Mikeon Projects Pty Ltd v Staffseal Pty Limited

By a notice of motion filed on 20 August 2021, the plaintiff, Mikeon Projects Pty Ltd (Mikeon), seeks orders pursuant to Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 20.24 that (1) the Court reject certain paragraphs of a referee’s report prepared by Mr Frank Hicks SC (the Referee) which was originally issued on 18 June 2021 and which was revised to correct a number of minor errors on 30 June 2021 (the Report); (2) the Court refer the matter back for further consideration by the Referee of the issues raised by the rejection of those paragraphs of the Report.

The proceedings relevantly concern a project for the construction of two residential towers, known as Tower A and Tower B, in Auburn. Mikeon was the builder of the project. The defendant, Staffseal Pty Limited (Staffseal), was the subcontractor engaged by Mikeon to supply and install plasterboard walls and ceilings in the units of Tower B (the Internal Works) and subsequently to supply and install UBIQ cladding on the façade of the two towers (the External Works) and to complete the installation of plasterboard walls and ceilings in the units of Tower A that had been left uncompleted by another contractor (the Tower A Internal Works).

On 6 September 2017, the developer obtained a revised approval to increase the height of Tower A by three levels and the height of Tower B by two levels.

Various issues were raised by the parties in a Further Amended Technology and Construction List Statement and an Amended Technology and Construction List Cross-Claim Statement, including claims concerning amounts payable for the work that Staffseal had performed and whether Mikeon had validly terminated the contract or contracts by which the work was and was to be performed, all of which were referred to the Referee. Critical to the resolution of the issues raised by the notice of motion were the terms on which Staffseal had agreed to supply and install plasterboard walls and ceilings in units on the additional levels of Tower A and Tower B (Additional Internal Works) and cladding on the exterior of the additional levels (Additional External Works).

It was common ground that Staffseal had agreed to undertake the Internal Works for a fixed price of $2,503,800 (excluding GST), which was subsequently increased by $163,800 (excluding GST). It was also common ground that Mikeon had agreed to pay Staffseal a rate per square metre for the External Work. Before the Referee, Mikeon had submitted that the agreed rate was $42/m2. Although there was an issue before the Referee concerning that figure, the Referee accepted Mikeon’s contention. No challenge is made to that conclusion. Moreover, it is accepted that Staffseal had completed 75 percent of the Internal Works before the contract was terminated, following what Staffseal alleged and the Referee accepted was a breach by Mikeon.

In relation to the Additional External Works, the Referee found that the parties agreed that the works would be carried out on the basis of an hourly labour rate of $45 per hour. Mikeon challenges that finding. It contended before the Referee that the rate was the same as the rate for the External Works — that is, $42/m2.

In relation to the Additional Internal Works, the Referee found that the parties had entered into an agreement on 6 August 2018 by which Mikeon agreed to pay Staffseal $1,100,000 including GST for the Additional Internal Works and for the balance of the Tower A Internal Works. Mikeon challenges that finding. It accepts that the parties reached an agreement in relation to the Internal Works and the Additional Internal Works. However, it contends that the Referee should have found that the agreement covered both past and prospective work.

Mikeon also takes issue with the Referee’s calculation of the amount owing by it.

The principles concerning the Court’s discretion to adopt, vary or reject a report are not in dispute. They were summarised by McDougall J in Chocolate Factory Apartments v Westpoint Finance & Ors [2005] NSWSC 784 (Chocolate Factory) at [7] and quoted with approval by Ward CJ in Eq in Waterwood Hotel Management Pty Ltd v KOP International Pty Ltd [2020] NSWSC 709 (Waterwood) at [40].

Relevantly, the Court must exercise its discretion in a manner consistent with the purpose of the rules. The purpose of Pt 20 of the UCPR is to provide a form of partial resolution of the dispute as an alternative to orthodox litigation. Accordingly, a referee’s findings of fact should generally not be re-agitated, and the Court should tend toward accepting a report that demonstrates a thorough, scientific, approach by the referee. On the other hand, a report that contains errors of principle or which demonstrates patent misapprehension of evidence or manifest unreasonableness on the part of the referee will ordinarily be rejected. A suggestion that the referee has made a factual error is not sufficient to justify rejection of the report. What is critical is whether the referee reached a decision that no reasonable tribunal of fact could have reached. If the Court determines that the referee’s reasons are flawed, the Court may decline to adopt the report, or examine the evidence to determine whether the costs of further proceedings before the referee is justified: Waterwood at [40] per Ward CJ in Eq, quoting McDougall J in Chocolate Factory at [7]. In exercising its discretion, the Court may determine that it is appropriate to adopt (or reject) only part of a report: UCPR r 20.24(1)(a); Waterwood at [41].

