Ceerose Pty Ltd v The Owners – Strata Plan No 89074

1. [1]

   LEEMING JA: I agree with Kirk JA.

2. [2]

   KIRK JA: This appeal stems from a building dispute concerning an apartment building known as “The Eliza” on Elizabeth Street in the centre of Sydney. The first appellant, Ceerose Pty Ltd, is the builder. The second appellant, Prisand Investments Australia Pty Limited ACN 105 064 239, is the developer. The respondent is the owners corporation. The proceedings were commenced by the respondent against the appellants in 2016 in the Civil and Administrative Tribunal and transferred to the Equity Division of the Supreme Court in 2017. After a prolonged delay caused by settlement discussions, followed by the service of pleadings and evidence, orders were made for the matter to be referred to a referee, Mr Steven Goldstein, for inquiry and report under Pt 20, Div 3 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). The referee is both an engineer and a barrister.

3. [3]

   The referee produced a report on liability and the rectification scope of works in March 2023 (the Liability Report). In June 2024 he produced a report on quantum for the rectification works. The respondent then sought that the two reports be adopted by the Supreme Court and, on that basis, sought judgment for an identified sum. The appellants filed a countervailing motion seeking that certain parts of the reports be rejected, and also sought a declaration that the respondent had “failed to mitigate its loss, reasonably or otherwise, such that any avoidable loss cannot be recovered”. The primary judge, Rees J, rejected nearly all of the respondents’ challenges to the reports (other than with respect to some minor arithmetic errors), substantially adopted the reports, and gave judgment for the respondent in the amount of some $1.95 million exclusive of GST: The Owners – Strata Plan No 89074 v Ceerose Pty Ltd [2024] NSWSC 1494 (J).

4. [4]

   The appellants have challenged the adoption decision, advancing 10 grounds of appeal. The decision whether or not to adopt a referee’s report is discretionary: UCPR, r 20.24. The appellants are thus required to establish an error of House v The King kind. The respondent raised eight points in a notice of contention which, in the event, it is unnecessary to address. The errors asserted by the appellants are not established. The appeal should be dismissed with costs.

5. [5]

   The issues raised by the appellants are as follows:

   1. (1)

      Their “primary issue” was whether the court below erred in failing to find that the referee had denied the appellants procedural fairness (grounds 1-4). The claimed denial was “determining several issues of fact … by reliance on hearsay evidence contrary to the earlier rulings on evidence previously made by the Referee”. That evidence went to a central matter in dispute, being the appellants’ claim that the respondent had failed to mitigate its loss.

   2. (2)

      The appellants said that the primary judge erred in failing to find that the referee had misapplied the legal principles relating to mitigation, in particular by not accepting that the respondent had a “positive obligation” to afford the builder a reasonable opportunity to rectify alleged defects, which opportunity had not been provided (grounds 5-7).

   3. (3)

      They asserted that the primary judge erred in failing to find the referee had applied an incorrect, superseded version of an Australian Standard to be applied with respect to a bathroom drainage issue (grounds 8-9).

   4. (4)

      They claimed that the primary judge erred in not rejecting that part of the referee’s reports which took account of certain invoices (ground 10).

6. [6]

   Grounds 8-10 were the subject of only brief written submissions by the appellants and were not mentioned in oral address.

7. [7]

   In what follows I first briefly set out the background to the matter, then summarise the appellants’ overlapping arguments as to procedural fairness and mitigation. Although ordinarily the procedural fairness complaint should be addressed first, here it is convenient to consider it after addressing the appellants’ arguments as to principles of mitigation, as doing so serves to put the procedural fairness argument in context. I address grounds 8-9 and 10 at the end of these reasons.

Background

1. [8]

   The appellants entered into building contracts to construct a 16 level apartment building consisting of 19 residential lots, one commercial lot and a basement car park. Construction was completed in 2014. Disputes arose about defects in the building, leading to the proceedings being commenced. On the first 17 occasions the proceedings were listed before the Court (after being transferred from the Tribunal) they were stood over at the parties’ request to enable settlement discussions to progress. In October 2018 the parties informed the Court that the parties had reached an “in principle” settlement and were in the process of finalising a deed of settlement which would provide for the appellants to undertake a list of rectification work. However, the parties could not reach final agreement on the terms of the settlement. The appellants’ senior counsel accepted in this Court that such agreement as had been reached was “probably not capable of being specifically enforced” because it was always to be subject to finalisation in a deed.

