The Owners - Strata Plan No 97315 v Icon Co (NSW) Pty Ltd

These proceedings were commenced in July 2020 by the plaintiff (“Owners Corporation”) against the defendant builder (“Icon”) in respect of alleged structural and non-structural defects in the building known as the Opal Tower at Olympic Park.

On 14 July 2022, the Court made various orders including an order pursuant to Uniform Civil Procedure Rules 2005 (“UCPR”) r 20.14 that certain matters be referred to an expert referee (Mr Steven Goldstein) for enquiry and report. The referee was required to enquire and report on questions as to what extent, if at all, Icon is liable for certain alleged defects and, to the extent Icon is liable for such defects, what is the proper rectification methodology. The alleged defects the subject of the reference constituted some of the non-structural defects alleged in the proceedings.

The referee was ordered to submit his report to the Court in accordance with UCPR r 20.23 by 10 February 2023.

In the course of the reference process, the parties reached agreement in respect of each alleged defect except for the defect alleged in respect of the sunshades on the façade of the building. The referee’s report, which was submitted to the Court on 3 February 2023 (following four days of hearing in December 2022) was thus concerned only with the questions insofar as they concerned the allegedly defective sunshades.

The referee concluded, in summary, that:

By Notice of Motion filed on 20 February 2023, the Owners Corporation seeks orders under UCPR r 20.24 in respect of the referee’s report. The orders sought include orders to the effect that certain parts of the report be rejected, certain other parts be varied, and that the balance be confirmed. The Owners Corporation also seeks an order from the Court to the effect that the Hidden Bracket Solution is the proper rectification methodology.

The Owners Corporation’s motion is supported by the affidavit of Banjo Stanton, solicitor, affirmed on 16 March 2023, and the exhibit to that affidavit. The motion is opposed by Icon.

Moreover, Icon filed its own Notice of Motion on 2 March 2023 by which it seeks various orders including an order that the Owners Corporation be restrained from taking any further step under UCPR r 20.24 until 9 November 2023. Icon’s motion is supported by the affidavit of Andrew Hales, solicitor, affirmed on 1 March 2023, and the exhibit to that affidavit.

The essential foundation for Icon’s motion is a Deed dated 30 May 2022 that the parties entered into on about that date. In brief, the Deed was concerned with some of the alleged non-structural defects complained of in the proceedings that were not the subject of a broader Heads of Agreement that had been entered into in partial settlement of the matter. Of the non-structural defects encompassed by the Deed, some were to be the subject of agreed works to be carried out by Icon, and some (including the sunshades issue) were to be the subject of a Court ordered reference. In that latter respect, the Deed can be seen as the provenance of the orders made by the Court on 14 July 2022.

Icon’s motion rests upon cl 17 of the Deed which is in the following terms:

The referee’s report was provided by the referee to Icon’s solicitors on 6 February 2023. By cl 17(c)(i), Icon thus had a period of two months, commencing on that date, to elect whether to carry out the work the referee requires to be carried out in order to ensure that the relevant work complies with the statutory warranties contained in s 18B of the Home Building Act.

The Court was informed at the hearing that, on the previous day, Icon had elected, pursuant to cl 17(c)(i) of the Deed, to carry out the work involved in implementing the C Bracket Solution. It was apparently accepted by both parties that Icon had made a valid election for the purposes of cl 17(c)(i).

Clause 17(c)(ii) provides that in those circumstances Icon is to be given a further period of up [to] 7 months to carry out the work (referred to as the “elected repair work”). Further, cl 17(e) operates (subject to cl 17(f) and any extension of time for the completion of the work) so that neither party is to request that the Court take any step pursuant to UCPR r 20.24 with respect to the referee’s report until a date that is 9 months after the delivery to Icon of the referee’s report.

Clause 17(f) seems not to qualify the operation of cl 17(e) in the present circumstances because Icon has elected to do the elected repair work, and neither party has made any application to the Court to not permit the parties to proceed in accordance with the agreements set out in cl 17(c).