Essentially, Mikeon makes two points concerning the Referee’s findings in relation to the Additional External Works. First, it submits that the findings rely on evidence that was not admitted or was admitted for a limited purpose only. Second, it submits that the findings were perverse because, on the conclusions the Referee reached, Staffseal was entitled to be paid approximately the same amount for the cladding for the additional levels (five levels altogether) as it was entitled to be paid for the original levels (26 levels altogether). According to Mikeon, that conclusion at least required some explanation, but it was not an issue addressed by the Referee at all.

The Referee observed that Mr Alex Ribalko, the sole director and shareholder of Staffseal, and Mr Vasilios (Bill) Biniares, the General Manager of Mikeon, gave conflicting evidence concerning the conversations in which the relevant agreement was reached. The Referee chose to accept Mr Ribalko’s version of events “as it is consistent with the contemporaneous documents”: Report [129]. Those documents included:

The Referee also referred to the fact that Mikeon had not objected to other invoices issued by Staffseal that were based on an hourly rate of $45 per hour.

The Referee accepted that the invoices accurately recorded the hours worked. He said this at Report [157]:

So far as the invoices were concerned, Mikeon submits that they were only admitted as evidence of the amount claimed by Staffseal. So far as the timesheets were concerned, Mikeon submits that critical evidence of Mr Ribalko was either not read or was rejected. Mr Ribalko had given the following affidavit evidence in relation to the timesheets:

Mikeon submits that it follows that the Referee was not entitled to rely on the invoices to establish the terms of the agreement and on the timesheets to establish the hours worked.

I do not accept either of those propositions.

There may be a question of whether the ruling on the use to which the invoices could be put should have been amended in the light of the affidavit evidence that was admitted and the cross-examination of the witnesses. Leaving that point aside, I do not think the Referee made any error in the way he approached the matter.

So far as the invoices were concerned, what was critical was that they had been prepared on the basis of an hourly rate and Mikeon did not at the time object to them for that reason. The Referee’s reasoning does not involve using the invoices as evidence of something other than the basis on which they were admitted. What was important was that Staffseal had made claims on an hourly basis (which was proved by the invoices) and Mikeon had not objected to the claims on that basis.

As to the timesheets, the statement in Report [157] does not involve the Referee relying on evidence that was not admitted. The paragraphs of Mr Ribalko’s affidavit still set out a system by which the invoices were prepared. Mr Biniares conceded in cross-examination that those invoices were checked by a member Mikeon’s staff who was on site. Accordingly, the Referee was entitled to reach the conclusion that he did.

As to the submission based on perversity, it too must be rejected. The submission may have had more force if there was evidence that the parties appreciated that the result of changing the method of calculation from a fee per square metre to a fee based on hours worked would substantially increase the price. But it is not suggested that they did. All that could be said is that the result of changing the method of calculation was to increase the price very substantially. But nothing turns on that. That fact may demonstrate that Mikeon struck a bad deal for the Additional External Works. Alternatively, it may indicate that Staffseal had, in fact, struck a bad deal for the original External Works. It may demonstrate that the costs of installing cladding on the upper levels was very much greater than the average costs of installing cladding on levels 1 to 13. Unless evidence and submissions were put to the Referee on those matters, I can see no reason why it was necessary for him to deal specifically with the differences in price.