2. [9]

   An extraordinary general meeting of the respondent was held on 29 April 2019 at which it was resolved to impose a special levy to raise $820,000 for purposes which included legal pursuit of the claim against the appellants. The meeting also resolved to authorise the executive committee to “use its discretion and make decisions about the Defects claim, subject to taking into account legal advice from DEA Lawyers, which includes (but is not limited to), negotiating with Ceerose and Prisand and resolving the Defects Claim”. DEA Lawyers were the respondent’s then solicitors with respect to the claim.

3. [10]

   On a number of occasions in 2018-2019 the respondent’s solicitors informed the appellants’ solicitors that their client was losing or had lost confidence in the builder and was unwilling to allow the builder any further opportunity to repair the defects. Ultimately, the following was said in a letter dated 8 November 2019:

4. [11]

   In its technology and construction list statement the respondent alleged that the building work by Ceerose did not conform to the requirements of the statutory warranties set out in s 18B of the Home Building Act 1989 (NSW). A range of defects were identified in a schedule. In their list response the appellants implicitly admitted the existence of some defects. However, they said (amongst other things) that they had always been ready, willing and able to rectify any defective works but the respondent had not permitted them to do so. That was said to constitute a failure by the respondent to mitigate its damage. Annexure A to the list response was a table setting out 95 defects which the appellants said they had offered to undertake to rectify on a without admissions basis, which offer had been refused. The annexure was based upon a schedule attached to an iteration of the draft deed of settlement. Both sides indicated in their respective list documents that all issues were appropriate for referral to a referee.

5. [12]

   A key dispute between the parties in relation to the mitigation issue related to the issue of onus of proof. In the Liability Report the referee summarised the parties’ positions as follows (footnotes omitted):

6. [13]

   The referee did not accept the respondents’ argument, saying that “the onus of proof rests with the Defendants to prove the facts which establish that the decision to deny access on 8 November 2019, or at any other time, was unreasonable”.

7. [14]

   The referee addressed the mitigation issue in detail at paras 54-244 of the Liability Report. He summarised his conclusions as follows:

8. [15]

   The primary judge held that the appellants had not established that the referee erred with respect to mitigation, such as to preclude adoption of his reports, in finding the respondent’s actions to be reasonable. Her Honour agreed with the referee that “the fact that the owner refused access does not, of itself, shift the onus of proof from the builder to the owner to prove the reasonableness of that decision” (J [73]). As to the appellants’ criticism of the referee’s reliance on what was said in correspondence sent by the respondent’s solicitors, her Honour said that “the referee was not bound by the rules of evidence” (J [73], [77], [87]). Further, the referee had regard to evidence from Mr Patrick Machado – the person who ran the respondent’s defects sub-committee – that indicated from where the instructions to the lawyers had emanated (J [78]-[79], [87]).

The appellants’ arguments relating to mitigation and procedural fairness

1. [16]

   On appeal, the appellants’ contentions with respect to mitigation and procedural fairness were linked. They asserted:

2. [17]

   The particular focus of the appellants’ complaint about onus was whether or not the respondent had established that it “ever actually lost confidence in Ceerose’s ability and willingness to rectify the defects”. They suggested that the respondent “may have manufactured an excuse”. In oral submissions, this supposed alternative purpose was explained this way:

3. [18]

   The appellants pointed to no material evidence in support of this claim, other than the fact that the parties had come close to agreeing on settlement of their dispute involving Ceerose undertaking rectification of defects (as noted above, the appellants did not assert that a contractual agreement on rectification had been reached). Senior counsel for the appellants said of this alternative theory, “[i]t’s possible, and we put it no higher than this”. He later described the possibility by saying that “there may be an alternative available inference”.