However, it is Icon’s position that it has no objection to the Court proceeding to determine the Owners Corporation’s motion. Icon’s position is that the Owners Corporation’s challenge to the referee’s report should fail, and in that event it would not be necessary for the Court to determine Icon’s own motion. In particular, it would not be necessary for the Court to consider Icon’s argument that, on a proper construction of cl 17 and in the events which have occurred, it is not open to the Owners Corporation to seek orders under UCPR r 20.24 for the referee’s report to be rejected or varied.

In light of the above, the Court proceeded with the hearing of both the Owners Corporation’s motion and Icon’s motion. It is convenient to deal first with the Owners Corporation’s motion.

UCPR r 20.24 provides:

The principles that apply where the Court is asked to either adopt, vary or reject a referee’s report are well settled. The principles, which derive from cases such as Chloride Batteries Australia Ltd v Glendale Chemical Products Pty Ltd (1988) 17 NSWLR 60 (per Cole J as his Honour then was) and the Court of Appeal decisions in Homebush Abattoir Corporation v Bermria Pty Ltd (1991) 22 NSWLR 605 and Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 in relation to the former provisions in Part 72 of the Supreme Court Rules 1970 (NSW), were conveniently summarised by McDougall J in Chocolate Factory Apartments Ltd v Westpoint Finance Ltd [2005] NSWSC 784 at [6]-[7] as follows:

The referee’s report (not including the annexures to it) runs to 119 paragraphs. The salient parts of the referee’s reasons are summarised below (footnotes omitted).

After referring to the Technology and Construction List Statement and List Response, and provisions of the Home Building Act, the referee set out at paragraphs 22 to 40 relevant terms of the contract (described as a Design and Construction Contract), including the Principal’s Project Requirements (“the PPR”), and referred to the terms of the Construction Certificate.

At paragraphs 41 to 43, the referee described the types of sunshades located on the building, and noted certain agreements reached by the parties’ respective “façade experts” (Mr Karsai retained by the Owners Corporation, and Mr McClelland retained by Icon) at paragraphs 44 to 49. Paragraphs 47 to 49 are in the following terms:

The referee concluded at paragraph 50:

At paragraph 52, the referee noted that the experts were firmly divided concerning the type of additional supports which should be used on the 300 Sunshades and the 450 Sunshades to overcome the structural deficiency. After referring to the various rectification solutions put forward by Mr McClelland, the referee continued at paragraphs 54 to 55:

At paragraph 57, the referee stated, based on certain oral evidence given by the experts, that they “ultimately agreed that with further design development, either solution would achieve the desired structural outcome”. The referee thus proceeded on the basis that either solution would, with further design development, “be technically viable and would achieve the required structural outcome”.

At paragraphs 59 to 67, the referee described the nature of the two solutions.

At paragraphs 68 to 79, the referee set out what he considered to be the relevant legal principles (including by reference to the High Court decisions in Bellgrove v Eldridge (1954) 90 CLR 613 and Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8) and summarised the submissions made by each party.

At paragraphs 80 to 83, the referee summarised the parties’ submissions as to why the competing solutions should, or should not, be adopted. The referee then continued, in an important section of his reasons, at paragraphs 84 to 93 and 97 as follows:

The referee concluded at paragraph 98:

At paragraph 108, the referee stated:

At paragraphs 109 to 114, the referee set out his conclusions as to the appropriate quality assurance and/or independent consultant steps that would apply to the C Bracket Solution.

A summary of the referee’s findings is then set out at paragraphs 115 to 119 of the report.

In its written submissions, the Owners Corporation submitted that the parties accepted before the referee, and the referee found, that rectification of the sunshades was both necessary and reasonable. It was then submitted that, in accordance with the principles established by Bellgrove v Eldridge (supra), the Owners Corporation was entitled to recover damages to bring the defective work back into “conformity”. The submissions continued at paragraphs 19 to 22 as follows (footnote omitted):

In oral submissions, the Owners Corporation submitted that the referee misconstrued the terms of the contract. It was submitted that he ought to have concluded that in order to achieve conformity with the contract (including the warranties contained in s 18B(1) of the Home Building Act), the method of rectification of the sunshades had to employ internal fixings, not external fixings such as the brackets favoured by Icon. The submission was developed by reference to various provisions of the contract, and the sketches and drawings that are referred to in paragraph 89 of the referee’s report. It was put that on a proper construction of the contract, Icon was required to build consistently with those drawings, and that this required internal (and thus not visible) fixings.

