Supreme Court Reviews Expert Reports and Cost Orders

The court reviewed motions regarding the adoption of expert reports and issued specific cost orders, rejecting some recommendations and modifying others based on the specifics of the case.

OUTCOME: Other

New South Wales Supreme Court

CITATION : [COMPANY_2] v [COMPANY_4] as Trustee of [COMPANY_6] [2003] NSWSC 1069 HEARING DATE(S) : 22, 23 and 24 September 2003 JUDGMENT DATE : 25 November 2003

JURISDICTION: Equity Division Technology and Construction List JUDGMENT OF : Bergin J DECISION : Reports to be adopted subject to changes to recommended costs orders.

CATCHWORDS : [REFERENCE] - [ADOPTION OR REJECTION OF REPORT] - Competing applications pursuant to Part 72 Rule 13 to adopt or reject [NAME_9]'s Reports - Court's approach to such applications - References not to be constrained by the rigorous application of rules - [EVIDENCE & PROCEDURE] - Application of the "rule" in [NAME_10] v [NAME_11] (1893) 6 R 67 - Competing expert's reports - No cross-examination of expert - Application of principles in [NAME_12] [2001] NSWCA 359 - [AMENDMENT] - Courts power under Part 72 Rule 9 in circumstances where [NAME_9] has power to amend and refuses amendment. LEGISLATION CITED : Supreme Court Rules 1970 (NSW) [COMPANY_14] v Commissioner of Taxation (1983) 1 NSWLR 1 [NAME_10] v [NAME_11] (1893) 6 R 67 Chocolate Factory Apartments Limited v Westpoint Finance Pty Limited [2003] NSWSC 547 Clough and Anor v Frog (1974) 4 ALR 615 CASES CITED : Cropper v Smith (1884) 26 Ch D 700 [COMPANY_17] v [NAME_13] [2001] NSWCA 359 State of Queensland v JL Holdings Pty Limited (1997) 189 CLR 146 Seymour v Australian Broadcasting Commission (1990) 19 NSWLR 219 Super Pty Limited v SJP Formwork (Aust) Pty Limited (1992) 29 NSWLR 549 [COMPANY_2] (Plaintiff/Cross-Defendant) PARTIES : [COMPANY_4] as Trustee of [COMPANY_7] (First Defendant/Cross-Claimant) [COMPANY_20] (Second Defendant) FILE NUMBER(S) : [NAME_21] 55002/00 COUNSEL : [redacted] AJ [NAME_25] QC and S Walsh QC (Defendants) SOLICITORS : [redacted] [NAME_27] (Defendants)

- 74 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY & CONSTRUCTION LIST

BERGIN J

25 NOVEMBER 2003

55002/00 [COMPANY_2] v [COMPANY_28] AS TRUSTEE OF THE [COMPANY_6]

JUDGMENT 1 These are competing Notices of Motion pursuant to Part 72, rule 13 of the Supreme Court Rules 1970 (the Rules) in respect of two reports to the Court by the [NAME_9], the Honourable Moreton Rolfe QC. The first report, dated 19 May 2003, is the main report dealing with substantive matters (the Report). The second report, dated 13 June 2003, deals with a Motion by the plaintiff, [COMPANY_2] ([NAME_1]), to amend, costs and recommendations as to declarations and orders. 2 [NAME_1] seeks an order that the Court adopt both reports in full as a judgment of the Court. The first defendant, [COMPANY_4] as Trustee of [COMPANY_7] ([NAME_5]), seeks an order that both reports be rejected in full. 3 The main proceedings, which were commenced by Summons filed on 3 February 2000, involve a claim by [NAME_1] for monies alleged to be due to it by [NAME_5] for damages arising out of alleged breaches of a Novated Building Works Contract dated 15 April 1998, as amended by a Deed of Release and Amendment between [NAME_1] and [NAME_5] dated 26 May 1999 (the Deed). [NAME_1] also claims damages from the second defendant, [COMPANY_20] ([NAME_19]) (the Contract Administrator), for failing to certify [NAME_29] when requested by [NAME_1] to do so. [NAME_5] cross-claimed against [NAME_1] for liquidated damages for late [NAME_29]. 4 The contract was for the design, partial construction and re-building of a building known as [NAME_19], Sydney, a proposed [COMPANY_30] (the [COMPANY_30]), and "[NAME_19]-on-Kent", proposed residential apartments (the apartments). The [COMPANY_30] consists of a lobby and 8 levels and includes restaurants, a boardroom and function rooms, a health club and a swimming pool. The apartments are on levels 9 to 25. 5 There were numerous amendments to the pleadings and after interlocutory steps were completed, McClellan J made an Order for Reference on 9 October 2002 referring the whole of the proceedings to the [NAME_9]. That Order required that unless otherwise permitted by the [NAME_9], any evidence in chief was to be given by way of written statement signed by the maker of the statement (order 4(d)). Order 5 provided that: "The [NAME_9] shall have power to permit such amendments or additions to the matter in the Schedule as the [NAME_9] sees fit in order to dispose of the true issues between the parties". Both parties and the [NAME_9] approached this order on the basis that the [NAME_9] had power to amend the pleadings. 6 The Order for Reference required the [NAME_9] to commence the hearing of the Reference on 10 February 2003 and report to the Court on or before 30 June 2003. The Reference hearing commenced on 12 February 2003 and concluded on 6 March 2003.

Background 7 The building Works were to be completed in stages. Originally there were two Stages, defined in the Contract Particulars as: Stage 1: The Works excluding "Levels 9 to 25" but including all plant and equipment, plant areas, lifts and essential services (as described in the building approval) which are necessary for the commencement or [NAME_29] of furnishing, fittings and equipment fitout works of [NAME_19]. Stage 2: The balance of the Works not included in Stage 1. 8 In the Deed the definition of "Stages of Work" was amended to the following: Stage 1A: That part of the Works described as Stage 1A on the plan which is Part O to the Contract but also including all other areas, lifts and services (as described in the building approval) which are necessary for the commencement and/or the [NAME_29] (as the case may be) of furnishings, fittings and equipment fitout works of that part of [NAME_19] within Stage 1A however, in the case of particular areas of Stage 1A on a shared access basis, as more particularly described in the plan which is Part O to the contract. Stage 1B: That part of the Works described as Stage 1B on the plan which is Part O to the Contract but also including all other areas, lifts and services (as described in the building approval) which are necessary for the commencement and [NAME_29] of furnishings, fittings and equipment fitout works of that part of [NAME_19] within Stage 1B however, in the case of particular areas of Stage 1B on a shared access basis, as more particularly described in the plan which is Part O to the Contract. Stage 2: The balance of the Works not included in Stage 1A or 1B. 9 Part O to the Contract consisted of 11 drawings. Drawings 102 to 108 related to Basement Levels 5 to 1 inclusive, Ground Level and Level 1 respectively and were dated 16 March 1999. Drawings 109 to 112 related to Level 2; Levels 3 and 4; Level 5; and Levels 6, 7 and 8 respectively and were dated 21 December 1998. 10 Drawing 102 contained a legend of the colours on the drawings with a date next to each Stage. Stage 1A was coloured blue and dated 2 October 1999. Shared 1A was hatched blue and dated 2 October 1999. Stage 1B was coloured yellow and dated 16 October 1999. Shared 1B was hatched yellow and dated 16 October 1999. Stage 2 was blank, or white, and dated 30 October 1999. There was a problem with the colouring in of the various drawings in relation to the lifts numbered 1, 2 and 3. Although the lifts from the Ground to Level 8 should have been coloured blue for Stage 1A, they were coloured blue from Levels 1 to 8 but not on the Ground Level. 11 The Contract as amended provided for [NAME_29] as follows: For Stages 1A, 1B and 2: (a) the Builder has removed all rubbish associated with the Stage; (b) the Builder has removed all temporary accommodation and plant, equipment and work from the Stage. For Stages 1A and 1B: (a) the Builder can provide sufficient and continuous access to Stage 1A and 1B as the case may require of the Works to enable the Principal or Other Contractors engaged by the Principal to complete furniture, fixture and equipment fitout works including access to: (i) the offices of [NAME_19], Sydney located on the ground floor and basement car parking levels; (ii) ground floor including foyer/lobby/function rooms/restaurant/kitchens of [NAME_19], Sydney; and (iii) ground floor building manager's office of [NAME_19] on Kent. (b) the Builder can provide sufficient and continuous access to [NAME_31] personnel for sales and marketing activities to existing and prospective clients of [NAME_31]. Sufficient access includes access to all levels of [NAME_19], Sydney and the ground floor foyer, ground floor restaurants, board room and function rooms, the health club and swimming pool on Level 1, the rooms located on Levels 1 to 8 (inclusive). If the builder complies with the access arrangements shown in the plan in Part O it will be deemed to have provided "sufficient and continuous access" under this paragraph (a) and (b). For Stage 2: (a) the Builder has procured the registration with the Land Titles Office of the Strata Documentation referred to in clauses 17.2 (a) and (c) and provided the Contract Administrator with three (3) copies of the Strata Documentation as registered; (b) the Builder has provided to the Contract Administrator a "handover package" for each strata unit in the Stage containing all instruction manuals, warranties and guarantees related to the items installed in the unit, all plugs for the sinks, baths and basins and 2 sets of [NAME_32] for the entry doors, doors to balconies and the garages, security systems, letter boxes, unit doors, any house service doors and any loose items that should be handed over to the purchaser of any unit; (c) the Builder has provided the Contract Administrator with copies of all Approvals including those necessary to occupy and use the completed Works; (d) the Works have been satisfactorily commissioned and tested and all services and installations perform as required by the Contract; (e) the Builder has provided the Contract Administrator with all warranties relevant for the Works as required by clause 8.4; (f) the Builder has done everything necessary to procure the registration with the Land Titles Office of the Strata Documentation referred to in clause 17.2(b) (including procuring all the Approvals as referred to in clause 17.3(b) and, if required by the Principal, any pre-investigation by the Land Titles Office), except for lodging the Strata Documentation with the Land Titles Office and has provided the Strata Documentation to the Contract Administrator in registrable form; and (g) the Builder has provided the Contract Administrator with a Certificate of Classification pursuant to the Local Government (Approvals) Regulation 1993, Division 6 in respect of the Works; and (h) without limiting any obligation under clause 18.1, the items of finishes specified in the Schedule of Finishes (as defined in the Standard Contract for sale) have been installed as required by clause 42.1 of the Standard Contract for Sale for all apartments. 12 The dates for [NAME_29] under the Contract as amended were: for Stage 1A, 2 October 1999; for Stage 1B, 30 October 1999, and for Stage 2, 30 October 1999. 13 It was proposed that the [COMPANY_30] would be operated by [NAME_19] and that it would be equivalent to a [COMPANY_30] with a five-star rating. The [COMPANY_30] had what has been referred to as its "hard opening" (accommodating guests), on 2 May 2000. The apartments were to be sold either off the plan or after [NAME_29]. Residents commenced occupying the apartments in March 2000. 14 By letter dated 14 April 2000 from [NAME_26], solicitors for [NAME_1], to [NAME_33], the then solicitors for [NAME_5] and [NAME_19], and a response from [NAME_33] of 19 April 2000, the parties reached an agreement which can be conveniently summarized as follows: 1. [NAME_29] of the Works was deemed to have occurred on 28 March 2000;

2. Rectification of defects referred to in the agreed program for rectification was to occur by 30 April 2000 to allow a "hard opening" of the [COMPANY_30] on 1 May 2000, with flexibility of implementation of the detail to be negotiated between [NAME_1] and [NAME_19]; 3. [NAME_1] was to provide a program for rectification of the remaining listed defects in the apartments in Stage 2, subject to the program being provided by no later than 28 April 2000 and [NAME_1] agreeing that all of the defects which were to be included in the program were rectified by the end of May 2000; 4. [NAME_1] was to provide a program for rectification of the remaining listed defects in Stage 1A and 2 in the apartments by 28 April 2000 and to rectify those defects by the end of May 2000; 5. [NAME_5] would make no claim for liquidated damages beyond 28 March 2000;

6. If [NAME_5] incurred any general damages as a result of any failure by [NAME_1] to rectify defects in accordance with the Contract it would be entitled to recover those damages; and 7. [NAME_19] would not then issue a Notice of [NAME_29], the parties would proceed as if it had. 15 It was also noted between the parties that notwithstanding the deemed [NAME_29] arrangement, [NAME_5] would not be regarded as accepting that [NAME_29] could or should have occurred or did occur on a date earlier than 28 March 2000. It was also agreed that [NAME_1] was entitled to claim that [NAME_29] of each Stage and the Works as a whole occurred on dates prior to 28 March 2000. 16 At the hearing before the [NAME_9], [NAME_1] claimed that [NAME_29] of Stage 1A had occurred as at 26 November 1999 and [NAME_29] of Stage 2 had occurred on 24 February 2000. [NAME_5] and [NAME_19] claimed that neither Stage was completed prior to the deemed [NAME_29] date of 28 March 2000. 17 The parties have accepted before me that the arguments put before the [NAME_9] in respect of the competing claims as to [NAME_29] can be summarized as follows. [NAME_1] argued:

1. The whole of the Works comprising Stage 1A and Stage 2 were complete;

2. Any defects which existed were minor and did not prevent the reasonable use of the Works or Stage and the correction of which did not prejudice the convenient use of the Works or Stage;

3. Lifts 1, 2 and 3 were not required to be completed for Stage 1A and that Lift 4 was capable of being used to access Stage 1A;

4. It was not required to provide the relevant Certificates for Stage 1A and that it had provided all relevant Certificates and warranties required for [NAME_29] of Stage 2;

5. That it had satisfied all of the [NAME_29]. 18 [NAME_5] and [NAME_19] argued:

1. Aspects of Works comprising Stage 1A and Stage 2 were incomplete;

2. There were defects which were not minor defects that prevented the Works or Stage from being reasonably capable of being used for the intended purpose of the Works or Stage and the correction of which prejudiced the convenient use of the works or Stage;