4. [19]

   The appellants argued that once the claimed “evidentiary onus” had shifted to the respondent then it was for the respondent to prove that it had refused to let Ceerose rectify the defects because of a loss of confidence. More broadly, it “had to positively establish grounds upon which a reasonable person in its position would reject the builder’s offer”. In substance, the appellants argued that a refusal by an owner to allow the builder to undertake rectification work – at least in circumstances where there had been some advanced negotiations to that end – created a rebuttable presumption that the owner had acted unreasonably and failed to mitigate its loss.

5. [20]

   The appellants said that the referee erred in relying upon what was said in letters sent by the solicitors asserting the respondent’s loss of confidence in Ceerose, including the clear statement in the letter of 8 November 2019 (quoted above at [10]). They asserted that in the course of the liability hearing the referee “unequivocally made the Ruling that correspondence between the parties would not be admitted to prove the truth of the statements made therein” (the nature of this ruling is discussed below). The referee’s departure from this “clear and unmistakable” ruling constituted a “procedural ambush”, in breach of the requirements of procedural fairness. The requirements of procedural fairness applied regardless of whether or not the rules of evidence were applicable. This “fundamental procedural breach … manifested primarily in the Referee’s impermissible reliance on hearsay evidence – specifically, assertions within solicitor correspondence”.

6. [21]

   It was also asserted that there was an “unexplained failure” by the respondent to call “direct evidence” from members of its strata executive committee as to whether or not the committee had lost confidence in Ceerose. The appellants said that this “compels the application of the principle in Jones v Dunkel [(1959) 101 CLR 298; [1959] HCA 8]”, and that this gap in the evidence “strongly suggests” that “their evidence would have been damaging to the Respondent’s assertion of a reasonable loss of confidence”. The appellants noted (correctly) that the minutes of the strata committee did not record in terms the claimed lack of confidence. The respondent did call evidence from Mr Patrick Machado, who was part of the executive committee from about 2016 to 2020 and who (to quote J [58]) “ran the owner’s defects sub-committee”. The appellants said that evidence rose no higher than Mr Machado’s own views.

7. [22]

   As the primary judge explained (J [7]-[8] and [20]), the usual order for reference was made by the Supreme Court, pursuant to which “the referee is not bound by the rules of evidence but may inform himself or herself in relation to any matter in such manner as the referee thinks fit”. The appellants’ arguments as to hearsay and Jones v Dunkel thus were not independent complaints but were founded on their procedural fairness complaint.

8. [23]

   It was said that the referee’s finding that the respondent had lost confidence in the builder was “fatally undermined by profound procedural unfairness”. In particular:

9. [24]

   The appellants noted that they had not challenged Mr Machado in cross-examination on the respondent’s reasons for declining to allow Ceerose to rectify the defects, and they had not cross-examined the strata manager, Mr Van Oort, at all (he had provided two affidavits).

10. [25]

    The appellants’ conclusion, asserted in ground 7 of the notice of appeal, was:

The claimed failure to mitigate

1. [26]

   Section 18BA(1) of the Home Building Act provides:

2. [27]

   At all levels the parties have proceeded on the assumption that common law principles relating to mitigation apply, unaffected by the Act, including with respect to onus. In the absence of argument to the contrary, I shall do the same.

3. [28]

   It has long been established that even though a plaintiff bears the duty of establishing loss, the onus is on the defendant to prove facts going to a claim that the plaintiff failed to mitigate the loss: see, eg, Bagnall v National Tobacco Corporation of Australia Ltd (1934) 34 SR (NSW) 421 at 430 (Jordan CJ). The High Court said this in Arsalan v Rixon (2021) 274 CLR 606; [2021] HCA 40:

4. [29]

   The High Court was addressing circumstances where the plaintiff incurs costs in attempting to ameliorate the loss or its effects. The principle as to onus is the same where the defendant claims the plaintiff should have taken steps to reduce loss. That type of issue is addressed as a matter of mitigation even though, as Ball J has pointed out, “the [plaintiff] is not mitigating its loss, but rather the [defendant’s] damages”: Owners SP 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067 at [44]. Whether or not a failure to mitigate is established depends upon the defendant establishing that the plaintiff has acted unreasonably in some respect. That might be so by acts (incurring unnecessary or unreasonable expenses) or omissions (failing to take steps that reasonably should have been taken to reduce the loss). Loss “which is due to unreasonable or improvident actions of the plaintiff is generally disregarded by application of the rules of mitigation of loss”: Cessnock City Council v 123 259 932 Pty Ltd [2024] HCA 17; (2024) 98 ALJR 719 at [120(3)] (Edelman, Steward, Gleeson and Beech-Jones JJ).