The Owners Corporation also submitted that the findings of the referee concerning the visibility of the brackets in the C Bracket Solution were incorrect or even perverse, and in part based on material that was not before the referee.

In its written submissions, Icon submitted that the Owners Corporation was impermissibly seeking to re-agitate the referee’s evaluative findings (at paragraphs 89(a) and 89(b)) that certain sketches that were attached to the contract did not mandate that the sunshades could only be affixed to the building by invisible means. Icon submitted that the findings were open to the referee and, as a matter of contractual interpretation, were correct. Icon submitted that the sketches contained no details, let alone final details, as to how the various sunshades were to be affixed to the building.

As far as the drawings annexed to the Construction Certificate are concerned (see paragraph 89(c) of the referee’s report), Icon submitted that they were not set out in the contract and were thus irrelevant to the claim based on the s 18B(1)(a) warranty.

As for the claim based on the s 18B(1)(f) warranty, Icon submitted that the PPR contained only general statements such that no relevant “specified” purpose or result, or “particular” purpose or result, could be identified.

Icon further submitted that it could not be said that the C Bracket Solution would not achieve contractual conformity, given the referee’s factual findings concerning the visibility of the brackets. It was submitted that those findings were open to the referee, and there was no basis for the Court to disturb them.

In oral submissions, Icon submitted that there was nothing erroneous in the referee’s summary of the relevant contractual principles at paragraphs 68 to 79 of the report. In relation to the contract itself, it was submitted that the suggested requirements of “clean and neat architectural lines” or “hidden” sunshade supports, were entirely absent from the contract. It was submitted that the PPR included mandatory or prescriptive language in places, but not in relation to the look of the sunshades or as to how they should be affixed. It was put that the referee, having found that the brackets involved in the C Bracket Solution would have little visual impact as they would be largely obscured, correctly concluded that the C Bracket Solution would be generally in accordance with the drawings attached to the Construction Certificate, and would achieve contractual conformity.

The relevant contract is described as a Design and Construction contract. The contract was entered into between Australia Avenue Developments Pty Ltd as Principal and Icon as Contractor. The contract is dated 29 October 2015. The Contract Sum was in excess of $154 million. Some of the provisions of the contract which have particular relevance to the present application are set out or referred to below.

Clause 2.1 relevantly provides:

Clause 2.2(a)(iv) provides:

By cl 8A.13(a), Icon was obliged to provide to the Principal and the Superintendent a consolidated set of the Final Plans and Specifications attached to a Construction Certificate. Final Plans and Specifications is defined to include the plans and specifications consented to by the Consent Authority and for which a Construction Certificate has issued for the Works.

In Part A of the annexures to the contract, it is stipulated in Item 10 that the PPR are described in the documents in Annexure Part R, and that a preliminary design is included. Item 11 also states that a preliminary design is included in the PPR.

The PPR are set out in Part R to the annexures to the contract. In the Overview of the PPR, cl B1.3 provides:

In the Development Overview section of the PPR, cl C1.2.1 provides:

Clause C3.1.1 relevantly provides:

Clause C3.2.1 provides:

Clause C3.2.2 provides:

Clause C4.1.1 provides:

In the Design and Construction section of the PPR, the façade of the building is dealt with at cl E18.3. Clauses E18.3.1 and E18.3.2 provide:

The above clauses refer to Appendix B Design Brief for D & C Façade Package. In that document, under the heading ‘Introduction’, it is stated:

Under the heading “General Notes” it is stated:

Under the heading ‘Architect’s Façade VE Sketches’, the following is stated:

Under the heading ‘AMA Windows Façade Sketches’, the following is stated:

The relevant Construction Certificate for the façade works was issued on 28 October 2016. There were a great many attachments to the Construction Certificate, including façade drawings prepared by Bates Smart. At least some of those drawings are referred to in the referee’s report (including at paragraphs 88 and 89). Those drawings were included in Appendix 3 to the report.