3. Lifts 1, 2 and 3 formed part of Stage 1A and were not completed in November 1999. They were not operational until 22 January 2000; 4. [NAME_1] had not provided all of the necessary Certificates pursuant to clause 13.1 of the Contract and had not provided all the necessary warranties pursuant to clause 8.4 of the Contract; and 5. [NAME_1] had not satisfied all of the [NAME_29] in the Part B Contract Particulars. 19 The Report is 418 pages in length and contains a most detailed record of the issues between the parties and the evidence given at the hearing before the [NAME_9]. The [NAME_9] concluded that [NAME_29] of Stage 1A occurred on 26 November 1999 and [NAME_29] of Stage 2 occurred on 24 February 2000. In both instances, those dates were said to be inclusive of all extensions of time to which [NAME_1] was entitled. 20 The [NAME_9] concluded that 75% of the securities retained by [NAME_5] should have been released no later than 2 May 2000 and the balance no later than 27 March 2001. The [NAME_9] also concluded that there were delays of 31 days in respect of Stage 1A and 66 days in respect of Stage 2. He found liquidated damages of $381,300 and $1,056,000 respectively, totalling $1,437,300 and recommended judgment be entered for [NAME_1] in the amount of $1,195,546, calculated as the balance owing under the Contract of $2,632,846 less liquidated damages of $1,437,300, plus interest on $1,195,546. 21 In his Report of 13 June 2003 the [NAME_9] recommended interest be awarded to [NAME_1] with entry of judgment for it in the amount of $1,860,486.70, inclusive of interest up to and including 28 May 2003. The [NAME_9] also recommended interest be awarded on the amount of $1,523,833.60 from 29 May 2003 to the date of entry of judgment. Applicable Legal Principles 22 These applications are made pursuant to Part 72, rule 13 of the Rules which provides: 13 (1) Where a report is made, the Court may, of its own motion, after notice to the parties, or on application by any party, on a matter of fact or law or both - (a) adopt, vary or reject the report in whole or in part; (b) require an explanation by way of report from the [NAME_9]; (c) on any ground, remit for further consideration by the [NAME_9] the whole or any part of the matter referred for a further report; (d) decide any matter on the evidence taken before the [NAME_9], with or without additional evidence, and shall give such judgment or make such order as the Court thinks fit. (2) Evidence additional to the evidence taken before the [NAME_9] may not be adduced before the Court except with leave of the Court. 23 Whilst the discretion of the Court is wide it must be remembered that this is not an appeal. As Gleeson CJ said in Super Pty Limited v SJP Formwork (Aust) Pty Limited (1992) 29 NSWLR 549 at 563-564: It would be inconsistent with the object and purpose of the rules, and potentially productive of delay, expense and hardship, that the practical effect of appointing a [NAME_9] should be simply to add an extra level to the hierarchy of decision-makers in a given case. … What is involved in an application under Pt 72, r 13 is not an appeal, whether by way of a hearing de novo or a more limited re-hearing. This is consistent with the right of the [NAME_9] to conduct the reference as the [NAME_9] thinks fit and unconstrained by the rules of evidence. Rather, the judge, in reviewing the report and deciding whether to adopt, vary or reject it, has a judicial discretion to exercise in a manner that is consistent both with the object and purpose of the rules and with the wider setting in which they take their place. That wider setting is a system for the administration of justice according to law. In so far as the subject matter of dissatisfaction with a [NAME_9]'s report is a question of law, or the application of legal standards to established facts, then a proper exercise of discretion would require a judge to consider and determine that matter afresh. That was decided by this Court in Homebush Abattoir Corporation v Bermria Pty Ltd (1991) 22 NSWLR 605: see also, Cape v Maidment (1991) 98 ACTR 1 at 4. That conclusion is entirely consistent with the history of the rule and the reasoning of the High Court in Buckley which, although the case related to different provisions is also instructive as to the present provisions. Subject to what has just been said, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised: cf Nicholls v Stamer [1980] VR 479 at 495 per Brooking J. The nature of the complaints made about the report, the type of litigation involved, and the length and complexity of proceedings before the [NAME_9], may all be relevant considerations. The purpose of Pt 72 is to provide, where the interests of justice so dictate, a form of partial resolution of disputes alternative to orthodox litigation, and it would frustrate that purpose to allow the reference to be treated as some kind of warm-up for the real contest. On the other hand, if the [NAME_9]'s report reveals some error of principle, some absence or excess of jurisdiction, or some patent misapprehension of the evidence, that would ordinarily be a reason for rejecting it: cf Jordan v McKenzie (1987) 26 CPC (2d) 193. So also would perversity or manifest unreasonableness in fact-finding. 24 As to the matter of manifest unreasonableness in fact finding Gleeson CJ agreed with the views of the trial judge, Giles J. In this regard Gleeson CJ said at 555 that Giles J: … rejected the submission that he was obliged to reconsider, and determine for himself, every issue of fact or law in respect of which the builder was dissatisfied with the decision of the [NAME_9]. He considered that such an approach would render virtually futile the whole procedure of sending matters out to a [NAME_9], and was not required by the rules. On the contrary, his Honour approached the matter on the basis that he had a discretionary decision to make as to whether he adopted the [NAME_9]'s report in whole, or in part, and that, in making that decision, he, being satisfied that the [NAME_9] had applied his mind to the task of fact finding required of him, carefully and in a manner consistent with legal principle, would not do more than ensure that the [NAME_9] had addressed the appropriate questions, and that there was evidence capable of being accepted, which, if accepted, supported the findings of fact made. Grounds Relied Upon for Rejection of Reports 25 The following grounds were relied upon by [NAME_5] in support of its Motion for rejection of the [NAME_9]'s Reports:

Ground 1: Erroneous Rejection of Evidence It was submitted that the [NAME_9] wrongly rejected evidence of those of [NAME_5]'s witnesses who were not cross-examined. In this regard it was submitted that: (a) the [NAME_9] incorrectly and without foundation implied that an agreement had been reached between the parties in relation to compliance or non-compliance with the rule in [NAME_10] v [NAME_11] (1893) 6 R 67; (b) the [NAME_9] failed to consider the evidence of some of the [NAME_34] who were not cross-examined when making findings of fact after analysis of the evidence of other witnesses; and (c) the [NAME_9] failed to advise the parties that cross-examination should have been undertaken or alternatively failed to inform [NAME_5] that he was considering an adverse finding against [NAME_34] who had not been cross-examined and/or failed to invite [NAME_5] to consider re-opening its case in the light of that consideration.

Ground 2: Availability of Lifts 1, 2 and 3 It was submitted that the [NAME_9] failed to properly analyse the evidence in relation to the requirement that Lifts 1, 2 and 3 should have been available to allow [NAME_29] of Stage 1A. It was also submitted that the [NAME_9] erroneously concluded that a failure by [NAME_5]'s counsel to seek rectification of Plan O to cure the colouring-in problem in the Plan was an impediment to [NAME_5]'s claim in respect of the date of [NAME_29] of Stage 1A.

Ground 3: Extension of Time – Floor Space Ratio (FSR) Issue One issue between the parties was the date upon which [NAME_1] received notice of a change in the FSR from [NAME_19]. [NAME_5] submitted that although the [NAME_9] referred to some correspondence on this matter when he was reviewing the evidence of various witnesses, he failed to consider it when reaching his conclusion. It is submitted that the [NAME_9] failed to give proper weight to the objective evidence in relation to this issue.

Ground 4: Agreed Benchmark for Standard of [NAME_5] submitted that the evidence before the [NAME_9] supported the conclusion that the parties had agreed that Unit 1101 on the eleventh floor would be a benchmark for the standard of finish to be achieved for the apartments. This was relevant to the time at which [NAME_29] was achieved and whether defects were an impediment to [NAME_29]. [NAME_5] submitted that the [NAME_9] erred in failing to consider this matter in reaching his conclusions and failed to take [NAME_5]'s submissions on this topic into account.

Ground 5: Multiple Defects It was submitted that during the hearing before the [NAME_9] counsel for [NAME_5] had submitted that multiple defects may mean that [NAME_29] had not been achieved. It was submitted that the [NAME_9] did not deal with the evidence of multiple defects, notwithstanding his statement during argument that it was potentially relevant.

Ground 6: Finding of Motive of [NAME_5] Administrator The [NAME_9] concluded that there was deliberate delay and procrastination by [NAME_5] and [NAME_19] in order to place [NAME_1] in as bad a position as possible with the "sole" view of seeking to bring about a financial result more favourable to [NAME_5] than that to which it was properly entitled. It was submitted that the evidence of [NAME_34] who were not cross-examined would have been a basis for strong justification for the Contract Administrator not to certify [NAME_29] and would thus render unjustified the adverse conclusion.

Ground 7: Refusal to Allow Amendment Prior to the commencement of the hearing of the [NAME_5] made application to amend its particulars relating to [NAME_1]'s alleged delay in [NAME_29] to include the Mechanical Car Parking System (MCPS). It is submitted that the [NAME_9] fell into error in refusing to allow this amendment.

Ground 8: Apprehension of Bias/Denial of Natural Justice It was submitted that there is a reasonable apprehension of bias in the [NAME_9] against [NAME_5] based on: (a) the way in which he dealt with the issue of the failure to cross-examine; (b) the rejection of the application by [NAME_5] to amend; and (c) the issue with respect to the lifts. [NAME_5] did not limit this submission to those three aspects, but relied upon all of the submissions it made in respect of the alleged errors made by the [NAME_9], in particular the alleged error of failing to alert counsel to the fact that evidence of witnesses not cross-examined was to be rejected. It was also submitted that the [NAME_9]'s conclusion that [NAME_5] had a "sole" motive for rejecting [NAME_29] ignored objective evidence that would justify such a rejection and is a basis for an apprehension of bias in the [NAME_9]. 26 In considering [NAME_5]'s submissions in respect of each of the grounds upon which it relies it will be necessary to descend into some of the detail of the evidence given before the [NAME_9] and to analyse the structure of the Report. As I have already said, the evidence before the [NAME_9] was required to be by way of signed statement. It is apparent from the Report that some witnesses only provided one to two statements whilst others provided many statements. In this regard, it is apparent that [NAME_36] ([NAME_39]), a [NAME_1] witness whose evidence is dealt with below, provided two statements, whilst [NAME_40] of [NAME_5] provided at least forty statements. It is apparent from a reading of the whole of the Report that there was a great deal of evidence in the form of statements, oral evidence and documentary material before the [NAME_9].

Structure of the Report 27 The Report commences with an introduction and an analysis of the Contract, the Deed and the Agreement reached by the parties in April 2000 (pars 1-39). It then deals with the nature of the competing claims, the pleadings and the issues as "finally articulated" (pars 40-121). There is then the detail of the claim by [NAME_1] that [NAME_29] of Stage 1A had been effected and the reasons the defendants contended that [NAME_29] was not achieved on 23 November 1999 and 22 February 2000 (pars 122-193). The following five sections of the Report are headed "The Issue of Defects" (pars 194-207), "[NAME_29]" (pars 208-220), "[NAME_1]'s Case on [NAME_29]" (pars 221-243), "Minor Defects" (par 244) and "The Nature of the Defects When [NAME_29] was Claimed" (pars 245-291). 28 The Report sets out the [NAME_9]'s analysis of evidence called by [NAME_1]. This analysis is made under the headings, for example, "The Evidence of [NAME_42]" (pars 292-342) and "The Cross-Examination of [NAME_45]" (pars 343-371). This analysis includes aspects of the case on [NAME_29], including the standard of finish, defects and the approach to rectification of defects, the lifts and the communications between the parties on these aspects. It also includes an analysis of what the witness said in relation to the evidence of the defendants' witnesses. There are seven witnesses dealt with in this section of the Report, being: [NAME_42] (pars 292-371), [NAME_46] (a witness called by [NAME_1] in reply) (pars 372-413), [NAME_48] (pars 414-418), [NAME_52] (pars 419-447), [NAME_56] (pars 448-485), [NAME_60] (pars 486-506) and [NAME_63] (pars 507-518). 29 The Report then deals generally with the defendants' evidence on [NAME_29] (pars 519-538) and particularly with the evidence of [NAME_67] (pars 539-555), [NAME_69] (pars 556-564), [NAME_70] (pars 565-571) and [NAME_72] (pars 572-583). After reference to an assessment by the firm [NAME_74] (pars 584-585), the Report states the [NAME_9]'s conclusion on [NAME_29] at pars 586-590: 586. I have now considered the essential evidence concerning [NAME_29]. That called by [NAME_1] satisfies me, (and in this regard I consider that the onus is on [NAME_1]), that by 26 November 1999 Stage 1A was complete, save for minor Defects, which did not infringe sub-sub-clauses (i) and (ii), and that by 22 February 2000 Stage 2 was similarly completed. I have found the totality of the evidence of [NAME_44], [NAME_46], [NAME_75], [NAME_76], [NAME_62] and [NAME_65] and that of [NAME_77] (sic) compelling on these points and it has some corroboration from the expert evidence called on behalf of [NAME_5] and [NAME_19] from [NAME_79] and [NAME_74]. 587. [NAME_1]'s evidence was not, in my opinion, subjected to any doubt by that of [NAME_80], [NAME_82] or [NAME_69] for the reasons I have given. In considering the matter, I must also have regard to the obviously important role played by [NAME_83] in preparing defect lists and the inference arising from the failure to call him in the circumstances. However, that is but another consideration to which the law requires regard to be had. Even without the availability of that inference, I would have come to the same conclusion. 588. I have not overlooked the presence of [NAME_40] on site or the inspections he made. However, the evidence satisfies me that he left the main work of ascertaining and characterising defects to [NAME_80] and [NAME_83]. He received the various reports, but nothing he has said satisfies me that the evidence called by [NAME_1] fails to establish that any defects remaining at the dates when [NAME_29] was claimed were only minor, and that there was a well organised program in place to deal with them in the manner contemplated by the Contract. 589. It was necessary for other matters to receive attention before [NAME_29] could be achieved. I have referred to these in my consideration of the construction of the Contract. I am satisfied, for the reasons I have given, that those relating to Stage 1A were completed by 26 November 1999. So far as Stage 2 is concerned, the necessary documentation was not delivered, as I understand the evidence, until 24 February 2000. The provision of that was a requirement for [NAME_29] and, accordingly, I am satisfied that [NAME_29] of Stage 2 occurred on 24 February 2000. 590. The extent to which there was a delay in [NAME_29] of each Stage will depend upon my findings in relation to the disputed EOT questions, and the consequences of any delay will depend on whether the liquidated damages provision imposed a penalty. 30 The Report then deals with whether the liquidated damages provision was a penalty (pars 591 to 673) and the [NAME_9] concluded that it was not. This aspect of the Report is not challenged. 31 The next sections of the Report are headed "Extensions of Time" (pars 674-675), "The Lift Dispute" (pars 676-680), "The FSR Dispute" (pars 681-713), "The Evidence of [NAME_85] (nee Byrne)" (pars 714-747), "The Gymnasium" (pars 748-753), "[NAME_5]'s Cross Claim" (par 754), "The Fan Coil Unit Equipment" (pars 755-759), "The Evidence of [NAME_88]" (pars 760-787), "The Down Lights" (pars 788-792), "The Evidence of [NAME_90]" (pars 793-822) and "Liquidated Damages" (par 823), which is followed by the [NAME_9]'s conclusion on the Cross-Claim for liquidated damages (par 824). 32 The Report deals with [NAME_1]'s unsuccessful claim against [NAME_19] under the heading "[NAME_1]'s [NAME_19]" (pars 825-845). There are then sections headed "An Application to Re-Open" (pars 846-881) and "The Reason for Seeking Leave to Re-Open" (pars 882-883), in which the [NAME_9] deals with [NAME_5]'s failure to return the security deposit bonds to [NAME_1] until during the hearing before him in February 2003. At pars 885 to 888, the [NAME_9] purports to make declarations and proposes to order judgment for [NAME_1] against [NAME_5]. These matters were the subject of correction in the Report dated 13 June 2003, in which the [NAME_9] correctly made recommendations in this regard.

Ground 1: Erroneous Rejection of Evidence 33 A number of witnesses relied upon by [NAME_5] were not cross-examined. [NAME_5] submitted that the evidence of each of the witnesses who were not cross-examined was "highly relevant" to the questions of what defects existed, the status of the defects and their impact on the date upon which [NAME_29] occurred. 34 An aspect of what Gleeson CJ said in [COMPANY_3] v [NAME_92] is, in my view, appropriate to emphasise in relation to this Ground. After stating that the process under Pt 72 r 13 is not an appeal, the Chief Justice said at 563: "This is consistent with the right of the [NAME_9] to conduct the reference as the [NAME_9] thinks fit and unconstrained by the rules of evidence" (see p 563 at D). Certainly the point taken here is more one relating to a "rule" of procedure, however it must be remembered that the reference procedure is not meant to be constrained by rules being applied with the same rigour as in curial proceedings. However the Court will be required to analyse and review the procedure before the [NAME_9] if, as here, an allegation has been made that a procedure was adopted that resulted in unfairness to one of the parties, such as to justify the rejection of the Report. 35 The main complaint made by [NAME_5] on this aspect of the matter relates to the manner in which the [NAME_9] dealt with the evidence of an [NAME_5] witness, [NAME_93]. The Report refers to [NAME_93]'s academic degrees in building matters, his membership of various building institutions and his lengthy employment history in the building industry (par 263). It also records the fact that [NAME_93] had undertaken three inspections and prepared written and photographic records of the status of the Works. 36 In [NAME_93]'s report of 7 January 2000 the Executive Summary stated: It is my opinion that at the date of my inspection on Saturday, 11 December 1999, the works included in Stage 1A had not reached '[NAME_29]'. This determination is based on the following: (a) The spaces/rooms/areas do not meet the definition of "[NAME_29]" as provided by [NAME_33]. That is, there is not continuous access and the defective works required to be repaired would preclude the use of the Stage as a 5-star [COMPANY_30]; (b) The spaces/rooms/areas do not meet all the criteria defined as '[NAME_29]' in Part B, Contract Particulars. That is, the Works of the Stage are not complete except for minor defects, and sufficient and continuous access is not available; and (c) The Builder has not complied with the provisions of Clause 8.4 of the Conditions of Contract in that it has not provided all the Certificates required, and those Certificates that have been provided are not in the correct format. (Ex A: Tab 4). 37 In paragraph 269 of the Report the [NAME_9] stated: 269. The basis of his first assessment was, firstly, that the non-provision of continuous access to each floor through the use of lifts would prevent the Stage from being utilised as five-star [COMPANY_30]; and secondly, that the level of incomplete works would require significant repair/replacement works would prejudice the use of the Stage as a five-star [COMPANY_30], examples being repair works to laundry recesses, cracked architraves around door openings, repairs to windows and doors on external facades, repainting, replacement of damaged carpet and repair of gyprock walls including setting and sanding. His third reason was that the entry doors to the units did not meet BCA requirements regarding fire isolation of each unit. 38 The consideration of [NAME_93]'s evidence appears in paragraphs 263-291 of the Report under the heading "The Nature of the Defects When [NAME_29] was Claimed". In the first part of that section the [NAME_9] deals with the evidence of [NAME_39], a professional dilapidation surveyor called by [NAME_1]. [NAME_39] gave evidence of the photographic survey she carried out of the serviced apartments by reference to a Defects List. The [NAME_9] described the photographic survey and the way in which [NAME_39] approached the [NAME_29] of that survey (par 246-254). The [NAME_9] also referred to [NAME_39]'s response to [NAME_93]'s reports, noting that [NAME_39] regarded a number of the defects alleged by [NAME_93] as "either non-existent or ones which she could not recall or as being minor or extremely minor" (par 255).