5. [30]

   Neither excessive diligence nor perfection is required of a plaintiff in this regard. As Lord Loreburn LC said in Lodge Holes Colliery Company Ltd v Wednesbury Corporation [1908] AC 323 at 325:

6. [31]

   The position was well summarised by Giles JA in Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313; (2000) 10 BPR 18,235 at [187]:

7. [32]

   There is no special common law rule applicable to building contracts in this regard. The appellants placed some reliance on the statement by Ball J in Di Blasio, at [44], that “[i]n the case of building contracts, it is also generally accepted that the owner must give the builder a reasonable opportunity to rectify any defects”. His Honour was not suggesting there is some automatic requirement to that effect. As the primary judge here noted (J [42]), one of the sources his Honour invoked was Julian Bailey, Construction Law: Volume II (1st ed, 2011, Routledge) at [14.109], where the following was said:

8. [33]

   As this explanation indicates, there is no invariable requirement that the owner provide the builder with an opportunity to rectify defects. The issue is whether the conduct of the plaintiff – including the failure to provide an opportunity to rectify – was unreasonable in all the circumstances, such that some or all of the claimed loss resulting from the breach of contract should be disregarded. The onus of proof and persuasion in that regard is on the defendant. That onus is a legal one. It is for the defendant to establish the relevant facts on the balance of probabilities and to persuade the decision-maker of the conclusion. The defendant also bears the evidential onus on the point, that is, it is for the defendant to identify evidence sufficient to raise the issue: Munce v Vinidex Tube Makers Pty Ltd [1974] 2 NSWLR 235 at 239.

9. [34]

   The respondent did not have a “positive obligation” to provide the appellants an opportunity to rectify the claimed defects (to quote grounds 5 and 6 of the notice of appeal). The refusal of such an opportunity by the respondent was a relevant fact which the appellants could invoke in arguing that the respondent’s damages claim should not be upheld in whole or part. But it was the start of the argument, not the end of it. The appellants needed to persuade the referee that in all the circumstances of the case the respondent’s refusal was unreasonable, and they needed to establish the facts which supported that argument.

10. [35]

    The appellants asserted that “the evidentiary onus shifted” if the defendant established that the plaintiff had not provided it with an opportunity to rectify defects. They accused the respondent of “conflat[ing] the stable legal onus with the shifting evidentiary onus”. The appellants seemed thereby to invoke the notion of what has been called a “tactical” onus given that, as discussed, both the legal and evidential onuses were on the appellants. Their argument illustrates (again) the confusion commonly created by that notion, and why its invocation is best avoided. Given the centrality of this point to the appellants case, it is worth repeating what this Court said recently in XJS World Pty Ltd v Central West Civil Pty Ltd [2025] NSWCA 133:

11. [36]

    The tactical notion of onus is employed as though litigation were a sporting contest, addressing which side is leading at a particular point in the game. But in sporting contests the winner is the person or team ahead when the game ends. In litigation, disputes are resolved when receipt of the evidence has concluded and the evidence is assessed. In the case of a draw – where the court is not persuaded either way – the party bearing the legal onus loses.

12. [37]

    The appellants referred to a statement by Handley AJA that “[t]he fact that the defendant carries the ultimate legal onus and the initial evidentiary onus of proving a failure to mitigate does not prevent the evidentiary onus shifting to the plaintiff during the trial”: CJD Equipment Pty Ltd v A&C Constructions Pty Ltd [2011] NSWCA 188 at [88]. That statement invokes a tactical onus, as illustrated by the reference to what occurs during the trial. It is not relevant to the assessment at the end of the trial. It can also be noted that the other two members of this Court did not adopt his Honour’s analysis on mitigation.