The Referee stated that it was common ground that the parties originally agreed that Staffseal would be paid $45 per hour for the Additional Internal Works and Tower A Internal Works. According to Mikeon, that statement was not entirely accurate. However, nothing turns on whether it was or not. It is common ground that a dispute arose between the parties concerning the Additional Internal Works and Tower A Internal Works and that that dispute was resolved by an agreement reached at a meeting held on 6 August 2018. The agreement was reduced to a handwritten document at that time which both Mr Biniares and Mr Ribalko signed. The primary task of the Referee was to interpret that document by reference to what a reasonable businessperson would have understood its terms to mean having regard to the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]. That is what the Referee did. He explained his conclusions in these terms:

Notwithstanding that conclusion, the Referee did consider the evidence concerning what occurred at the meeting on 6 August 2018. The Referee pointed out that Mr Biniares and Mr Ribalko had at different times both given conflicting accounts of what occurred at the meeting. Nonetheless, the Referee generally preferred the evidence given by Mr Ribalko and gave reasons for doing so. The Referee placed considerable emphasis on the fact that Mr Mark Merhis, a representative of the developer, was present at the meeting, but was not called by Mikeon to give evidence. The Referee concluded that it was “reasonable to draw the usual Jones v Dunkel inference that his testimony would not have assisted [Mikeon]”: Report [205].

The Referee did observe that Mr Ribalko prepared a document described as “Meeting minutes” which he sent to Mr Biniares by email on 14 August 2018. Mr Biniares did not respond to that email. Those minutes relevantly record the following:

Mikeon submits that the minutes cannot be reconciled with Mr Ribalko’s account of the meeting and that the Referee made an error by failing to take account of them.

Mikeon also places a great deal of emphasis in its submissions on the following evidence given by Mr Biniares in relation to the meeting on 6 August 2018, which it says was not challenged:

I do not accept Mikeon’s submissions. I accept that the file note was a relevant piece of evidence. As I have said, the Referee did refer to it. Having done so, he set out his reasons for the conclusions he reached which focussed on the words of the written agreement, depended on findings concerning whose evidence he accepted, took account of what was inherently plausible and also took account of the fact that Mr Merhis was not called. The file note was not so critical that the Referee needed to deal with it specifically. The file note appears to have been prepared after the meeting. The agreement was recorded in another document. Moreover, the file note itself was unclear since the reference in para 7 to “all previous day labour” may be read as a reference to all previous day labour for which Staffseal had not been paid. It did not necessarily refer to all previous day labour, whether paid for or not.

As to Mr Biniares’ account of the conversation, although Staffseal may not have taken specific issue with it, it was inconsistent with the version of the meeting given by Mr Ribalko, which the Referee generally preferred. Moreover, as I have said, the Referee rightly focussed on the words of the signed agreement. Finally, Mr Biniares account of the conversation is itself unclear. The account is consistent with Staffseal’s case that what was agreed was that it would be paid $600,000 for the Additional Internal Works and a further $400,000 for the Tower A Internal Works which was still outstanding.

Mikeon submits that the Referee made errors in calculating the amount due to Staffseal. It provided supplementary submissions dated 18 February 2022 setting out how it says the amount is to be calculated. In supplementary submissions in response, Staffseal did not accept Mikeon’s calculations. It did not provide calculations of its own. Instead, it submitted that the calculations were the third attempt by Mikeon to demonstrate that the Report contains calculation errors and each attempt has produced a different figure. It submitted that the Court should either accept the Referee’s calculations or refer the matter back to the Referee. If the Court chose to adopt the latter course, it submitted that in the first instance at least Mikeon should bear the Referee’s costs.

Mikeon’s supplementary submissions do identify an apparent discrepancy in the Report. The submissions point out that the Referee concluded that Staffseal was to be entitled to the payment of the following amounts (Report [239]):

On the other hand, Mikeon calculates the total amount payable to Staffseal in accordance with the Referee’s conclusions as being $5,733,102.37. The Referee also recorded that Mikeon had paid $3,921,588.70 and that pursuant to the agreement reached on 6 August 2018 Staffseal had released unpaid invoices totalling $927,326.08 (incl GST). On that basis, it is said that Mikeon had underpaid $884,187.59 (incl GST), making a difference of $198,391.83. According to Mikeon, that difference is unexplained.

I accept that, on the figures contained in the supplementary submissions and the Report, it is not possible to explain the difference. It may be that it lies in the fact that some figures in the Report include GST and others do not. But that is not obvious.

I accept that the best course therefore is to refer this issue back to the Referee. However, I agree with Staffseal’s submission that, in the first instance, Mikeon should pay the Referee’s costs. Mikeon does not point to any error on the part of the Referee. The most that can be said at the moment is that based on Mikeon’s own calculations there appears to be a discrepancy. The question whether Staffseal should reimburse Mikeon for all or part of those costs can be considered once the Referee delivers his supplementary report.

Accordingly, the orders of the Court are: