damage pursuant to its contract with the Council. This conclusion makes it unnecessary to consider whether Hyder could have been liable in negligence to the Council in this situation.

131 The Referee as is clear from the above made two pertinent factual findings:

(a) That the relevant personnel of MDA were "well aware" that "all components below the vapour barrier on the underside of the roof would need adequate corrosion protection" [72]; and

(b) That it was not alleged that there was any defect in the mechanical ventilation system designed by Hyder. [63].

132 The Referee rejected the case against Hyder because he found it was no part of the duty of a mechanical engineer in the circumstances to warn MDA of the corrosion risk about which it was "well aware". More to the point the Referee found that the responsibility for corrosion protection lay with MDA. He found at [7] that the risk of corrosion in a heated indoor swimming pool environment was "well known". Further he found [15] that Mr Selleck, the plaintiff's engineer, who was closely involved in all stages of the project conceded that he too was very well aware at all times that the pool centre environment was likely to contain heated, moist chlorine laden air.

133 In my opinion the Referee's analysis in [63] and [72] displays no error of fact or law. It is clear that all relevant representatives of the plaintiff, MDA and Belmadar were aware of the corrosion risk and of the need for the ceiling to be designed accordingly. There does not appear to be any suggestion in any of the evidence that Hyder was ever consulted or gave any advice about any aspect of the construction of the ceiling. More to the point it would appear that the unanimous conclusion of the mechanical engineering experts was that Hyder's design was adequate for the Centre's ventilation needs, and that if corrosion resistant components had been used in the construction of the ceiling, those components would have reached their design life in the environment generated by the mechanical exhaust system designed by Hyder. This is made plain in the findings of the Referee in [60] especially the answers given by the mechanical engineer expert witnesses (particularly the answers to questions 15 and 16 as set out in [60]).

134 In the light of the unchallenged factual findings made by the Referee and the views expressed by the relevant experts I am not persuaded that the Referee fell into any relevant error in relation to his findings concerning Hyder. It seems to me that the scope of the duty as sketched and found by the Referee is entirely consistent with the unchallenged facts.

Cross Claims

135 In the light of the above it would follow that the plaintiff's case against each defendant was correctly dismissed. It would further follow that the relevant cross claims should likewise have been dismissed.

136 At [166] the Referee expressed the view that as Belmadar escaped liability on the painting issue the cross claim against GFE and the consequent cross claim by GFE against CCMP were unnecessary. He then went on to make some observations which would arise if the limitation defence by Belmadar had not been made out.

137 The Referee proceeded to express the opinion [167] that Belmadar would be liable to the plaintiff for the failure to apply the paint in accordance with the specification and that it would follow that GFE would be liable to it and that CCMP would be liable to GFE on the successive subcontracts. He then made other comments and observations at [168] to [177]. I should indicate that I am generally in accord with the Referee's views.

138 GFE in its submission before the Court primarily sought to support the defendants and therefore invited the Court to adopt the Referee's Report. I find it unnecessary to deal with any additional submissions from them in the alternative, first, because I propose to adopt the Report and hence the question of their cross claim does not arise, except that it will be dismissed. However, further in the case of GFE it was submitted that in the event the Report was not adopted with respect to the limitation defence GFE would seek to have the matter remitted to the Referee for further consideration. The Referee did not definitively deal of course with the cross claims and in particular that concerning GFE. GFE would wish to be heard before the Referee in relation to matters raised by CCMP concerning issues of causation and assessment of damages. Furthermore the matter of apportionment under section 109ZJ of the Environmental Planning and Assessment Act 1979 (NSW) or Part IV of the Civil Liability Act 2002 (NSW) in respect of the claims of the plaintiff which Belmadar seeks to pass on to GFE would need to be further considered. I consider those submissions have force and that is a further reason why I consider it inappropriate to come to any final view (if I am otherwise wrong on the adoption of the Referee's Report) so as to give GFE a proper opportunity to be heard on these matters. Apart from anything else I am not seized with anything like all of the relevant evidentiary materials.

139 CCMP also submit that the Referee's Report should be adopted by the Court. In the event that the plaintiff had been successful it wished to contend that the Referee had made some erroneous findings in relation to the CCMP contract, causation and the way in which damages should be assessed. These matters of course need not be addressed unless I am otherwise wrong in adopting the Referee's Report.

140 It is true Counsel for CCMP addressed at some little length and provided comprehensive written materials. It does seem to me however, that the evidentiary aspects which CCMP invited the Court to address, would be best dealt with in the context of a full hearing on the cross claims if that were to become necessary. It is plain that the Referee did not, nor did he intend to definitively deal with the cross claims. There was a substantial amount of evidence before the Referee and I am conscious that, should the need ever arise, a fair disposal of those matters is best dealt with by remitting such matters as may be in dispute to the Referee for further and definitive consideration, in relation to causation and the quantification of any damages so as to comprehensively consider the respective positions of GFE and CCMP.

Conclusion

141 In all the circumstances I propose to adopt the Report without qualification.

142 I would invite the parties to prepare short minutes to reflect my reasons and to address the question of costs which I propose otherwise to reserve. Appropriate arrangements should be made so the question of costs can be determined. The parties can contact my associate to arrange a suitable time for that question to be resolved.

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Decision last updated: 29 June 2012