39 In respect of [NAME_39]'s evidence about what she observed and her photographic evidence, the [NAME_9] said: 257. I have looked at [NAME_39]'s photos and, so far as I can see, the material in her statements is totally consistent with what she said she photographed. The photos disclose, at least to my observation, an essentially well finished building, which observation is quite consistent with [NAME_39]'s view. 40 The Report noted that [NAME_39] did not see the specification for Works on the Project, nor any part of the Contract or specification or schedules as to finishes (par 260). The Report also records that during cross-examination [NAME_39] was shown photographs taken by [NAME_93] and asked to agree that certain of the alleged defects depicted by the photographs were not minor but serious, which she did not do (par 260-261).

41 It is apparent from the Report that there was a challenge to the nature of [NAME_39]'s experience and in par 262 the Report records: At Tp 111, [NAME_39] said that it was incorrect to suggest that she had no experience in carrying out or supervising building defects or completing otherwise incomplete building works. She gave evidence that she had assisted her father in running his business as a builder for 15 to 20 years dealing in fire reinstatement and insurance works. She agreed that she did not have experience of defects or repairs in relation to a structure of the kind of the subject premises in her father's business, but that in her work as a dilapidation surveyor and building reporter she did. 42 In paragraph 3.5 of [NAME_93]'s report of 7 January 2000 there is reference to a "lesser test" for [NAME_29]. On this topic the Report records: 274. [NAME_93] then applied a second and, as I understand it, what he regards as a less demanding, test for [NAME_29] based upon the Stage being complete except for minor Defects not preventing it from being reasonably capable of being used for the intended purpose and which will not prejudice the convenient use of it; and [NAME_1]'s having done everything required by the Contract, including only providing sufficient access to those areas defined as Stage 1A. 275. [NAME_93] concluded, for reasons he gave, that [NAME_1] failed to comply with the provisions of Clause 13.1 in various ways. … 278. The real question which arises, having regard to the photographs provided by [NAME_93], is whether the work described as needing to be done is in reality minor work or something other than minor work. [NAME_39] was cross-examined on a number of the photographs and maintained the view that it was minor work. [NAME_93] was not cross-examined. However, when one sees, as in photograph 23/1, that the purpose of the photograph is to indicate that a hinge has not been installed to a cupboard door, and in photograph 4/2 that there is a penetration drilled in the sill of a sliding door frame, which still has metal filings around it, and in photographs 6/2, 16/2 and 20/2 that the Builder has left plastic material on the carpet to prevent its being stained with paint and a paint tin or tins in the corridor, one has doubt about the seriousness of these matters. Other matters in other photographs were put to [NAME_39] and she was of the view that they were minor or very minor. Comment may also be made about the extent of the seriousness of a number of other matters depicted in the photographs as, for example, photograph 13/2 which depicts paint splashes from façade painting on the glass and frames of an external window. 43 [NAME_93] had attached to his report of 7 January 2000 a 15 page document entitled "[NAME_29]". This document sets out certain assessment criteria and deals with each of the relevant locations within the building, answering "yes" or "no" as to whether the criteria had been complied with. Where the answer was "no", reasons were provided for that answer. For example, in respect of the Apartments' Garbage Room the criteria "complete except for minor defects" was answered "no" with one reason being given as "North wall not constructed to correct fire rating. Refer Photograph No. 3/1". 44 The Report refers to that table in the following way: 280. The difficulties, so far as the table of assessment criteria is concerned, are that, at least to a not insubstantial extent, [NAME_93] appears to have proceeded on the basis that certain work was required to be done in Stage 1A, which, according to the coloured plans annexed to his report was not required to be done within Stage 1A. It is also interesting to note that [NAME_93] was unable to find any room which was complete except for minor defects, although in respect of several he was of the view that the correction of minor Defects would not prejudice the convenient use of the Stage. 45 [NAME_5] submitted that the last sentence of paragraph 280 of the Report was an expression of veiled criticism of [NAME_93], that no opportunity was given to him to respond, and that he may well have been able to do so. As I understand it, this sentence was an expression of the fact that [NAME_93] did not find any such room. However the introduction of the words "it is interesting to note that" could leave one with an impression that it was intended critically. In consideration of the whole Report, I am not satisfied that this sentence is decisive of any particular matter about which complaint was made. 46 The [NAME_9] referred to [NAME_93]'s second report and to his misapprehension of what was required for [NAME_29] of Stage 1A (par 283). After referring to his third report and to the submissions put by [NAME_1] in respect of [NAME_93]'s evidence, the [NAME_9] noted that [NAME_95] made no reference to the evidence of either [NAME_39] or [NAME_93] in his written submissions (par 287). However the [NAME_9] made no reference to [NAME_95]'s oral submission in which he did include submissions in relation to [NAME_93]'s evidence. Those submissions included the following: I then wish to refer to the evidence of [NAME_93]. [NAME_93] in his three reports brought forward a statement of his own observations and opinions and we rely on this material that was not cross-examined on. Our submission is that you would not find contrary to anything in these reports from this expert in the absence of the very best grounds in an evidentiary sense to do so. (Ex. 1: tr 831) 47 [NAME_95] analysed some of the evidence given by [NAME_93] and then made the submission that in the absence of cross-examination of [NAME_93] "the plaintiff has significant difficulties" (Ex. 1: tr 834). 48 The [NAME_9] dealt with the contest, as he saw it, between [NAME_39] and [NAME_93] in the following way: 288. So far as the evidence of [NAME_39] is concerned, I regarded her as a forthright and truthful witness, who went about the task committed to her with diligence and integrity. I am satisfied that she correctly characterised the defects she observed. The difficulty I have, so far as [NAME_93] is concerned, was that he was not called for cross-examination. There are certain parts of his reports, which depended upon views of the Contract with which I do not agree. Further, from a consideration of some of the photographs, it does not seem to me that some of the matters that he described as other than minor would fit this description. I have referred to a number of them. More importantly, [NAME_39] formed a similar view from a far more informed basis. On the other hand, I must bear carefully in mind that [NAME_93] was not required for cross-examination. The view may well have been taken that his views were sufficiently flawed in relation to the Contract and its purpose to make this unnecessary. The view may also have been taken that to cross-examine every witness about, essentially, the definition of defects, would have been an unnecessary waste of time. Indeed, the parties seemed to agree that this was not a case in which it was appropriate to adopt with rigour the [NAME_96] v [NAME_96] (sic) approach. This was obviously sensible and greatly shortened the hearing time. 289. It seems to me that, in the absence of cross-examination for whatever reason there may have been, the proper approach is to have regard to the evidence of [NAME_93] in so far as it is corroborated by other evidence called on behalf of [NAME_5] and [NAME_19] and in so far as it is contradictory of other evidence called by [NAME_1]. Whilst it is part of the evidence and whilst it has not been challenged by his being cross-examined, there are, nonetheless, certain observations concerning the contractual position contained within it with which I do not agree and, in relation to a number of the photographs, [NAME_95] cross-examined [NAME_39] to seek to establish from her that they were other than minor Defects, with which she was not prepared to agree. I have expressed my views as to the credibility of [NAME_39] and, to that extent, taken with my own viewing of a number of the photographs, I think, in a matter conducted as this was, it is permissible for me to form at least a prima facie view about the opinions [NAME_93] has expressed. I stress, however, that it must be, in relation to such factual matters, a prima facie view, although this does not impinge upon those parts of his report where, in my respectful opinion, he is in error in relation to his construction of the Contract. 290. However, that having all been said, in the absence of a submission based on [NAME_96] v [NAME_96] (sic), I think it reasonable to assume that [NAME_95] took the view that as to the matters disclosed in the photographs the parties were, essentially, at issue. In these circumstances I have the conflicting evidence of [NAME_39] and [NAME_93]. I am prepared to assume, in favour of [NAME_93], that confronted with a cross-examination that he was in error in asserting that the defects shown by his photographs were only minor, he would have adhered to his view that they were not minor. I also have the evidence of [NAME_39] that such defects were minor. 291. As I said, I think the best way to treat this difficulty is by looking at the totality of the tested evidence and seeing the extent to which it is corroborated by the evidence of [NAME_93] on that particular issue. I do that, of course, against the background of my assessment of [NAME_39]'s evidence. 49 [NAME_5] submitted that the statement by the [NAME_9] that "the parties seem to agree that this was not a case in which it was appropriate to adopt with rigour" the [NAME_10] v [NAME_11] approach was erroneous. It is obvious that the parties adopted differing stances as to when it was necessary to put matters to various witnesses. Those approaches are referred to below; however it has to be noted that what the [NAME_9] said was that it seemed that they agreed, not that they did agree. It is not suggested that the parties seemed to agree not to apply the "rule" in [NAME_10] v [NAME_11] at all; it was that they would not apply it with "rigour". This was a lengthy hearing with various statements being made about the [NAME_10] v [NAME_11] approach from time to time. I am not persuaded that this particular observation by the [NAME_9] is either unjustified or erroneous. 50 The [NAME_9]'s statement that there was an "absence" of a [NAME_10] v [NAME_11] submission in respect of [NAME_93]'s evidence is also challenged as erroneous. [NAME_95] did not expressly refer to [NAME_10] v [NAME_11]. His submission was that [NAME_1] would have "significant difficulties" in the absence of cross-examination (Ex. 1: tr 834) and that the [NAME_9] "would not find contrary to anything" in [NAME_93]'s reports "in the absence of the very best grounds in an evidentiary sense to do so" (Ex. 1: tr 831). Mr [NAME_25] QC, for [NAME_5] before me, preferred to refer to the issue and submission as a failure to cross-examine rather than there having been an infraction of the rule in [NAME_10] v [NAME_11].

51 [NAME_5] also submitted that the evidence of [NAME_93] commanded significant attention and weight and that there was manifest unfairness to the defendants in the way the evidence of [NAME_93] was dealt with by the [NAME_9]. It was submitted that [NAME_5] was entitled to assume that [NAME_93], being a highly experienced expert, was not being challenged and that the [NAME_9] failed to apply the fundamental principle that where a witness is not cross-examined his or her evidence should ordinarily be accepted. 52 The so-called "rule" in [NAME_10] v [NAME_11] has been referred to many times. In that case Lord Herschell LC said at 70: Now, my Lords, I cannot help saying that it seems to me to be absolutely essential to the proper conduct of a cause, where it is intended to suggest that a witness is not speaking the truth on a particular point, to direct his attention to the fact by some questions put in cross-examination showing that that imputation is intended to be made, and not to take his evidence and pass it by as a matter altogether unchallenged, and then, when it is impossible for him to explain, as perhaps he might have been able to do if such questions had been put to him, the circumstances which it is suggested indicate that the story he tells ought not to be believed, to argue that he is a witness unworthy of credit. My Lords, I have always understood that if you intend to impeach a witness you are bound, whilst he is in the box, to give him an opportunity of making any explanation which is open to him; and, as it seems to me, that is not only a rule of professional practise in the conduct of a case, but is essential to fair play and fair dealing with witnesses. Sometimes reflections have been made upon excessive cross-examination of witnesses, and it has been complained of as undue; but it seems to me that a cross-examination of a witness which errs in the direction of excess may be more fair to him than to leave him without cross-examination, and afterwards to suggest that he is not a witness of truth, I mean upon a point on which it is not otherwise perfectly clear that he has had full notice beforehand that there is an intention to impeach the credibility of the story which he is telling. Of course I do not deny for a moment that there are cases in which that notice has been so distinctly and unmistakably given, and the point upon which he is impeached, and is to be impeached, is so manifest, that it is not necessary to waste time in putting questions to him upon it. All I am saying is that it will not do to impeach the credibility of a witness upon a matter on which he has not had any opportunity of giving an explanation by reason of there having been no suggestion whatever in the course of the case that his story is not accepted.

53 Glass JA in Seymour v Australian Broadcasting Commission (1990) 19 NSWLR 219 said at 225: Since the rule is designed to prohibit the unfair conduct of trials, it is obvious that breaches of it may occur in many different circumstances and no uniform sanction can be laid down. Depending upon the nature of the infraction, the remedy is essentially a matter in the discretion of the trial judge. … (I)n my opinion, it is going altogether too far to contend that evidence which would otherwise be relevant to a conclusion for which one party contends should be disregarded because its implications have not been put to the party against whom the inference is to be drawn. In my opinion, the trial judge would have been entitled to refuse such a direction and his failure to give it does not entitle the plaintiff to a new trial. 54 In the same case Mahoney JA said at 236: [NAME_10] v [NAME_11] provides an illustration of one of the ways in which a trial may miscarry. Where, in a civil case, a witness is not cross-examined, it may normally be assumed that the evidence of that witness is not in contest. Therefore, as was there decided, in such a case a party who has not cross-examined a witness will not normally be entitled to submit in address that the witness's evidence should not be accepted. But the circumstances of the particular case may negative such an assumption. Whether it is right to make such an assumption will depend upon, for example, whether counsel has at the time, given an adequate reason for not cross-examining the witness or otherwise made it clear that it is not a proper case in which to make that assumption: ibid at 71 per Lord Herschell LC. It may be that the witness's evidence is fanciful or such as not to warrant cross-examination: ibid at 79 per Lord Morris; or that cross-examination is foregone for other adequate reasons, for example, delicacy: see Phipson on Evidence , 12th ed (1976) par 1543 at 618-619 and Halsbury's Laws of England , 4th ed, vol 17, par 278 at 194. Similarly, failure to cross-examine a witness may not found such an assumption or render the course of the trial unfair if it is clear from the manner in which generally the case has been conducted that his evidence will be contested. 55 In [COMPANY_14] v Commissioner of Taxation (1983) 1 NSWLR 1, a case to which the [NAME_9] referred in the Report, Hunt J said at 26: I remain of the opinion that, unless notice has already clearly been given of the cross-examiner's intention to rely upon such matters, it is necessary to put to an opponent's witness in cross-examination the nature of the case upon which it is proposed to rely in contradiction of his evidence, particularly where that case relies upon inferences to be drawn from other evidence in the proceedings.

56 The "rule" is a procedural one, the adherence to which enhances the fairness of a trial. In this case it was obvious that the parties were at issue as to whether the defects were minor or would prevent [NAME_29]. There could have been no surprise to [NAME_5], in the [NAME_10] v [NAME_11] sense, that [NAME_1] would be submitting that, inconsistently with what the [NAME_34] had said, the defects were minor or such as would not prevent [NAME_29]. To use the words of Lord Herschell LC, notice that [NAME_1] would be suggesting that [NAME_39]'s evidence was to be preferred over that of [NAME_93], thus impeaching his version, "had been so distinctly and unmistakably given" by the service of the competing statements. 57 Once the parties joined issue by the reading of the statements, it was open to them not to cross-examine the witnesses for the opposing side and to submit that the opinions of their witnesses were to be preferred. However in this case [NAME_5] cross-examined [NAME_39], but [NAME_1] did not cross-examine [NAME_93]. In these circumstances [NAME_5] made the submission to the effect that [NAME_1] would at least have had to cross-examine [NAME_93] before the [NAME_9] would entertain a rejection of his opinions. Put this way, it is understandable that Mr [NAME_25] QC, correctly in my view, distinguished between what has been described as a [NAME_10] v [NAME_11] infraction, and a failure to cross-examine. Put this way, the statement by the [NAME_9] that there was an absence of a [NAME_10] v [NAME_11] submission may be technically correct and, in any event, it is obvious that the [NAME_9] was acutely aware of the fact that [NAME_93] had not been cross-examined and even referred to it as a "difficulty", whether or not that awareness was specifically sourced to [NAME_95]'s submission. 58 In this regard [NAME_5] relied heavily upon [COMPANY_17] v [NAME_13] [2001] NSWCA 359 in which the [NAME_9] was sitting as an Acting Judge of Appeal. [ADDRESS] (Sheller JA, Rolfe AJA and Davies AJA) was considering a case in which four expert engineers had provided reports and none had been required for cross-examination. The following portions of the judgment of Rolfe AJA, with whom Sheller JA and Davies AJA agreed, were relied upon by [NAME_5]: 20. … [ADDRESS] has, on a number of occasions, remarked on the difficulties a Court confronts when asked to decide matters involving various types of expertise without the benefit of at least the principal expert witnesses being cross-examined.