The manner in which the referee approached his task is broadly evident from the summary of his report set out above at [19] to [31].

Having found that the various types of sunshades were structurally inadequate, and required new screws, or both new screws and additional support, in order for the inadequacies to be overcome, the referee concluded that the existing sunshades were defective and that Icon had thus breached the warranties in s 18B(1)(a), (b), (c) and (f) of the Home Building Act (see paragraph 50 of the report).

Each party advanced a solution aimed at providing the required additional support for the sunshades. The referee proceeded on the basis that either solution would, with further design development, be technically viable and would achieve the required structural outcome (see paragraph 58 of the report).

The referee recognised that he was faced with a choice between competing rectification proposals, and proceeded to consider the relevant legal principles in that context. He referred to a number of the cases cited by the parties in their written submissions to him, including Bellgrove v Eldridge (supra), which both parties had relied upon. The referee appreciated that whilst Bellgrove v Eldridge (supra) was not expressly concerned with how to decide between competing rectification proposals, he considered that the principles enunciated in that case were relevant to the task he was facing. In particular, the referee stated (at paragraph 70 of the report) that in considering the merits of any rectification proposal, regard had to be given to whether:

It seems to me that the stated approach of the referee in that regard was appropriate in the circumstances. The orders for reference required the referee to determine whether Icon is liable for the alleged defects and, if so, determine “the proper rectification methodology”. As the referee was not asked to assess the amount of damages for which Icon would be liable, the latter question should be considered to be directed to the rectification method that would otherwise be the basis of an award of damages for the breach. In that way, the principles enunciated in Bellgrove v Eldridge (supra) were engaged, as referred to by the referee at paragraph 69 of his report. Further, it is clear that the referee understood, based on what was said by McDougall J in Bannister & Hunter Pty Ltd v Transition Resort Holdings Pty Ltd (No 3) [2013] NSWSC 1943 at [329], that any work proposed by way of rectification must be necessary to bring the building into conformity with the contract.

The thrust of the attack upon the referee’s report is aimed at his conclusion, expressed at paragraph 97, that the C Bracket Solution (as well as the Hidden Bracket Solution) would achieve conformity [with the contract]. The Owner’s Corporation primarily contends that the conclusion is undermined because the referee misconstrued Icon’s obligations under the contract.

Before the referee, the Owner’s Corporation submitted that by reason of cll 2.1 and 2.2(e)(ii) of the contract, and PPR cll 3.1.1(a) and (b) (and, it seems, cl 3.2.1), the contract should be construed to mean that Icon was required to provide an outcome that included a completed building that:

The Owner’s Corporation further submitted to the referee that the uninterrupted external lines of the floor to ceiling façade glazing and the neat and flat sunshades protruding from those window walls were an important and distinctive architectural feature of the building. It was put that securing the sunshades by hidden structural support brackets which cannot be seen externally allows the appearance of the sunshades to be a streamlined and regular line to compliment the architectural lines of the building (see the Owners Corporation’s written submissions to the referee at paragraphs 13 and 14). Further, it was put that the Hidden Bracket approach, unlike the C Bracket Solution, would achieve the three design intents of:

At paragraph 87 of the report, the referee noted the submission of the Owners Corporation that the C Bracket Solution, with visible brackets, would not achieve conformity, whereas the Hidden Bracket Solution would “as it produced a building that looks as it’s supposed to look, with uninterrupted lines as shown on the drawings”.