13. [38]

    The appellants’ arguments about onus are thus misconceived. It is wrong to say that “the evidentiary onus shifted decisively to the Respondent to prove that its refusal was reasonable in all the circumstances” once it was established that Ceerose was ready and willing to undertake rectification works. The appellants bore the onus of proof and persuasion from beginning to end with respect to their claim that the respondent had acted unreasonably. The respondent did not have “to positively establish grounds upon which a reasonable person in its position would reject the builder’s offer to rectify at potentially lower cost”.

14. [39]

    The appellants’ case theory was, in effect, that it was for the respondent to prove that its decision not to allow Ceerose to undertake rectification works was because it had lost confidence in Ceerose’s ability and willingness to undertake the works rather than for some other reason. Yet the respondent bore no onus. The appellants’ forensic choice not to cross-examine Mr Machado and Mr Van Oort on the issue simply means that they did not explore an issue on which they bore the onus; it does nothing to assist them to discharge that onus. Their speculation as to another purpose – which they conceded was a mere possibility – did little if anything towards discharging their onus.

15. [40]

    The primary judge thus did not err in failing to hold that there “was not evidence enough, or at all, for the Respondent to displace its evidentiary onus”. Grounds 5-7 must be rejected.

The claimed denial of procedural fairness

1. [41]

   The appellants accused the referee of a “procedural ambush” – a term suggestive of bad faith – saying that his finding that the respondent had lost confidence in the builder was “fatally undermined by profound procedural unfairness”. The supposed ambush was the referee’s reliance on what was said in letters sent by the respondent’s solicitors about the respondent losing or having lost confidence in Ceerose’s ability and willingness to rectify defects, where it was said the referee had ruled that the letters would not be so used. There was no such ambush. There was no procedural unfairness, let alone of a profound kind.

2. [42]

   The premise of the complaint is that the respondent bore a positive onus on the mitigation issue and was required to put forward evidence which would demonstrate that it had not acted unreasonably. The impermissible reliance on the letters as evidence would thus undermine the basis upon which the referee could make such a determination. As just explained, the respondent did not bear any such onus. The respondent did not need to prove that it had not acted unreasonably. Rather, the appellants had to prove that the respondent had acted unreasonably. That the appellants chose not to cross-examine on the issue or to call further evidence, in claimed reliance on the ruling, was a forensic choice made based upon their own legal misunderstanding. Those choices were made at the appellants’ own risk.

3. [43]

   No procedural fairness has been established by the appellants. To begin with, it is necessary to address what the referee’s ruling was and how it came about. The oddity, if not absurdity, of the appellants’ position is that they complain of the referee relying on what was said in letters sent by the respondent’s solicitors, yet it was the appellants themselves who tendered those letters, and at the time they did so they did not seek any restriction on the use to which they could be put.

4. [44]

   The liability hearing before the referee commenced on 19 April 2022. At the beginning of the hearing the respondent’s counsel complained that affidavits had been served late by the appellants. One of those affidavits was by a director of both appellants, Mr Edward Doueihi, which exhibited the correspondence between the parties as to the defendant’s offers to rectify the defects. As to that affidavit, the respondent’s counsel (Mr Hand) complained about the lateness of the material being served and the non-compliance with the court-imposed timetable; about prejudice in having to gather material in response; and about the fact that some of the correspondence was “without prejudice”. As to the claimed prejudice, senior counsel for the appellants (Mr Ashhurst) said this:

5. [45]

   The referee asked why evidence was necessary when the appellants had pleaded an agreement as to rectification. Senior counsel responded:

6. [46]

   The referee ended up saying that “I’m inclined to allow it subject to the concerns about it being a document evidencing the without prejudice discussions, and to give [the respondent] the opportunity to put on whatever documents are missing”. The appellants’ senior counsel responded that “that’s sensible because we could simply just tender the documents anyway and they couldn’t possibly complain”. The referee’s ruling then was as follows:

7. [47]

   Neither side sought any limitation be placed on the use to which the correspondence attached to the affidavit could be put (leaving aside the issue of whether any significance should be attached to the “without prejudice” nature of the correspondence, which was left for later debate). No such limitation was imposed. Indeed, the appellants’ senior counsel had rejected any suggestion that witness evidence was needed to explain the contents of the correspondence which, he suggested, spoke for itself.