21. Prima facie if there is no cross-examination of an expert, (and indeed most witnesses), there is no basis for a Judge not to accept the unchallenged evidence. I say "prima facie" because there are circumstances in which evidence in a report may be rejected or subject to criticism or doubt. This may occur where, for example, the report is ex facie illogical or inherently inconsistent; or where it is based on an incorrect or incomplete history; or where the assumptions on which it is founded are not established. However, in the absence of some such matters, there is no rational reason to not accept unchallenged evidence. 22. … As experience in conducting litigation frequently shows, cross-examination, far from eroding the expressed views, often strengthens them as the expert explains in more detail the reasoning process.

23. Furthermore, the Court has the opportunity of hearing the expert and making an evaluation of his or her evidence.

24. Another consequence may well flow from the failure to cross-examine. In the present case the appellant did not challenge the respondents' experts views. In such circumstances one may ask why the appellant should have been allowed to call any contrary evidence. The lack of challenge meant, at least prima facie , that the appellant accepted the views propounded. To allow conflicting evidence to be called raised, to some extent, a false issue. However, no objection was taken to the tender of that evidence.

25. The only reasonable inferences to be drawn from the failure of Counsel for the appellant to cross-examine the respondents' experts are that his instructions were that their evidence was probably right; or that a calculated decision (perhaps influenced by the first point) was taken to try to argue the matter without attacking the evidence. 59 It was submitted that it was unfair to [NAME_5] to reject the evidence of [NAME_93] in circumstances where he had not been cross-examined and where there was no indication given that his evidence would be rejected. This position was contrasted to the position adopted by the [NAME_9] in respect of the cross-examination of [NAME_45]. In that regard the [NAME_9] was dealing with the situation that [NAME_45] had not been cross-examined about a gymnasium issue and asked [NAME_95] why he should not reject [NAME_5]'s submissions on the basis that relevant matters were never put to [NAME_45] conformably with the rule in [NAME_10] v [NAME_11] [NAME_15] v The Commissioner of Taxation (tr 898). The [NAME_9] said: Well, [NAME_95], just so that there is no misunderstanding, if the matter stays as it is, I propose to reject that submission on the basis that that matter was never put to [NAME_45]. Now, there are several ways you could or may seek to rectify that situation, but I don't want you to be under any misapprehension about it as matters presently stand. (Ex. 1: tr 899) 60 [NAME_5] submitted that the [NAME_9]'s failure to inform counsel that he intended to reject [NAME_93]'s evidence was inconsistent with the approach that he had adopted in respect of [NAME_45]'s evidence. In other words, he did not suggest to counsel for [NAME_1] that he would have to cross-examine [NAME_93] and put the matters in issue to him if it was to be [NAME_1]'s case, as indeed it was, that [NAME_93]'s evidence should be rejected. 61 [NAME_1] submitted that there is no inconsistency demonstrated by the [NAME_9]'s approach to the evidence of [NAME_45] on the gymnasium issue. In analysing this aspect of the matter [NAME_97], for [NAME_1] before me, referred to the transcript of the hearing before the [NAME_9]. His starting point was a submission made by counsel for [NAME_1] before the [NAME_9], [NAME_98], as his Honour then was, in respect of the evidence of [NAME_100], who was not cross-examined, upon a particular aspect of her evidence. [NAME_98] submitted: Now, I'm not saying that this is the case where [NAME_10] v [NAME_11] requires every witness to be challenged on everything in dispute, otherwise we would be here for the next three years; but where witnesses give evidence of a process like that and not one question is put to them to suggest that the evidence is wrong or misconceived, then, in our submission, you simply can't ignore that evidence. (Ex. 1: tr 691)

62 [NAME_97] made the following submission in respect of [NAME_98]'s submission: What he is saying is, "There is no [NAME_10] v [NAME_11] here. We all know that. That is the way the case has been conducted. But there are no questions on a particularly important aspect and you can't ignore that." That is what he is saying. He's not saying you can't accept it. He's saying you can't ignore it and that is the weight aspect, the second limb of [NAME_10] v [NAME_11] . Interestingly, [NAME_95] does not at that stage take any issue with [NAME_98]. He doesn't jump up and say, "Just a moment, Mr [NAME_9]. This is a case where [NAME_10] v [NAME_11] is being rigidly applied." (tr 96) 63 [NAME_98] referred to the gymnasium matter and the fact that [NAME_95] had not put certain things to [NAME_45] in respect of that matter and submitted: I accept, as I said before, that this is not a case where [NAME_10] v [NAME_11] rules supreme, but in this case the omission is very significant, because I'm instructed, and I put this as a summation only, that had the matter been raised with [NAME_45], he would have said that the principal was allowed into the gym prior to [NAME_1] claiming [NAME_29] and that was for the purpose of allowing the principal to carry out its FF&E works; that the FF&E works carried out by the principal involved putting in television brackets for the television in the gym, which descended from the ceiling and therefore meant the ceiling couldn't be completed and then putting in the timber floor that I think we saw on the view, which meant that the skirtings and sills couldn't be completed. If my learned friend is going to rely on this submission, then I would respectfully submit that it would be appropriate to allow us to re-open our evidence for the limited purpose of adducing that from [NAME_45] because otherwise, it having been sprung on us in this way and then the submission being put, it is entirely unfair. (Ex. 1: tr 879)

64 [NAME_97] submitted that what [NAME_98] was putting was that the parties had not implicitly joined issue by reference to their pre-trial statements, or to put it another way, [NAME_1] had not been put on notice that this particular aspect of the matter was in issue. It was submitted that it was something of significance that had not been raised. [NAME_97] also relied upon [NAME_95]'s response to the [NAME_9] as to why he should not reject the submission about the gymnasium matter. It was: The reports on which we rely to raise that issue were served in evidence and, in my submission, it's not necessary for me to put directly something of that nature. (Ex.1: tr 899)

After further debate, [NAME_95] conceded that it could not be said that the reports served at the relevant time raised the gymnasium issue under discussion (Ex. 1: tr. 899, line 24). [NAME_45] was re-called and the matter was put to him directly. 65 [NAME_97] submitted that [NAME_95]'s response to the [NAME_9] is significant because: (1) it demonstrates that [NAME_5]'s position was that it was adopting the approach that it was not necessary to put matters "directly" to various witnesses if the parties had joined issue on a matter by the service of reports and/or statements; and (2) it demonstrates that issue had not been joined on the gymnasium matter under discussion. In those circumstances it was submitted that the approach the [NAME_9] took to this aspect of the case does not provide any proper basis for a submission that the [NAME_9]'s treatment of [NAME_93]'s evidence compared to his treatment of [NAME_45]'s evidence on this topic was inconsistent and unfair. [NAME_93]'s evidence in relation to defects was an issue upon which the parties had joined issue by the filing of competing statements. It was quite different from the gymnasium issue and the evidence of [NAME_45] on which the parties had not joined issue. The position was quite different with [NAME_45] and I agree with [NAME_97]'s submission that this comparison is not apt. It does not demonstrate any error by the [NAME_9]. 66 [NAME_5] also submitted that in the light of the significant relevance of [NAME_93]'s evidence it was unfair to make a finding of credibility in favour of [NAME_39] when there was absolutely no reason to make any adverse findings against [NAME_93] in relation to his observations and conclusions based on his inspections. [NAME_5] contrasts the position of [NAME_93] in 2002 when his brief was to conduct an independent inspection without utilizing any Defects Lists, to that of [NAME_39], who conducted her inspections on the basis of Defects Lists provided to her by [NAME_1]. 67 [NAME_5] submitted that the approach the [NAME_9] suggested in pars 289 and 291 of the Report he would adopt in relation to [NAME_93]'s evidence was not adopted. That approach was that, in the absence of cross-examination, he would have regard to [NAME_93]'s evidence: (1) in so far as it was corroborated by other evidence called by [NAME_5]; and (2) in so far as it was contradictory of other evidence called by [NAME_1]. 68 The first of the witnesses referred to by [NAME_5] in this regard was [NAME_46] who expressed the opinion that a major defect would have to be structural, for example, a defect in the foundations. The cross-examination of [NAME_46] was referred to by the [NAME_9] commencing at par 392 of the Report. [NAME_46] was shown a document in which he had written to a sub-contractor in relation to a problem with wardrobe doors stating that it was "a major defect" (par 397). The [NAME_9] then extracted the evidence in which [NAME_46] said that he exaggerated the description of the defect to the sub-contractor so that the work would be done as quickly as possible. [NAME_46] said that "major defect" was the terminology he used to get the sub-contractor to react (pars 397-398). The [NAME_9] wrote: 399. Having had the advantage of seeing [NAME_46] cross-examined and of having reflected on his answers, I do not consider that he was being untruthful. The simple fact of the matter was that [NAME_1] was being confronted by a client and a Contract Administrator that were taking every point possible to avoid having to concede [NAME_29]. In these circumstances, so far as [NAME_1] and the sub-contractor were concerned, the rectification of the wardrobe doors took on major significance and, in my opinion, [NAME_46]'s evidence, in those circumstances, was totally satisfactory. He appreciated that notwithstanding his view as to the nature of the defect [NAME_40] was going to take a contrary view and, therefore, to stimulate urgent activity on the part of the sub-contractor, [NAME_46] used the language he did. There was no lack of frankness in doing so, because of the consequences flowing from the refusal to grant [NAME_29] by [NAME_19] and thus, in the circumstances he was being as frank "as he could be". 69 The [NAME_9] then referred to a number of facsimile transmissions that [NAME_46] had sent to sub-contractors about defects in which he stated that the outstanding defects were "delaying [NAME_29] and occupation of the [COMPANY_30]" (par 407). The Report records [NAME_46]'s evidence that he was not of the view that the defects were delaying [NAME_29] and the following portion of his evidence is extracted as indicative of [NAME_46]'s views: Q: But you say today, don't you, that you believe that the defects you were referring to in this list were not delaying [NAME_29] and occupation of the [COMPANY_30], don't you? The [NAME_9]: No, he's not saying that, he's not saying that at all. He is saying he, along with everyone else at [NAME_1], believed there have (sic) been [NAME_29], but your client was denying there had been [NAME_29]. That's what he is saying. His evidence is he was saying to the sub-contractors that until that work was done, in parenthesis, there was this ongoing dispute about whether there was [NAME_29] or not. That's how I understand his evidence. The [NAME_9]: Q: Is that a correct understanding of your evidence? A: That is what I was trying to say, yes. The [NAME_9]: I mean, he wasn't writing an opinion he was trying to get a result. (par 409) 70 The [NAME_9] referred to the further cross-examination of [NAME_46] in relation to his use of the term "major defect" and wrote: 412. … Essentially, if not entirely, [NAME_46] maintained the evidence he had previously given and, I must say, the more he explained his position in those terms the clearer, so far as I was concerned, his explanation became and, the clearer it became, the more credible it seemed to me to be. 413. In the end, and for the reasons I have given, I accept that [NAME_46] was a witness of truth and that his purpose in referring to "major" defects in communications with the sub-contractors should be accepted. Furthermore, I accept his evidence as to what he regarded the nature of the defects to be, viz. minor or very minor. 71 [NAME_46]'s written words were consistent with [NAME_93]'s evidence that the defects were major and that they were an impediment to [NAME_29]. In reaching the conclusion as to whether to accept [NAME_46]'s explanation that the words written at the time were an exaggeration rather than the truth, the [NAME_9] did not make an express comparison of those documents with the evidence of [NAME_93]. It was submitted that the [NAME_9] failed to apply the approach that he said he would adopt, and in any event, failed to apply the proper approach to unchallenged evidence, as stated in [NAME_12]. 72 It was also submitted that in the circumstances of [NAME_46] effectively being excused for using the term "major defects" in his documents, it was even more important to approach the evidence of [NAME_93] in line with what was said in [NAME_12] and that, as a matter of fairness, [NAME_93] should have been given the opportunity of answering criticisms of his opinions. The [NAME_9] was acutely aware that [NAME_93] had not been cross-examined. Having reviewed the whole of the Report and the approach the [NAME_9] adopted it must be remembered that he was exquisitely placed to decide the facts, including whether [NAME_46] used the words as he said he did, to motivate the contractors to do the work promptly. This finding of fact was the [NAME_9]'s domain and I am not satisfied that simply because he did not say again that he was weighing the evidence in the way he said he would in pars 288 to 291, this Court should find he did not do so. Indeed the [NAME_9]'s conclusions, to which reference is made below, militate against such a finding. 73 In respect of the [NAME_9]'s criticism of [NAME_93] applying an incorrect test, [NAME_5] highlighted the fact that neither [NAME_102] nor [NAME_39], who were called by [NAME_1], were aware of the use to which the various parts of the building were to be put. The [NAME_9] noted that [NAME_102]' opinion was qualified and that his "preliminary analysis" was based on a "brief inspection and limited documentation review" (par 504). On this aspect the [NAME_9] reported: 505. Once again it is necessary to keep in mind that the report was qualified and that it must be read, in its entirety, subject to those qualifications. However, it forms part of the evidence upon which, in my opinion, [NAME_1] is entitled to rely. Obviously, in the fullness of time and when all the evidence is assessed, it will be necessary to decide the extent to which [NAME_1] could place reliance on the report. However, there is one matter with which I have little difficulty, and that is that it is unlikely, in the absence of the most detailed investigation and report, that any other building contractor would be disposed to grant an unqualified opinion. 506. [NAME_103]'s evidence … was corroborative of the view expressed by the other witnesses whom [NAME_1] called. … I see no reason why his evidence should not be accepted. 74 [NAME_5] points to the acceptance of [NAME_102]' evidence, notwithstanding his qualified report, and contrasts it to the rejection of [NAME_93]'s unqualified and unchallenged evidence. It is submitted that this is demonstrative of the error into which the [NAME_9] fell, both from the point of view of failing to apply the approach he set for himself in the Report and the approach endorsed by the Court of Appeal in [NAME_12]. 75 It was submitted that in contrast to the way the [NAME_9] dealt with [NAME_1]'s evidence, he was not prepared to give any benefit of doubt to [NAME_34]. The example relied upon by [NAME_5] in this regard was the evidence of [NAME_69], who spoke of many workmen being on site and the premises being dusty and dirty (par 560). The Report records that [NAME_69] made notes of defects she observed in electrical appliances and services and continues: 563. The problem, so far as [NAME_69]'s (sic) is concerned, in my opinion, is that it is not clear what test [NAME_69] was applying in relation to the defects. She certainly did not say that she had ever considered them in the light of the Contract or in the light of what was required as at [NAME_29]. Further, it is not clear, in my opinion, of the extent to which [NAME_69] made observations of the recorded defects. 76 [NAME_5] submitted that the treatment of [NAME_69]' evidence in contrast to [NAME_39]'s evidence demonstrates further error by the [NAME_9]. It was submitted that it was clear that [NAME_39], whose evidence the [NAME_9] accepted, had no knowledge of any contractual test to be applied, yet when assessing the evidence of [NAME_69], who, it was submitted, was in the same position as [NAME_39] in this regard, the [NAME_9] referred to the lack of knowledge as "the problem". [NAME_5] submitted that [NAME_69] and others were as capable as [NAME_39] was found to be of making observations of defects.