The Owners Corporation sought to demonstrate that only the Hidden Bracket Solution was in conformity with the contract, by reference to certain sketches that were part of the PPR and certain drawings that were annexed to the Construction Certificate. The Owners Corporation relied upon:

I pause at this point to note that the Owners Corporation did not contend that the sketches or drawings expressly mandated that the sunshades be affixed only by means that were not externally visible. It seems rather to have been put that the manner in which the sunshades were depicted in the sketches and drawings should lead to the conclusion that affixing in that manner was required under the contract. It is clear that the sketches and drawings, insofar as they depict the sunshades, do not show them as fixed by any external fixings such as brackets. That was expressly noted by the referee at paragraph 88 of his report. Further, he accepted, at paragraph 89, that the C Bracket Solution was not consistent with those sketches and drawings. Read in its context, that should be understood as an acceptance that the C Bracket Solution would not produce “neat and flat horizontal protrusions” (see report at paragraphs 81(d) and 88).

However, for the reasons set out in paragraph 89 of the report, the referee attached little weight to the significance of the Bates Smart façade sketches and the AMA Windows façade sketches, and saw nothing in the Bates Smart façade drawings (attached to the Construction Certificate) which indicated that visible supporting brackets for the sunshades “could not be used”.

Again, the approach taken by the referee seems to me to be appropriate. The Bates Smart façade sketches were indicative sketches that were to form the basis of a design intent to be observed during a design development process. To the extent that sunshades are depicted, the detail of how they would be affixed is not specified. That was conceded by Senior Counsel for the Owners Corporation. Further, the sketches are marked “not for construction”. The AMA Windows façade sketches, which were also marked “not for construction”, included indicative details of the main façade areas that were to form the basis of the profiles and extrusions to be used throughout the “façade systems”. The drawing of some of the sunshades depicted in these sketches suggest a form of fixing by bolts, but no further detail is provided. In its submissions, Icon contrasted the position concerning the fixing of the sunshades with numerous items in the PPR that were the subject of mandatory and prescriptive language, including as to matters of detail. The Bates Smart drawings that were prepared later, and annexed to the Construction Certificate, have a status described as “Design Development”. They, too, do not include any details as to how the sunshades would be affixed.

The referee concluded, in effect, that the above sketches and drawings did not require Icon to only affix the sunshades by a means that was not externally visible. I do not discern any error of principle or misconstruction of the contract in reaching that conclusion. In my view, none of the sketches and drawings relied upon mandated such means (or indeed any particular means) as the only contractually permissible mode of affixing the sunshades to the façade of the building.

So, even if, as the referee apparently thought, the C Bracket Solution is not consistent with what is depicted in the sketches and drawings in as much as it does not yield “neat and flat horizontal protrusions”, it does not necessarily follow that the C Bracket Solution would not achieve conformity with the contract. In my opinion, to affix the sunshades by means of external brackets would not, in and of itself, amount to a breach of the contract. By way of example, there would not necessarily be:

I should add at this point that the Owners Corporation, in oral submissions in reply, seemed to suggest that as the sunshades were in fact affixed without using any externally visible means, it could be inferred that this was specified in the actual for construction drawings. However, this argument does not seem to have been made to the referee, and Senior Counsel for the Owners Corporation informed the Court that there was no evidence before the referee of any plan prepared after the drawings that were attached to the Construction Certificate. In these circumstances, I do not think it appropriate to seek to rely upon such an argument as a basis to ask the Court to not adopt the referee’s report.

The referee noted, at paragraph 90, that under the terms of the development consent, the building was required to be built generally in accordance with the development consent, and the relevant consent drawings did not specify how the sunshades were to be affixed. The referee then concluded at paragraph 91 that the C Bracket Solution was such that the sunshades would be generally in accordance with the design, and that the brackets would constitute only a minor non-conformance when compared with the sketches and drawings relied upon. Again, the minor non-conformance should be understood as a reference to the C Bracket Solution not yielding “neat and flat horizontal protrusions”. The referee’s conclusions at paragraph 91 were expressly based upon his finding, on the evidence, that the brackets will have “little visual impact as they will largely be obscured”.