77 [NAME_5] submitted that even applying the [NAME_9]'s approach outlined in paragraph 291, [NAME_93]'s evidence did corroborate the tested evidence of [NAME_46], [NAME_102] and [NAME_69].

78 The treatment of the evidence of another [NAME_5] witness, [NAME_105], was also the subject of complaint. The [NAME_9] dealt with [NAME_72]'s evidence between paragraphs 572 to 583 of the Report. [NAME_5] submitted that the [NAME_9] did not refer to a portion of one of [NAME_72]'s reports in which he had expressed the opinion that [NAME_29] of the Works by mid February 2000 required that the quality of the work be maintained, the defects rectification and approval process be streamlined and that if the process was not managed better than it was on Levels 1 to 8, it was likely that [NAME_29] would extend to March 2000. It was submitted that this opinion and others expressed in other reports of [NAME_72] supported the later [NAME_29] date contended for by [NAME_5].

79 The Report refers on a number of occasions to [NAME_72]'s "further status reports" (pars 579, 581) and specifically refers to the prospect of a [NAME_29] date in late February 2000 and extending into March 2000 (par 582). It is true that the [NAME_9] did not refer specifically to some of the portions of [NAME_72]'s reports to which reference has been made in the submissions, but I am satisfied that the material to which he did refer was ample for the purpose he was required to fulfil.

80 It was also submitted that the [NAME_9] failed to deal appropriately with the evidence of [NAME_107]. [NAME_110] is the General Manager of [NAME_111], a company specializing in disaster cleaning and the recovery of carpets, upholstery, curtains, electronics and furniture affected by fire, water or odour. His statement of 18 December 2001 and his report of 3 January 2003 (Ex. A: Tab 7) referred to his experience and [NAME_29] of disaster cleaning and fire and water restoration courses in the United States of America.

81 [NAME_110] made two inspections, the first in November 1999 and the second in February 2000, during which he made notes and took photographs of what he described as a "broad range of defects". He referred to paint stains and other marks as a result of carpet being laid prematurely. He also referred to glue stains on the carpet. He concluded that some of the defects could have been eradicated by simple solutions but other defects would be more difficult to rectify. 82 [NAME_5] submitted that [NAME_110]'s evidence went directly to the determination of whether the contractual definition of [NAME_29] was met and that his evidence was corroborative of evidence from other witnesses, including [NAME_82] and [NAME_40]. However the [NAME_9] did not make any mention at all of [NAME_110]'s evidence in the Report. It was submitted that as a result of his failure to refer to or deal with that evidence it was not possible to know whether that evidence was considered by the [NAME_9] and if so, what conclusions he arrived at on the evidence and whether or not it was accepted or rejected. 83 [NAME_110]'s evidence, Exhibit 10, consisted of a statement and a carpet inspection report. He expressed the view that it was "sheer stupidity" to have painters and other tradespeople working in rooms after the carpet was laid. He also expressed the view that the site was "completely disorganized". However in relation to the nature of the defects, the issue in question on this aspect of [NAME_5]'s complaints, [NAME_110] did not describe the defects as major. He expressed the view that some marks on the carpet would be more difficult than others to remove and that some defects from "poor workmanship" would be relatively straightforward to rectify. He did express an opinion that there were "far too many outstanding defects" in February 2000, but that has to be viewed in the context to which I have just referred. 84 The [NAME_9] did not specifically refer to or separately analyse [NAME_110]'s evidence in the Report. However there is ample reference in the Report to the allegations made in relation to the carpet. The [NAME_9] clearly reviewed all the evidence and when he reviewed the photographs in relation to the alleged carpet defects, he came to the view that they were not serious (par 278). I am not satisfied that the failure to specifically refer to [NAME_110]'s evidence is a ground upon which to reject the Report. 85 [NAME_5] made a further complaint that the [NAME_9] did not raise with counsel for [NAME_5] that he was minded to make adverse inferences from its failure to call [NAME_83] to give evidence. It was submitted that had the [NAME_9] done so, the defendants would have had the opportunity to call further evidence from [NAME_40] or from the defendants' legal representatives as to the inherent difficulty in obtaining a witness statement from [NAME_83]. [NAME_40]'s evidence in cross-examination disclosed that [NAME_83] had left [NAME_19]'s employment in August 2001 and that [NAME_40] and [NAME_83] did not see "eye to eye" towards the end of his employment. This was not referred to in the [NAME_9]'s criticism or adverse inference drawn against the defendants for failing to call [NAME_83]. Additionally it was submitted that there was no reason to think that the failure to call [NAME_83] was because [NAME_5] thought he would give unfavourable evidence. 86 For the purpose of dealing with this submission I will assume that this was a matter that should have been raised with [NAME_5] prior to the inference being drawn. The fact that this was not done and the inference was so drawn does not affect the outcome of these applications because the [NAME_9] stated clearly that this inference was not decisive in his reasoning (par 587). In any event [NAME_5] was on notice that this was a course that the [NAME_9] was being asked to take by a submission made by [NAME_98], referred to in paragraph 199 of the Report. 87 It is submitted that the [NAME_9] fell into error such that the Report should be rejected by reason of [NAME_1]'s failure to cross-examine [NAME_5]'s witnesses, especially [NAME_93], and the [NAME_9]'s statement that there was no submission "based on" [NAME_10] v [NAME_11]. The [NAME_9] made an assumption as to why [NAME_95] did not make such a submission, stating that it was "reasonable to assume that [NAME_95] took the view that as to the matters disclosed in the photographs the parties were, essentially, at issue" (par 290). It cannot be suggested that [NAME_5] did not know that they were "at issue" on this topic, but [NAME_95] submitted that the [NAME_9] would not reject [NAME_93]'s opinions in the absence of cross-examination.

88 As I have said, the [NAME_9] was clearly cognisant of the fact that [NAME_93] had not been cross-examined and decided to approach what he described as "this difficulty" in the manner set out in paragraphs 288 to 291 of the Report. Although a detailed comparison of the evidence given by [NAME_93] was not made with the evidence given by each of the [NAME_1] witnesses or analysed in conjunction with the evidence of other [NAME_34], it is clear that the [NAME_9] was aware of the care he needed to take in the absence of cross-examination. This is evidenced by the reference he made to the fact that he could only form "prima facie" views about the unchallenged opinions [NAME_93] expressed, except those opinions that were based upon a particular construction of the Contract with which the [NAME_9] disagreed. These observations are consistent with [NAME_12] in that the [NAME_9] obviously formed the view that the assumptions [NAME_93] made about the construction of the Contract were not established. This was an example given in [NAME_12] for the justified rejection of unchallenged evidence.

89 [NAME_5] relied heavily upon the observation in that case that cross-examination gives the Court the opportunity of hearing the expert and making an evaluation of the evidence as the expert explains in more detail their reasoning process. It was submitted that [NAME_93] should have been given the opportunity to explain his reasoning process for reaching the conclusions he expressed in his reports and that the only way that could occur in the process before the [NAME_9] was by requiring [NAME_1] to cross-examine him as a pre-requisite to an entitlement to impeach those conclusions. 90 The mixture of forensic approaches adopted in the hearing before the [NAME_9], some of which have been referred to earlier in this judgment, does not allow the process before the [NAME_9] to be described as forensically pure. On one view of the matter, as referred to in par 24 of [NAME_12] if it was truly the case that [NAME_5] was to maintain that [NAME_93] had not been challenged at all and that there was no basis for doing anything other than accepting his opinions, the evidence of [NAME_39] was objectionable as raising a "false issue". However her evidence was not objected to on that basis. That is understandable in this case because [NAME_5] did not know that [NAME_93] was not to be cross-examined until the day or the day before he was scheduled to give evidence (Ex. 1: tr 501-503). It is apparent that the forensic decision to cross-examine [NAME_39] was made on the basis that [NAME_93] was also to be cross-examined.

91 Where there is unchallenged evidence called by a party and there is evidence that is called by the opposing party that the tribunal of fact accepts, notwithstanding a challenge to it, there is the necessity to weigh that evidence against the unchallenged evidence called by the first party. The examples of circumstances that Rolfe AJA referred to in [NAME_12] in which unchallenged evidence in a report may be rejected included where the report is ex facie illogical or inherently inconsistent; where it is based on an incorrect or incomplete history; or where the assumptions on which it is founded are not established (par 21). These were only examples and could hardly be said to be exhaustive. [NAME_5] submitted that none of these examples is referred to by the [NAME_9] in the Report as a basis for having rejected [NAME_93]'s evidence. In the circumstances it was submitted that as Rolfe AJA said in [NAME_12] "there is no rational reason to not accept unchallenged evidence" of [NAME_93]. 92 In a detailed table at paragraph 3.1 of the 2002 report, [NAME_93] made a comparison of the photographs he took and the photographs [NAME_39] took. [NAME_93] concluded that the photographs taken by [NAME_39] had not been taken at a sufficiently close range to record the defects and that his photographs did record the defects. The [NAME_9] analysed each of [NAME_93]'s reports including the report dealing with [NAME_112]'s photographs. It is obvious that the [NAME_9] reviewed [NAME_93]'s photographs having regard to paragraphs 277 and 278 of the Report. The [NAME_9] went further and assumed that had [NAME_93] been cross-examined, he would have maintained that the defects that he observed were not minor.

93 In [NAME_12] none of the experts had been cross-examined. In this case one of the experts was cross-examined and the [NAME_9] found that cross-examination did not successfully challenge that expert's views. Thus, the [NAME_9] had two experts' opinions that were in conflict and although one was cross-examined upon, the ultimate position was that neither had been effectively challenged. It was therefore important for the [NAME_9] to look at all the evidence and to find the facts. 94 After reviewing the evidence the [NAME_9] set out his Conclusions on [NAME_29], extracted at par 29 of this judgment. [NAME_5] submitted that far from analysing [NAME_93]'s evidence in the way heralded in paragraphs 288 to 291 of the Report there was a total failure to comply either with the approach the [NAME_9] set for himself or the principles enunciated in [NAME_12]. It is submitted that to comply with those approaches there should have been some mention of the analysis in section 31 of the Report, extracted at paragraph 29 of this judgment.

95 The reality is the [NAME_9] reviewed the photographs for himself and came to the view that it was a well finished building, that the defects appeared to be minor rather than otherwise, and that there was a well organized regime for the rectification of those defects. The Report stated: 278. The real question which arises, having regard to the photographs provided by [NAME_93], is whether the work described as needing to be done is in reality minor work or something other than minor work. [NAME_39] was cross-examined on a number of the photographs and maintained the view that it was minor work. [NAME_93] was not cross-examined. However, when one sees, as in photograph 23/1, that the purpose of the photograph is to indicate that a hinge has not been installed to a cupboard door, and in photograph 4/2 that there is a penetration drilled in the sill of a sliding door frame, which still has metal filings around it, and in photographs 6/2, 16/2 and 20/2 that the Builder has left plastic material on the carpet to prevent its being stained with paint and a paint tin or tins in the corridor, one has doubt about the seriousness of these matters. Other matters in other photographs were put to [NAME_39] and she was of the view that they were minor or very minor. Comment may also be made about the extent of the seriousness of a number of other matters depicted in the photographs as, for example, photograph 13/2 which depicts paint splashes from façade painting on the glass and frames of an external window. 96 In the face of what were two competing effectively unchallenged experts' reports the [NAME_9] had to decide whether these defects were minor or not. [NAME_93] and [NAME_39] were only two witnesses out of a number of witnesses called in relation the question of [NAME_29]. The finding made by the [NAME_9] that he preferred the evidence called by [NAME_1] and that the [NAME_5] evidence did not subject it to any doubt, is in my view consistent with him having considered all the evidence called and treated [NAME_93]'s evidence as unchallenged but outweighed by the [NAME_1] evidence. The [NAME_9] did compare the evidence of the two experts and did not misapply the principles relevant to the "difficult" circumstance of [NAME_93] not having been cross-examined. It is clear that all the evidence called by [NAME_1] was, in the [NAME_9]'s opinion, such as to outweigh the evidence called by [NAME_5] including [NAME_93]'s evidence. I am not satisfied that the Report should be rejected based upon the submissions made on this Ground. Ground 2: Availability of Lifts 1, 2 and 3 97 Although there appeared to be a mistake on the drawings in Plan O, and although lifts 1, 2 and 3 were not available at ground level, the [NAME_9] concluded that [NAME_29] had been achieved as at 26 November 1999 because [NAME_1] had provided "sufficient and continuous" access via lift 4 which was available as a goods and personnel lift. There is no issue that lifts 1, 2 and 3 were not made available until approximately 22 January 2000. 98 The contest on this issue was between the evidence of [NAME_40] and that of [NAME_45]. In detailing [NAME_45]'s evidence on this aspect of the matter, the [NAME_9] wrote: 310. [NAME_45] said that he formed the opinion that the absence of lifts 1, 2 and 3 did not prevent [NAME_1] from claiming [NAME_29] of Stage 1A as the intended purpose of [NAME_29] of that Stage was to provide [NAME_5] and other contractors with sufficient and continuous access to those areas for the purpose of commencing installation of FF&E and for sales and marketing activities. Further, he suggested that it is apparent on the Part O plans that the coloured-up areas for Stage 1A [NAME_29] shows that lifts 1 and 2 were required from levels 1 to 8, rather than from the ground level and that lift 3 was only required for basement levels B1, B3 and the ground floor, such that no lift access was required for Stage 1A to the B5 loading dock area the B2 and B4 street access. [NAME_45] also made the point that the goods lift, lift 4, was the only lift which actually serviced both the B5 loading dock and levels 1 to 8 of the serviced apartments, so that it was the only lift which could have feasibly been used by [NAME_5] and other contractors for FF&E works and sales and marketing activities such that, in the circumstances, its provision, on a shared basis, enabled a level of access to [NAME_5] of the same or a greater level of service as lifts 1, 2 and 3 and, in addition, had a greater capacity than them. 311. [NAME_45] considered that the provision of lift 4 "practically solved the problem of the unavailability of lifts 1 and 2 (as required by the Contract), given the circumstances created by the 7-30 September 1999 lift dispute..". In paragraph 82, he said that an alternative Date for [NAME_29] of Stage 1A was claimed by [NAME_1] on 22 January 2000, without prejudice to its earlier claim, on the basis that lifts 1, 2 and 3 had then been certified by the Workcover Authority. … 329. In his fifth statement of 8 November 2002, [NAME_45] addressed the issue of [NAME_29] of Stage 1A and responded to [NAME_40]'s fourth statement of 3 May 2002. Whilst this statement basically joins issue with [NAME_40]'s statement and re-affirms [NAME_45]'s earlier statement, there are certain parts which add to the evidentiary position. In paragraph 18, in disagreeing with [NAME_40]'s statement that lift 4 did not provide suitable access for sales and marketing activities and continuous access for the [COMPANY_30] operator's personnel, [NAME_45] said that this was contrary to his observations in the period from May 1999 to December 1999 of the conduct as regards the SOK sales and marketing activities. He continued that in that period [NAME_1], at his direction, made its builder's lifts, which varied from time to time, but which were fitted out similarly to lift 4, available on weekends to allow potential purchasers access. [NAME_45] said that [NAME_40] did not at any time during that period raise that as an issue of concern with him, or to his knowledge, with anyone else at [NAME_1]. Further, [NAME_45] responded to what he believed to be [NAME_40]'s implication that lift 4 may have been unsuitable by its appearance to transport the [COMPANY_30] operator personnel. He continued that if he had been advised of that, which to his recollection he was not, he could have had the lift painted or upgraded internally. He added that in this period [NAME_1] had a driver in the lift, such that the lift was under [NAME_1]'s full control and could have been made available to [NAME_5] and/or [NAME_19] upon request. 99 [NAME_1] submitted that the drawings in Part O showed that there were to be 7 lifts in the complex. Of those 7 lifts, the only lifts that serviced all basement levels (1 to 5), all ground and above levels (ground and 1 to 8) were lifts 4, 5, 6 and 7. Lift 3 serviced all basement levels and the ground level. Lifts 1 and 2 serviced all ground and above levels. 100 None of the lifts that could service all basement levels and all above ground levels were shown on the Part O drawings as being part of the Stage 1A Works. The lifts that were shown on the Part O plans as being part of the Stage 1A Works could not provide continuous access from all or any of the basement levels to all or any of the above ground levels. 101 It was submitted that the [NAME_29] for Stage 1A contained in the Contract particulars meant that [NAME_1] could meet its obligation to provide "sufficient and continuous access" for Stage 1 in two ways: (a) by giving "sufficient and continuous access in fact", that is, access that, as a matter of fact, was both sufficient and continuous access to enable the commencement of [NAME_29] of FF&E Works and the relevant sales and marketing activities; or (b) by complying with the access arrangements shown in the Part O plans. 102 [NAME_1] concedes that it did not comply with the access arrangements shown in the Part O plans and indeed submits that had it done so, it would not have provided "sufficient and continuous access". That submission is based on the colouring of the plans with the legend to which mention has already been made earlier in this judgment. [NAME_1] did give sufficient and continuous access was a question of fact for the [NAME_9] and was answered in favour of [NAME_1]. It was submitted that there was evidence upon which the [NAME_9] was entitled to make that finding and that he has not fallen into error. The [NAME_9] was entitled to look to Stage 1A [NAME_29] in the light of the colouring in and legend on Part O plan, which he did, and his statements about whether rectification was sought do not impact upon the submissions made by [NAME_1] in this regard. 103 [NAME_5] submitted that the error into which the [NAME_9] fell was a presumption that it was necessary for [NAME_5] to make an application for rectification of the plans. It was submitted that the [NAME_9] was required to construe the Contract and the intention of the parties to that Contract. It was submitted that there was evidence which would lead to the irresistible conclusion that the parties intended that lifts 1, 2 and 3 were to be available prior to [NAME_29] of Stage 1A. It was also submitted that such evidence was referred to by the [NAME_9] in the earlier sections of his Report and indeed in referring to [NAME_45]'s evidence in par 311, extracted above, where [NAME_45] used the term "as required by the Contract". 104 [NAME_1] submitted that whether or not the Part O plans are mistaken is not to the point. It was submitted that unless by a process of construction, the Contract, including Part O plans, can be said to mean something other than, on its face, it does, then absent rectification, it is binding on the parties in the form in which it stands. It was submitted that the [NAME_9] was therefore not only entitled but bound to apply the Contract as it stood and that is what he did. 105 In written submissions before me [NAME_1] wrote:

85. In this context, it is worth noting that the defendants at no stage asserted that the contract as it stood could, let alone should, be construed so as to require the plaintiff in terms to provide any or all of lifts 1, 2 or 3 at any or all above (or below) ground levels. The furthest their submission went was to assert that, by not so providing, there was an obvious mistake in the contract: specifically in the Part O plans.

106 [NAME_5] submitted that the [NAME_9]'s finding that lift 4 gave sufficient and continuous access was supported by the evidence of [NAME_45] and was a finding open to him on the evidence. [NAME_1] submitted that there was no evidence from [NAME_5] or [NAME_19] that their sales and marketing activities had been restricted or impeded by the unavailability of the lifts nor could it be established that the FF&E Works in Stage 1A had been restricted or impeded through inadequacy of lift access. 107 Although the [NAME_9] did refer to the fact that no application for rectification was made by [NAME_5], the fact was that he had before him a contract to be construed in light of the Contract Particulars including the term relating to "sufficient and continuous access". It was for him to decide whether that access had been provided notwithstanding the fact that Lifts 1,2 and 3 were not available until January 2000. The access arrangements "shown in the plan in Part O" included the goods lift being available and the [NAME_9] found as a matter of fact that such an "arrangement" satisfied the test. In this regard I am satisfied that the conclusion reached by the [NAME_9] was open to him and no relevant error has been demonstrated.

Ground 3: Extension of Time – Floor Space Ratio (FSR) Issue 108 The Report records that the "problem" in relation to the FSR occurred because [NAME_19] made an application to the Sydney City Council for a change of use of the ground floor. [NAME_40] was aware that if the application was granted it may involve an increase in the FSR. It is apparent from the Report that when consent was granted, [NAME_40] checked the consent but did not notice that the FSR in one of the conditions had not changed, although at the time he knew if approval had been given the FSR would have to change. 109 There was apparent experts' agreement that [NAME_1]'s contingent entitlement to extensions of time of the Stage 2 Works date for [NAME_29] arose from [NAME_19]'s direction to [NAME_1] in December 1999 to revise the FSR figure in the section 88B instrument forming part of the documentation that was to be lodged at the Land Titles Office. 110 A factual dispute arose before the [NAME_9] in respect of when it was that [NAME_1] became aware that the FSR in the Council documentation was erroneous. [NAME_5] claims that the [NAME_9]'s finding that [NAME_1] was not put on notice at the relevant time of the changed FSR was an erroneous finding by reason of a failure to consider the evidence that was before him. 111 This submission was based upon some correspondence including a letter dated 16 July 1999 from [NAME_1] signed by [NAME_45] and directed to the architects in which the following appeared: We are in receipt of the Section 96 Approval for the conference facility to the abovementioned development. Can you please advise if this has any effect on our contracted Floor Space Ratio calculations with respect to our existing DA and BA approvals. (Exhibit A: Tab 11) 112 On 27 July 1999 the architects forwarded to [NAME_1] by facsimile a copy of their letter to the Sydney City Council enclosing the application to modify the existing consent. This is the document relied upon by [NAME_5] to submit that the [NAME_9] was wrong to conclude that [NAME_1] knew of the change in FSR as early as July 1999. Within that document there appeared the following: Approved FSR DA consent 13 June, 1997 15.44:1 (28,756m²) Current FSR (Figure reduced to ducts 15.42:1 (28,719m²) for services etc.) Proposed modified FSR (including area 15.49:1 (28,853m²) of lounge/meeting area of 134m²) This figure is within the maximum allowable FSR of 15.5:1 for a residential building. (Ex. A: Tab 11) 113 This was explicitly a matter of fact for the [NAME_9]. He accepted [NAME_45]'s evidence that he did not receive a full copy of the Approval. When the Approval was sent to him, every second page was received and the changed FSR was not one of those pages. 114 All other points raised in respect of this matter depend upon whether I am satisfied that the [NAME_9] failed to properly consider all of the evidence before him in respect of that July correspondence. I am not satisfied that the July correspondence informs [NAME_1] of the change in FSR. Certainly the application indicated that there would be, if approval was granted, an increase in the FSR and certainly there was a figure for the "proposed modified FSR", but nowhere in the correspondence from the architects does it say that this was the figure that was in the Approval granted by Council. There is no issue between the parties that when the Approval was produced by Council it contained the wrong figure. 115 I am not satisfied that the [NAME_9] misdirected himself in respect of the evidence that was before him and I am satisfied that the finding that he made in respect of [NAME_1]'s knowledge was open to him on the evidence before him. 116 There was a further aspect on this topic relating to the evidence of [NAME_40] in respect of his knowledge of the changed FSR. It is apparent that [NAME_5] commenced preparing for the amendment to the section 88B instrument necessitated by the section 96 Approval. In this regard [NAME_40], for [NAME_5], instructed [NAME_113], solicitor, to commence that process. However in October 1999 he instructed [NAME_113] to stop work and agreed in evidence that he knew that [NAME_115] ([NAME_115]) were subsequently instructed by [NAME_1] to prepare that document with the assistance of [NAME_113]. The Report records that [NAME_40] agreed in his evidence that he did not tell either [NAME_115] or [NAME_1] that the figure in the documentation was wrong and he knew that [NAME_113] did not tell [NAME_115] or [NAME_1] of that matter. [NAME_40] also agreed that prior to that time he had not told [NAME_113] the correct FSR. The [NAME_9] expressed the view that it was difficult to see why there should not be an extension of time in circumstances where [NAME_19] did not advise [NAME_1] of the change in the FSR (par 704). 117 Reliance is placed upon what the [NAME_9] said at paragraph 695 of the Report which refers to [NAME_5] having "concealed" from [NAME_1] the true position. It was submitted that [NAME_40]'s evidence did not permit of a finding of deliberate concealment. The cross-examination of [NAME_40] in which [NAME_40] admitted that he did not tell [NAME_115] or [NAME_1] that the figure was incorrect, occurred at page 485 of the transcript (Ex. 1). It was not put to [NAME_40] that he deliberately concealed the correct position from [NAME_1]. However the effect of his failure to inform [NAME_1], as the [NAME_9] found he had, amounts to a concealment, whether deliberate or otherwise. The word "deliberate" was not used by the [NAME_9] and the use of the word "concealed" is in my view not one that exposes any error by the [NAME_9].

Ground 4: Agreed Benchmark 118 [NAME_5] complains that the [NAME_9] erred in failing to consider [NAME_5]'s submissions on the claim that the parties had agreed that Unit 1101 on the eleventh floor would be a benchmark for the standard of finish to be achieved for the apartments. [NAME_5] had relied upon a note made by [NAME_45] on a facsimile from the interior designer, [NAME_116], dated 5 July 1999. 119 The [NAME_9] dealt with this matter in the Report as follows: 352. [NAME_95] then commenced to cross-examine [NAME_45] about the prototypes and defects. After tracing through the history of correspondence relating to these matters, [NAME_95] put to [NAME_45], Tp 290, that apartment 1101 was, to his understanding, to be prepared to a standard as though it was an actual room being sold. [NAME_45] would not agree with that, his view being that it was to be available subject to Clause 1.1, by which he said he meant that further work was to be done in relation to minor defects. At Tp 291, [NAME_45] was cross-examined about a note he wrote on a facsimile transmission from an interior design consultant, which was addressed to [NAME_40]. It said:- "As per your previous instruction & agreement this room is to be as per an actual room being sold. [NAME_1] will not act on this unless instructed." 353. [NAME_45] would not agree that he was making a statement as to his general understanding and the basis upon which [NAME_1] was preparing apartment 1101 and he said he was specifically doing it in relation to the interior design consultant's specific request. He repeated that the proviso in Clause 1.1 applied at all times. In other words [NAME_29] would be effected, even though there were minor Defects, provided that such minor Defects did not have the effects referred to in sub-sub-clauses (i) and (ii). 354. I found [NAME_45]'s evidence to be inherently probable and credible. There was no reason why, even in respect of the prototype rooms, the same provisions as to minor Defects should not apply and, it is to be remembered, the standard forms of Contracts for Sales off-the-plan and after [NAME_29] dealt expressly with the position in relation to defects. 120 [NAME_5] submitted that although the [NAME_9] referred to this matter in the above paragraphs of the Report, he did not deal with it in his conclusions nor on the topic of minor defects and the proper date for [NAME_29]. 121 [NAME_1] submitted that the [NAME_9] dealt carefully with the evidence of [NAME_45] and the documentary material relating to apartment 1101. It was submitted that there was no basis shown upon which the Court could interfere with the [NAME_9]'s acceptance of [NAME_45]'s evidence. It was further submitted that it is artificial and inconsistent with principle to now seek to extract some of the evidence and elevate it in priority or significance over other evidence. This, it was said, is particularly so in the circumstances where the [NAME_9] dealt with the categorisation of defects and their relevance to [NAME_29] based on a consideration of the whole of the evidence. 122 I am satisfied that the [NAME_9] had the issue in mind and dealt with it appropriately in circumstances where he observed [NAME_45] giving evidence and accepted what he said in respect of the note made on the facsimile. He has referred to the matter in this section of his Report. It is difficult to see how it can be suggested that because he did not refer to it again later, there is a basis upon which the Court would interfere. I am of the view there is no basis for it to do so.

Ground 5: Multiple Defects 123 There was an exchange between the [NAME_9] and [NAME_95] in respect of multiple defects as follows: [NAME_95]: Finally, in relation to defects, we submit that the contract definition, first of all, under 1.1 definition of "[NAME_29]", does not preclude a consideration of multiple defects in ascertaining whether defects are a disentitling matter. The [NAME_9]: Well, you could have a thousand minor defects which may have the effects attributed by subclauses (a)(i) and (a)(ii) and then they wouldn't be a minor defect. [NAME_95]: Yes, and we respectfully remind you of the evidence, copious as it is unfortunately, in the database and also in the lists. So we say the number of defects and the obvious work that was necessary to repair them. What I mean by "obvious work" in that submission is that the different trades were required to come in for different defects but these were of such magnitude in number that it is clear, we submit, on our case, that extensive repair rectification work was required. Extensive work was required to complete incomplete items and the disruptions that would ensue from that is obvious. The [NAME_9]: But, your case, [NAME_95], really, is that [NAME_29] is an amalgam of a number of things, but the significance and criticality of [NAME_29] is that it was only when [NAME_29] took place that – I'm putting that badly: that the criticality of [NAME_29] is as to the issue of liquidated damages. You say it mattered not that people were beavering away fixing up minor defects; what I have to look at, as I understand your submission, is when did "[NAME_29]" take place on this site. [NAME_95]: That's our primary submission but we have an alternative and this is our alternative, that the defects were of such significance that they prevented [NAME_29] under the definition. The [NAME_9]: Well, I understand. (Ex. 1: tr 835-836). 124 [NAME_5] submitted that in considering the evidence, the [NAME_9] overlooked and/or failed to consider the effect of defects in aggregate, either on the basis of the number of defects occurring in a particular room or area, or the repetition of a particular defect in a number of rooms or areas, and in particular how the rectification of those defects in aggregate may effect the use of the room or area for the purpose of deciding when [NAME_29] occurred. 125 The [NAME_9] dealt with the defects in numerous places throughout the Report including: 588. I have not overlooked the presence of [NAME_40] on site or the inspections he made. However, the evidence satisfies me that he left the main work of ascertaining and characterising defects to [NAME_80] and [NAME_83]. He received the various reports, but nothing he has said satisfies me that the evidence called by [NAME_1] fails to establish that any defects remaining at the dates when [NAME_29] was claimed were only minor, and that there was a well organised program in place to deal with them in the manner contemplated by the Contract.

126 It was submitted that the opinion expressed in this paragraph was not "necessarily inconsistent" with the case made by [NAME_5] in respect of the multiplicity of defects. It was submitted that the [NAME_9] simply did not consider the submission put by [NAME_95] in respect of the multiplicity of defects. 127 [NAME_1] submitted that [NAME_5]'s submissions on this matter fundamentally misunderstand the way in which the [NAME_9] approached the question of defects. It was submitted that the [NAME_9] considered all the evidence, including the extent to which there were multiple or repetitive defects. 128 It is true that the Report does not expressly refer back to the argument raised by [NAME_95]. However when the whole of the Report is reviewed and in particular the [NAME_9]'s statement that nothing [NAME_40] had said satisfied him that the evidence called by [NAME_1] failed to establish that "any defects remaining" were only minor, that seems to me to encompass the position of whether any defects, either alone or together, constituted a defect other than a "minor" defect. It is clear from a reading of the whole of the Report that the [NAME_9] was quite comfortably satisfied that the defects upon which [NAME_5] relied were both individually and collectively minor defects. I am not satisfied that this ground is a basis upon which the Court would reject any part of this Report. Ground 6: Finding of Motive of [NAME_5] Administrator 129 [NAME_5] submitted that there was no proper basis upon which the [NAME_9] was entitled to make the adverse finding against [NAME_19] and [NAME_40] as contained in paragraph 366 of the Report as follows: 366. The whole of the tension between the parties has to be viewed against the facts that [NAME_29] was a matter of criticality and, the further it was delayed, the more amount, prima facie [NAME_5] could claim by way of liquidated damages. Further, there were other significant consequences of [NAME_29], such as the return of the securities, which were of substantial consequence to [NAME_1], a fact of which I am prepared to infer, in the absence of evidence from [NAME_5], was appreciated by it and a fact which was certainly understood by [NAME_40]. I have come to the conclusion, and I will state all my reasons for this in due course, that the complaints made by [NAME_19] and the refusal to acknowledge [NAME_29] of either Stages 1A and 2 was not as a result of the existence of defects, nor, for that matter of any of the other reasons put forward by [NAME_19]. Rather, I consider that the evidence supports the finding that there was deliberate delay and procrastination on the part of [NAME_40] to place [NAME_1] in as bad a position, so far as this Contract was concerned, as possible, with the sole view of seeking to bring about a financial result more favourable to [NAME_5] than that to which it was entitled. I have referred to the failure of [NAME_40] to accept the [NAME_29] Date of 28 March 2000, in the sense that he was not prepared to have [NAME_19] and [NAME_5] act comformably with that and, the more one looks at this matter, the more commercially unpalatable that conduct becomes. That is particularly so in relation to the refusal to return the securities although there were other matters in which [NAME_40] and [NAME_5], at least so far as [NAME_5] is concerned, inferentially, engaged, which amounted to very poor commercial actions. I say "inferentially" so far as [NAME_5] is concerned because no witnesses were called by it, who would cast any light on the reasons why [NAME_5] acted as it did. This failure makes the drawing of the inference, in the circumstances of this case, the easier. 130 It is appropriate in the circumstances of this ground to set out the written submissions of [NAME_5]. They are as follows: 118. This adverse finding against [NAME_40] is to be contrasted with the [NAME_9]'s acceptance of all that [NAME_45] has said and a finding that he should be accepted on critical issues with respect to defects and other critical issues, eg. Paragraph 371. However, if the decision with respect to defects and with respect to the lifts and other issues were other than as found by the [NAME_9], it would not be difficult to conclude that despite adverse findings with respect to the issue of security, warranties and the like, because the issues of defects and the Lifts was so fundamentally important to the question of [NAME_29], it would not be fair to [NAME_40] to conclude that the "sole" purpose behind delaying approval of [NAME_29] was the ulterior purpose prescribed to him by the [NAME_9]. 119. Further, in a sense it is irrelevant what [NAME_40]'s purpose was. Even if [NAME_40] had that purpose, the critical issue is whether [NAME_29] was in fact justified under the terms of the Contract at the time asserted by [NAME_1]. It is apparent from the foregoing submissions that the [NAME_9] has ignored complaints about the Plaintiff's witnesses, accepted everything that has been said by the Plaintiff's witnesses, rejected anything said by the Defendant's witnesses to the contrary and in particular, [NAME_40] without having correctly analysed essential issues, such as the failure to cross-examine the Defendant's witnesses on observations made at critical points of time and at the time of inspection and with respect to Lifts 1, 2 and 3 and other issues and the effect that had on [NAME_29]. 131 These submissions take what could be described as a very broad brush approach. However in analysing them, it seems to me that [NAME_5] claims firstly that if the [NAME_9] had not found the way he did there would be no basis for him to make the finding he did in respect of [NAME_5] and [NAME_40]'s motive. However the reality is that the [NAME_9] made findings of fact that were open to him on the whole of the evidence. Those findings of fact included a lack of any justification for withholding the securities that were ultimately released during the course of the hearing. Having found those facts the [NAME_9] went on to comment upon an inference available that such conduct was very poor commercial conduct. Although this was a finding that was not critical to the issues raised by the defendants in the Reference, it does not in my view amount to any error by the [NAME_9]. 132 The [NAME_9] clearly took a very dim view of [NAME_40]'s conduct and in this regard exposed his reasons therefor. [NAME_1] submitted that the issue of motive was relevant and was relied upon by it to support its application for indemnity costs upon the ground that [NAME_5] and [NAME_19] had acted unreasonably in opposing [NAME_1]'s claim. Although the [NAME_9] did not find favour with that submission it is apparent that the issue of motive was in fact raised as a relevant matter during the proceedings. 133 These matters were the subject of further evidence after an application to re-open [NAME_5]'s case. The [NAME_9] dealt with this under the headings "An Application to Re-Open" and "The Reasons for Seeking Leave to Re-Open" in paragraphs 846 to 884 of the Report. This part of the Report deals with the evidence of [NAME_119], the Chief Financial Officer of [COMPANY_121] and a director of [NAME_5]. After analysing [NAME_119]'s evidence in respect of his concerns about the cross-examination of [NAME_40] in relation to the failure to release the securities, the [NAME_9] concluded: 874. … In my opinion, the evidence seeking to rely upon the injunction and also the absence of advice from [NAME_33] was merely clouding the issue and, in this respect, I do not accept [NAME_119]'s evidence. Without the benefit of any advice, [NAME_119] was aware that there was no prohibition on the return of the securities and that there was a contractual obligation to do so. He sought no advice from [NAME_122] as to whether the injunction or the proceedings affected this situation. 134 There was also further evidence from [NAME_40] with which the [NAME_9] dealt between paragraphs 876 to 879 of the Report. He concluded that [NAME_40]'s additional evidence did not add to the position. The [NAME_9] also dealt with an affidavit of [NAME_122]. The Report then records the following: 883. Prior to [NAME_119]'s giving evidence, an inference was open that the intention of [NAME_5] was to bring commercial pressure to bear on [NAME_1] to resolve the proceedings. In my opinion, that inference remains open because [NAME_119] gave no explanation, which I found satisfactory, as to why the contractual terms relating to the return of the securities were not met. I do not overlook the submission of [NAME_95] that it was not directly put to [NAME_119] that the reason the securities were not returned was because of the desire to exert commercial pressure. However, it must be remembered that [NAME_119] was denying that that was the purpose. It was clearly in issue, in the cross-examination, as to what possible explanation [NAME_119] could advance for failing to return the securities and, in view of his frank concession that the injunction did not preclude [NAME_5] doing so, I find that he gave no satisfactory explanation for that. [NAME_95] conceded, Tp 1023, that if errors were made in relation to the administration of the Contract, there would be a Judgment against [NAME_5] in relation to that, but that with that explanation the matter could not go any higher and, at Tp 1024, he conceded that he was not suggesting that [NAME_5] did not make an error so far as the contract was concerned. 135 In the following section of the Report, the [NAME_9] noted that to some extent the application to re-open was made not only to protect the credibility of [NAME_40] but also the commercial standing of [NAME_5]. The [NAME_9] concluded that the failure of [NAME_5] to comply with its contractual obligations did not bear upon [NAME_40]'s credibility. The [NAME_9] then said at par 884: … However, … I am left to wonder why, in the absence of any explanation I find satisfactory, [NAME_5] did not comply with its contractual obligations. Not only did it not comply with those obligations, but it failed to comply with the obligation pleaded in the finally amended answer to paragraph 16E. I think, for present purposes, that I can content myself by saying that [NAME_5] has totally failed to satisfy me that it had any justification for failing to comply with the Contract, which leaves open the inference to which I have referred as against [NAME_5]. Indeed the failure by [NAME_119] to satisfy me strengthens the inference. However, this finding is not determinative of any issue but, on the other hand, I do not think that it precludes a tribunal of fact from commenting upon it. 136 [NAME_1] submitted, correctly in my view, that [NAME_5]'s complaint appears to be that the [NAME_9] did not believe [NAME_40] and did believe [NAME_1]'s witness, [NAME_45]. The finding as to who should be believed in the circumstances of the case was, as submitted by [NAME_1], peculiarly within the province of the [NAME_9], who had the benefit of hearing all the evidence, observing the witnesses over an extended period of time and weighing their evidence against other evidence. I agree with [NAME_1]'s submission that the [NAME_9]'s conclusion was open to him and that there has been no error demonstrated in the approach that he adopted. Ground 7: Refusal to Allow Amendment 137 During the interlocutory steps preparatory to hearing, and in particular in respect of amendments to pleadings, [NAME_5] provided particulars of its claims in respect of the alleged delay of [NAME_29]. One matter to which reference was made in the particulars was the Mechanical Car Parking System (MCPS). 138 On 4 October 2001 [NAME_5]'s solicitors, [NAME_124], wrote to [NAME_1]'s solicitors, [NAME_26], providing amended particulars of [NAME_1]'s alleged failure to achieve [NAME_29] in respect of Stages 1A, 1B and 2 as at 23 February 2000. In relation to [NAME_29] of Stage 2, the Schedule stated: There were incomplete aspects of Stage 2 or Defects in Stage 2 which prevented [NAME_29] being achieved. Particulars of the incomplete aspects of Stage 2 or Defects in Stage 2 are as follows: … 7. The Mechanical Car Parking System located in basement car parking levels 1, 2 and 3 is not complete in accordance with Section K-Mechanical Car Stacking System and [ADDRESS] in Section K.01 of the Architectural Design Brief (Exhibit 9 of the Contract). The Defects and incomplete Works referred to in Items 1 to 7 above were not minor and thus [NAME_29] was not achieved. 139 On 19 October 2001 I made an order that [NAME_5] and [NAME_19] prepare a Schedule in the form of a single document encapsulating particulars they had provided to [NAME_1] in relation to certain parts of the Defence and Cross-Claim. Those particulars included particulars of defects alleged to have prevented [NAME_29] being achieved on the dates claimed by [NAME_1]. The Schedule in the form of a single document omitted the above reference in relation to the MCPS. 140 From October 2001 the litigation was prepared and pursued on the basis that the MCPS issue was not part of [NAME_5]'s case in relation to the delay of [NAME_29]. This preparation included statements from lay and expert witnesses and plans for an experts' conclave. 141 On 27 September 2002, [NAME_1] and the relevant Body Corporate of the building entered into a Deed whereby the Body Corporate, inter alia, assigned to [NAME_1] all its rights to claims against [NAME_5] and [NAME_19] in relation to any defects or performance issues with the MCPS. 142 On 23 October 2002 the [NAME_9] gave directions in respect of the service of [NAME_1]'s evidence on [NAME_5] and [NAME_19]. On 24 October 2002 [NAME_125] of [NAME_26] wrote to [NAME_124] highlighting the fact that the MCPS was only relied upon by [NAME_5] in relation to alleged breaches of contract for defective works and not for delayed [NAME_29]. 143 It was not until 12 December 2002 that [NAME_124] wrote to [NAME_26] referring to a directions hearing that was to occur that afternoon before the [NAME_9] and advised as follows: Particulars As to our client's particulars, during the course of preparation of this matter we have become aware that in preparing the combined Schedule of Particulars of the Defendants relating to both the Defences to Claim and the Cross-Claim, served pursuant to the order of Justice Bergin made on 19 October 2001, we erroneously omitted the MCPS from the particulars of matters which precluded Stage 2 [NAME_29]. We advise that we intend to restore that particular. 144 In a letter from the [NAME_9] to the solicitors for the parties referring to the preliminary conference on 12 December 2002, the following appears: (e) The defendant gave notice that it wished to apply to amend its defence in a number of substantial ways, which would alter the way in which the case has thus far been conducted. The plaintiff had not had the opportunity to consider the proposed amendments. This matter will have to be argued at some stage and certainly should be done as soon as possible. I consider, at least prima facie, that as the whole matter has been referred to me, I have the power to rule on this point. However, the parties should give further consideration to it, as shall I. The parties should also give thought to the consequences of any such amendments being allowed, particularly in the light of the time I have been asked to set aside for this reference. 145 It is apparent that on or about 17 December 2002 [NAME_127], solicitor of [NAME_124], provided a Notice of Motion and affidavit to [NAME_26] seeking leave to amend the Defence. That document anticipated the hearing of the Motion in December 2002, however the application was not heard until Friday, 31 January 2003. The affidavit filed by [NAME_130] referred to the history of the particulars and stated:

6. The previous schedules of those particulars provided to the Plaintiff, which were to be encapsulated in the Schedule, included that the Mechanical Car Parking System was not complete and prevented [NAME_29] of Stage 2 from being achieved. In the preparation of the Schedule, the Mechanical Car Parking System was omitted in error. 146 On 20 December 2002 [NAME_124] served on [NAME_26] a copy of a report by [NAME_133], dated 19 December 2002, entitled "Report on MCPS as Built and Assessment of Impact on Extension of Time Entitlement" (Ex. C). That Report was based on an assumption the authors were asked to make that the MCPS had not reached practical [NAME_29] by 28 March 2000. It included findings that the MCPS had not reached practical [NAME_29] until 4 July 2000 or later and that it became critical to [NAME_29] of the Works no later than mid-January 2000 and potentially from mid-December 1999. The assessment of Extension of Time entitlements previously completed was amended, having regard to the revised critical path. 147 At the hearing of the application to amend on 31 January 2003 [NAME_95] for [NAME_5] made the following submissions: The defendants long ago put on their evidence, their lay evidence, as to the factual problems with the Mechanical Car Parking System and put on an expert report of [NAME_137]. [NAME_140]: When was that? [NAME_95]: In approximately May 2002. In addition we served a supplementary report of our programming experts, [NAME_133], on 20 December 2002. I don't want to have to give you a copy of that report unless you need it but it .. The [NAME_9]: Well, that followed the meeting we had on the 12th. [NAME_95]: That's right and the report was prepared on an assumption. They were asked to assume that the MPCS had not achieved practical [NAME_29] as at 28 March 2000 and they were, on that assumption, to provide a report as to where or when it got onto the critical path and caused the critical delay. The report goes to that. In my submission, you would allow the reinstatement of this particular for the following reasons: It has been omitted in error – and that is not contested; evidence in relation to it has long since been served with the exception of that last report by the defendants; the plaintiff does not assert any material prejudice. The [NAME_9]: I'm not so sure about that. A: In paragraph 16 of [NAME_125]'s affidavit, he says that they have suffered or will suffer substantial prejudice, but there is no prejudice referred to except the necessity to obtain further evidence. There is no indication that that evidence cannot be obtained and be obtained in reasonable time. These proceedings are scheduled to commence the week after next but it will, nevertheless, be some weeks into the hearing before this issue becomes a matter of evidence. If there had been difficulty in obtaining the evidence, I would submit to you that that would have been referred to in the affidavit. (tr 35-36) 148 The following exchange occurred between the [NAME_9] and [NAME_140], junior counsel for [NAME_1]: The [NAME_9]: And insofar as programming issues have been dealt with, if one now included the car stacker, that could affect all sorts of things. [NAME_140]: Potentially yes. At the very least our programmers have got to go back now, if it's going to be permitted, and have a look at what is said in terms of the car stacker to impact on critical paths and to identify whether it is said at some point that it's co-critical or not co-critical and it has an impact upon entitlements potentially under contracts. There are any number of permutations that can arise out of that. None of this arose until such time as all the evidence in the matter had closed. The prejudice is patent. (tr 40) 149 The [NAME_9] delivered the following reasons, described by [NAME_1] as "an interim report", on 31 January 2003 refusing the amendment: By an order made on 19 October 2001 by Bergin J, I assume by consent, although that is not a matter of any particular significance, the first defendant was ordered to prepare a schedule in the form of a single document encapsulating its particulars and conforming with a certain order and to serve it on the solicitors for the plaintiff by 15 November 2001. Prior to that date, particulars had been furnished by the defendants of their various complaints, but it is obvious that her Honour had in mind that the particulars should be drawn together in one document, and this was done in a document enclosed with a letter from the solicitors for the defendants to the solicitors for the plaintiff dated 15 November 2001. It is not in issue that prior to that date and prior to the provision of those particulars the MPCS had been a live issue in relation to, amongst other things, the timing issue. Its omission from the schedule is, therefore, difficult to understand but is frankly enough explained by [NAME_130] in his affidavit of 17 December 2002 as being in error. I accept that evidence, it not being challenged. In his affidavit of 24 January 2003, [NAME_125], a solicitor for the plaintiff, sets out the history of the resurrection of the MPCS starting with paragraph 5 and noting that on various occasions in September 2001 it was only put forward as a defect giving rise to "breaches of contract claimed". [NAME_125] states that on 24 October 2002 his firm wrote to the solicitors for the defendant: [redacted] On 29 October, or perhaps 28 October 2002, I was handed a document dealing with the witness statements in reply and this dealt under the heading "G" with a number of witnesses to be called in relation to the MPCS. Thus, it was well appreciated that the MPCS was in issue but, as the solicitors for the plaintiff had put forward, for the limited basis to which I have referred. The evidence on the matter was closed on or about 6 December 2002 and on 12 December 2002 the solicitors for the defendants advised the solicitors for the plaintiff that the MPCS would be relied upon "as a delayed [NAME_29] issue". In paragraph 16 [NAME_125] set forth that in his opinion substantial prejudice would be suffered by the plaintiff if that course was allowed to be followed and he concluded: Further, as the plaintiff has prepared limited evidence in defence and reply on the MPCS as a direct result of the cross-claimant's representation, if the MPCS is admitted as a delayed [NAME_29] issue the plaintiff will be severely prejudiced. Additional expert and lay evidence on programming, performance and critical path issues will need to be adduced by the plaintiff at this late stage of the proceedings. I have also noted that in a document handed to me on 12 December 2002 there was to be a conclave in relation to the MPCS between representatives of each party but I was informed by [NAME_140], and this was not disputed, that that did not go to the timing issue. The matter has been before me on a number of occasions with complaints and countercomplaints about the evidence or, more accurately, the absence of the evidence and when it would be available, all of this arising by dint of the fact that the hearing date had been fixed for 10 February 2003. It seems to me most unfortunate that there was an error in furnishing the particulars ordered by Bergin J. That is understandable. However what I do not find understandable and what has not been explained is why back in October 2002 the matter, if it be a matter of significance was not attended to, particularly in the light of the letter from [NAME_125] to which I have referred. The submission of [NAME_95] is that there is no real evidence that the matter cannot be attended to between now and 10 February or during the hearing. From my appreciation of the issues involved and the history of the matter, it seems to me that one must take a somewhat more practical – I do not say this in any pejorative sense – and commonsense view of the preparation of the litigation. For a long time it has gone forward on a certain basis, namely that the MPCS (sic) was not part of the timing issue. I have little doubt that the experts are engaged in preparing themselves for the matter and, irrespective of the mistake which was originally made, ample time was in my view given by [NAME_125]'s letter to enable that mistake to be rectified. Sadly, from the defendants' point of view, it does not seem to have been availed of until mid-December of 2002 and, of course, one has to take into account that that was shortly before, one may reasonably anticipate a number of people would be unavailable for a period by virtue of the Christmas and New Year period and holidays. To deal with this issue during the hearing would also be difficult and distract attention from the many others. I am always loath to shut a party out from ventilating issues. However, the history of this matter is such, and I have sought to set it out, albeit perhaps briefly, that more particularly it is such that from October there being an error originally in November 2001, it should have been corrected. In the exercise of my discretion I do not see that there should now be allowed to be resurrected an issue that has been dealt with in the circumstances to which I have referred. [NAME_141] submitted that the sole emphasis by the [NAME_9] was on the delay in correcting the error and the inconvenience to the parties in trying to overcome the problem because of the Christmas/New Year break and the impending hearing. It was submitted that [NAME_1] made no suggestion that an appropriate costs order would not remove the prejudice. Alternatively it was submitted that there was nothing to suggest that the Reference could not start and the issue be dealt with in a discrete way after the evidence had been obtained on the issue by [NAME_1]'s expert or adviser. 151 [NAME_5] submitted that the issue of the MCPS was an important issue on the topic of the proper [NAME_29] date for Stage 2 and could have had an important bearing on the outcome of the case. It is submitted that the [NAME_9] erred in exercising his discretion in failing to allow the amendment. It was also submitted that there is nothing in the ex tempore reasons to show that the issues that should have been balanced were balanced.