It is evident, from the extensive and detailed content of paragraph 91 of the report, that the referee based that finding upon a thorough examination of the evidence concerning the dimensions and locations of the proposed brackets, and their likely visibility from various viewing positions. The referee further found, at paragraph 92, that the brackets would not be readily visible from either the exterior or interior of the building, and that he was thus unable to conclude that the high quality outcome (required by cl 3.1.1 of the PPR) would not be achieved. The referee noted at paragraph 93 that no expert architectural evidence had been called. In those circumstances, he gave little or no weight to the subjective opinions as to aesthetics given by the engineering experts, and he rejected the evidence of the Chairperson of the Owners Corporation on that topic (see paragraphs 94 and 95 of the report). The referee was quite entitled to do so.

I do not accept that the above findings of the referee are in any way called into question by the referee’s apparent reliance upon page 13 of the NSW Guide to Standards and Tolerances 2017 (which seems not to have been in evidence before him) to define what he meant by “the normal viewing position” (see paragraphs 91(a)(iii), 91(b)(iii) and 91(c)(iii)). Nor do I accept that the findings are in some way perverse, or based upon a failure to understand (or take into account) certain evidence given by the Owners Corporation’s engineering expert about the brackets being visible from balconies. It was not shown that the referee failed to take into account this or any other aspect of the evidence of the expert. It seems that the referee considered such evidence, but decided to give it little or no weight. As I have said, the referee was entitled to do so.

The findings of the referee at paragraphs 91 and 92 evidently led him to his conclusion (at paragraph 97) that the C Bracket Solution, as well as the Hidden Bracket Solution, would achieve conformity [with the contract]. The conclusion involves a rejection of the various submissions made by the Owners Corporation to the effect that the C Bracket Solution was a departure from what the contract required in terms of the “look” of the building and its “design intent”. The findings were clearly open to the referee, and all the more so in the absence of expert architectural evidence, and in my view the conclusion was reached without any error of principle on the part of the referee.

In broad summary, the referee assessed the particular sketches and drawings relied upon by the Owners Corporation, and concluded, without any error of principle or misconstruction of the contract, that they did not require Icon to only affix the sunshades by a means that was not externally visible. Accordingly, it did not necessarily follow that the C Bracket Solution would not achieve conformity with the contract. The referee then found on the evidence that the brackets involved in the C Bracket Solution would not be readily visible and would have little visual impact, such that the required high quality outcome would be achieved and there would be no departure from what the contract required in terms of the “look” of the building or its “design intent”. Those findings, which were clearly open to the referee, led him to the conclusion that the C Bracket Solution would achieve conformity with the contract. Again, I do not discern any error of principle in that regard.

I will add that the parties had every opportunity to adduce such evidence and make such submissions to the referee as they saw fit. The hearing before the referee in fact occupied four days, including two days of expert evidence. The referee’s report reveals that the referee took a thorough and well-reasoned approach to the issues presented to him.

For the above reasons, the challenges made by the Owners Corporation to the referee’s report have not been made out. I do not regard it as appropriate to exercise the discretion of the Court under UCPR r 20.24 to reject or vary the referee’s report as sought by the Owners Corporation. In particular, it would not be appropriate in my view to reject the report insofar as it concerns the referee’s conclusions that the C Bracket Solution will achieve conformity with the contract and is “the proper rectification methodology” in relation to the defective sunshades.

The Owners Corporation accepted that if the C Bracket Solution was relevantly in conformity, it could not challenge the referee’s finding that the C Bracket Solution was the proper rectification approach. That concession was well-founded, having regard to the findings of the referee (particularly at paragraphs 99(b) and 99(c)) that the Hidden Bracket Solution would involve an extensive and unreasonable amount of work, and cause significant inconvenience to the occupants of the building.

The Notice of Motion filed by the Owners Corporation on 20 February 2023 will be dismissed, with costs.

In these circumstances, it is not necessary to proceed to determine the Notice of Motion filed by Icon on 2 March 2023, and I do not propose to do so, particularly having regard to the position taken by Icon as referred to above at [15]. I think that this motion should also be dismissed, but with no order as to costs given that it has not been determined on its merits. The parties will thus be left to proceed in accordance with their agreement as expressed in cl 17 of the Deed dated 30 May 2022.