152 This question has been raised as a separate ground for rejecting the Report. The [NAME_9]'s refusal to allow the amendment is not part of the Report and is a separate matter decided on 31 January 2003 about ten days before the commencement of the hearing before the [NAME_9]. However both parties have approached this aspect of the matter as appropriate for consideration as to whether the Report should be adopted or rejected in whole or in part. Focus must therefore be kept on the fact that this is not an appellate process, and the prospect that a judge may have exercised his or her discretion differently is not to the point. It seems to me that the question is whether the exercise of the discretion by the [NAME_9] was infected by some error of principle, a misapprehension of facts or failure to consider relevant matters, such as to amount to an exercise of discretion so unreasonable that the Court would intrude. 153 The reasons given by the [NAME_9] contain the rather elliptical reference, "the history of the matter is such", but there is an emphasis on the case having been prepared over a lengthy period (October 2001 to January 2003) on the basis that the MCPS matter was not an issue in relation to the date of [NAME_29] and was only relied upon as an alleged breach of contract. The [NAME_9] correctly accepted the evidence that the case had gone forward on this basis by reason of an error by the solicitor for [NAME_5]. However, when the matter was "highlighted" by [NAME_1] in October 2002 [NAME_5] did not seek to change the position for a further six or seven weeks, and then only on the morning of the directions hearing on 12 December 2002, some six days after the time to serve all evidence had expired. It was not until 20 December 2002, the last Friday before Christmas, that a report on the topic was served on [NAME_1].

154 The [NAME_9] referred to the evidence that [NAME_1] would be "severely prejudiced" and that if the amendment was allowed it would have to obtain additional expert and lay evidence on programming, performance and critical path issues. As can be seen from the portion of the transcript extracted earlier, [NAME_140], junior counsel for [NAME_5], submitted to the [NAME_9] that there was a potential to affect all the other programming issues that had been the subject of evidence already prepared and that there were "any number of permutations that can arise out of that".

155 [NAME_5] was critical of the [NAME_9]'s reference to the holiday period and the fact that relevant people would be on holidays. I see no basis for that criticism. It was a fact that impacted on [NAME_1]'s capacity to deal with the matter. When the [NAME_9] referred to the "practical and commonsense" approach to the litigation with the immediately following statement that the matter had "for a long time gone forward on a certain basis" there is no doubt in my mind that he was referring back to the problems described by [NAME_140] in his submissions of the difficulties of effectively having to try to disentangle so many aspects of the matter that [NAME_1] had already settled in its evidence. I am satisfied that the reference to the "history of the matter" included a consideration of this aspect of the problem that had been described in evidence as "severe prejudice". 156 [NAME_1] relied on a number of authorities in support of its submission that the Report should be rejected by reason of the [NAME_9]'s failure to allow the amendment. It was submitted that the general principle is that an amendment to the pleadings should be allowed unless an injustice would be caused to the other party: Cropper v Smith (1884) 26 Ch D 700 at 710 per Bowen LJ, adopted by the majority in Clough and Anor v Frog (1974) 4 ALR 615 at 618. Reliance was also placed on State of Queensland v JL Holdings Pty Limited (1997) 189 CLR 146 at 155. It was submitted that the [NAME_9] failed to have regard to the relevant principles in refusing the amendment.

157 In my view there is no doubt that the [NAME_9] was cognisant of the principles upon which he should make the decision as to whether to allow the amendment. I do not agree that the sole emphasis for the [NAME_9]'s decision to refuse the amendment was delay and inconvenience of the holiday period. In my view, the [NAME_9] engaged in a balancing exercise to do as the authorities required. This was not a matter in which case management intruded to dictate the result and delay was but one factor upon which the application was refused. In that regard, the principles enunciated in JL Holdings were not offended. It has to also be remembered that in JL Holdings the amendment was refused six months in advance of the hearing date. This amendment was sought effectively on the eve of the hearing with a history very different to that in JL Holdings. 158 The claim that an appropriate costs order can cure prejudice is a very attractive submission. But each case needs to be looked at on its particular facts and it must be remembered that this was a discretion with which both parties accepted the [NAME_9] was endowed. The [NAME_9] clearly considered the need to strive to have all issues litigated between the parties – thus his reference to being "loath" to shut a party out. He considered the relevant history and facts and accepted the evidence that [NAME_5]'s solicitor had caused the error. He weighed that matter into the balance when finding as a fact that [NAME_5] delayed further, and in his view unacceptably further, from the time [NAME_1]'s solicitor highlighted the matter in October 2002. He considered the submission made by [NAME_5] that the matter could be dealt with later in the hearing but did not accept it, referring to the difficulties and distraction it would cause, no doubt having regard to [NAME_125]'s affidavit evidence and the prospect of having so many strands of the evidence affected. As I have adverted to earlier, the test is not whether I might have allowed the amendment, it is whether there has been demonstrated an error such as to vitiate the exercise of the [NAME_9]'s discretion. On balance, I am not satisfied that such has been demonstrated. 159 A further submission by [NAME_1] was that [NAME_5] had failed to seek directions from the Court pursuant to Pt 72 r 9 in respect of its application to amend, similar to the approach taken in Chocolate Factory Apartments Ltd v Westpoint Finance Pty Ltd [2003] NSWSC 547 (Einstein J, 18 June 2003), and that such failure should weigh against the Court entertaining [NAME_1]'s complaint on this aspect of the matter. My conclusion that this Ground is not made out makes it unnecessary to deal with this submission, save to say that: (1) I respectfully agree with Einstein J that the Court has power under Pt 72 r 9 to give directions in relation to amendments of pleadings, notwithstanding that the [NAME_9] has been given the power to amend the Schedule to the Order for Reference and inferentially to amend the pleadings: (2) this case was heard for two weeks in February and March 2003 and part of a third week in May 2003, during which there was ample time to approach the Court for directions; and (3) there may be force in the submission that by its failure to raise the matter with the Court other than as a basis for rejection of the Report, [NAME_5] had allowed the matter to reach the point where to allow an amendment would cause serious injustice to [NAME_1], because the matter may have gone beyond the point of being able to be "unscrambled": Chocolate Factory at par 66. Ground 8: Apprehension of Bias/Denial of Natural Justice 160 It should immediately be said that this submission arises from the review of the Report by [NAME_5] and was not a matter that was raised with the [NAME_9] during the Reference. It is a submission that is made in reliance upon the earlier grounds. As I have not found favour with [NAME_5]'s submissions in respect of any of those matters this ground is not made out.

Report dated 13 June 2003 Costs of Motion to Amend 161 In the Report dated 13 June 2003, the [NAME_9] dealt with, inter alia, [NAME_1]'s Notice of Motion to amend the Third Further Amended Summons to claim appropriate relief against [NAME_5] in relation to the claim that it had wrongfully and in breach of the contract failed to release the securities, referred to earlier in this judgment. This matter was of course fought out between the parties during the hearing before the [NAME_9] and was the subject of the re-opening of [NAME_5]'s case and the calling of [NAME_119]. 162 The evidence before the [NAME_9] in support of the Motion was an affidavit of [NAME_125] in which he referred to having noted that the pleading contained a prayer for declaratory relief in respect of the alleged breach but did not seek a formal order. The circumstances in which [NAME_1] sought from [NAME_5] agreement to the proposed amendment to reflect the claims that had been litigated are set out in paragraphs 8 to 10 of this Report. It records that [NAME_5] refused to agree to the amendment claiming it was "too late, unfair to our client and will cause prejudice". The [NAME_9] set out the concessions made by [NAME_95] in paragraph 12 of the Report and concluded that in the light of the concessions it was "obvious" that granting leave to [NAME_1] to amend would lead to no prejudice or unfairness and in this instance it was not too late to grant that leave. 163 The [NAME_9] recommended that [NAME_5] pay [NAME_1]'s costs of the Notice of Motion. 164 [NAME_5] submitted that ordinarily the costs should be in favour of [NAME_5] and that no reasonable exercise of the discretion would result in the order recommended. [NAME_5] submitted that the issue of the costs of the Motion was not raised by the [NAME_9] at the hearing on 28 May 2003 and that no opportunity was given to counsel to make submissions as to costs. This matter has been cured by the opportunity in this application for [NAME_5] to make the submissions on this aspect of the matter. 165 The costs awarded by the [NAME_9] were the costs of having to bring and argue the Motion. [NAME_5] could have agreed to the amendment and in those circumstances it would not have been at risk of a costs order. I can see no error by the [NAME_9] in recommending that the costs of unsuccessfully resisting an amendment application should not be borne by [NAME_5]. I intend to adopt his recommendation. Costs of the Proceedings 166 The [NAME_9] recommended [NAME_5] pay [NAME_1]'s costs of the claim and [NAME_5]'s Cross-Claim on a party/party basis up to and including 15 January 2003 and on an indemnity basis from and including 16 January 2003. 167 That recommendation stems from an offer made by [NAME_1] on 16 January 2003, the terms of which are contained in paragraph 55 of this Report. The offer was put to both [NAME_5] and [NAME_19] "jointly" to pay the sum of $1 plus [NAME_1]'s costs of the proceedings. [NAME_5] submitted that if the offer was to be accepted, both [NAME_19] and [NAME_5] would have had to agree to a judgment being entered against each of them. That submission is based on Part 22, rule 3(9) which provides: "Where an offer is accepted under this rule, any party to the compromise may enter judgment accordingly". 168 [NAME_5] submitted that [NAME_1] had pitched its offer very deliberately on the basis that it wanted the security of a judgment against both defendants. [NAME_19] was found to have no liability to [NAME_1] because the [NAME_9] recommended that the claim against it should be dismissed and [NAME_1] seeks an order to that effect.

169 It is submitted therefore that the [NAME_9]'s conclusion that [NAME_5] could always pay the amount of the judgment plus costs is not to the point. It is submitted that [NAME_1] will not have a judgment no less favourable than the terms of its offer, because the position vis-à-vis [NAME_19] was far less favourable in that [NAME_19] would have no judgment against it, as had been sought by [NAME_1]. In those circumstances it was submitted that there was no entitlement to indemnity costs and the Court should reject the recommendation as to costs in this regard. 170 Part 22, rule 9, to which the [NAME_9] refers in this report, provides: Where two or more Defendants are alleged to be jointly or jointly and severally liable to the Plaintiffs in respect of a debt or damages and rights of contribution or indemnity appear to exist between the Defendants, Part 52A, Rule 22 shall not apply to an offer unless- (a) In the case of an offer made by the Plaintiff – the offer is made to all Defendants, and is an offer to compromise the claim against all of them. 171 It was submitted that in exercising his discretion the [NAME_9] was required to ask the question whether it was reasonable for the [NAME_5] and [NAME_19] to have rejected the [NAME_1]'s offer. [NAME_1]'s submission is that the [NAME_9] properly construed the offer as being able to be accepted or rejected by either [NAME_5] or [NAME_19]. It was submitted that the [NAME_9] was correct in his conclusion that the offer of compromise having been made to both [NAME_5] and [NAME_19], each was obliged to consider it and determine whether it would accept it. 172 With respect to the [NAME_9], it seems to me that Part 22, Rule 9(a) makes clear that the offer is an offer "to compromise the claim against all of" the defendants. The payment of $1 plus costs was an offer to compromise the claim against all the defendants and not "either" of them. In this regard, I am of the view that the [NAME_9] fell into error. I am satisfied that it was not unreasonable for the defendants to view the offer in the way they did and not to accept it. This is so particularly by reason of [NAME_19]'s success against the plaintiff.

Accordingly, I do not intend to accept the recommendation made in paragraph 77 of the Report but will make an order that [NAME_5] pay [NAME_1]'s costs of the claim and [NAME_5]'s Cross-Claim on a party/party basis, such total costs to be reduced by 5%, for the reasons given below. Costs in relation to penalty argument 173 The final complaint made by [NAME_5] in respect of the costs orders recommended by the [NAME_9] was in respect of the costs of litigating the issue of whether the liquidated damages clause was a penalty. The penalty issue was decided in favour of [NAME_5] and it claims at the very least that it should not have to pay [NAME_1]'s costs for litigating that aspect of the matter, and indeed that [NAME_1] should pay its costs of that aspect of the matter. 174 The [NAME_9] dealt with the evidence in respect of this matter at paragraph 34 of this Report and considered it in paragraphs 50 to 54 inclusive. The [NAME_9] considered the relevant authorities and applied them to the matter of the penalty argument. He found that it was a discrete issue but came to the conclusion, wrongly in my view, that it should not be treated as so dominant as to require the proper exercise of his discretion to alter the general rule. It seems to me that the issue was so dominant that if [NAME_1] had been successful, [NAME_5] would not have been able to recover any liquidated damages and would thus not have been able to reduce the amount payable on the judgment that is to be entered against it. I am satisfied therefore that it is appropriate to accept the [NAME_9]'s alternative recommendation. He was in the best position to make an assessment of the percentage amount to be recommended on the basis that the Court found the issue was "so dominant". I am satisfied that there should be a 5% reduction of the amount of the total costs [NAME_5] is to pay to [NAME_1]. Orders 175 On the Notice of Motion filed by [NAME_1]: I make the order in paragraph 1 and I make the order in paragraph 2, subject to the different costs orders I have indicated I propose to make. I dismiss the Motion filed by [NAME_5]. The parties are to bring in Short Minutes of Order reflecting the Orders recommended by the [NAME_9] in the Report and reflecting the orders recommended in the report of 13 June 2003, subject to the changes I have indicated. Interest as recommended should be calculated up to and including 1 December 2003. 176 If there is no agreed costs order relating to these applications when the matter is listed for entry of orders at 9.30 on 1 December 2003, I will hear argument on that occasion. ***********************************

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