8. [48]

   The respondent later served an affidavit of Mr Machado dealing with the issue. The appellants had a number of objections to that affidavit. The appellants’ position with respect to the use that could be made of correspondence now reversed, their senior counsel saying this:

9. [49]

   Counsel for the respondent indicated that they were so tendered. The referee then pointed out that this material was simply responsive to the late affidavit provided by the appellants. Senior counsel for the appellants then sought retrospectively to limit his earlier tender, saying this:

10. [50]

    There was then the following exchange:

11. [51]

    It is the italicised statement by the referee which is said to be the unequivocal ruling. In the Liability Report, the referee himself cited the same statement in saying the following:

12. [52]

    It thus appears that in the end there was some ruling made which retrospectively limited the use that either side might make of the correspondence relating to Ceerose rectifying defects. But the appellants’ stridently expressed complaints ring rather hollow in the context outlined.

13. [53]

    Moreover, the ruling cannot be said to be “unequivocal”. The basis on which it was received was as “proof of the fact of the communication” (to quote what Mr Hand said at the start of the exchange just set out). It did not address issues of state of mind and, in particular, whose mind was relevant. The appellants did not dispute that the correspondence could be used as evidence of the state of mind of the sender, but said that the sender (relevantly) was the respondent’s solicitors, and their state of mind was not to the point. That issue was not addressed directly in the ruling.

14. [54]

    It is also notable that despite the appellants’ complaints of a “procedural ambush”, in fact the referee drew upon submissions made by the respondent which invoked the correspondence and argued why it could be relied upon, to which the appellants had the chance to respond, which opportunity they took. As the respondent correctly said in its submissions to this Court:

15. [55]

    Even if the ruling is understood to mean that the letters of the respondent’s solicitors could not be relied upon per se to prove the truth of the fact that the respondent was losing or had lost confidence in Ceerose undertaking rectification work, no material prejudice or unfairness has been identified by the appellants.

16. [56]

    In the Liability Report the referee addressed the issue by determining whether the claims made in the relevant correspondence was supported by other evidence or inferences. Four letters relevantly were referred to by the referee in relation to the alleged loss of confidence. In a letter dated 6 December 2018, the respondent’s solicitors said this:

17. [57]

    As the referee (twice) noted in the Liability Report, that statement appeared to reflect the minutes of a strata executive committee of 26 November 2018, shortly beforehand, in which this was said:

18. [58]

    As the referee noted, those minutes also recorded that Mr Machado was to attend an onsite meeting on 28 November 2018 with a lawyer from DEA Lawyers to discuss the defects claim; that he would speak with her “noting the Committee’s above concerns”. The minutes also note that Mr Machado would seek advice on whether it was in the respondent’s “best interest” to wait and have Ceerose attend the site or proceed with the repairs at their own cost. There is nothing remarkable in this minute, nor anything supportive of the appellants’ speculative theory about some other motivation of the respondent. The respondent was entitled to take account of its own interests.

19. [59]

    It is true that the referee ended his analysis with respect to the 6 December 2018 in these terms:

20. [60]

    However, as the word “accordingly” indicates, this was a statement of the referee’s conclusion based upon the other evidence to which he referred; he concluded that the letter did in fact manifest the view of the respondent. He was not treating the letter per se as evidence of the state of mind of the respondent. The referee’s approach was much the same with respect to the other letters.

21. [61]

    In a letter dated 4 April 2019, the respondent’s solicitors said:

22. [62]

    The referee noted that this statement was consistent with the evidence of Mr Machado, who testified that:

23. [63]

    Whilst that evidence goes only to Mr Machado’s view, he was a key figure both as a member of the executive committee and as the person who ran the respondent’s defects sub-committee. It is some evidence – even if not conclusive – going towards a conclusion that the executive committee’s decision not to allow Ceerose to rectify the defects was taken because of the concern he expressed.

24. [64]

    The referee also noted that the solicitors were “always careful to state that they were acting under instructions” and there “was no evidence which suggested that DEA Lawyers had misunderstood its instructions”. The referee cannot be criticised for drawing the obvious inference, in the absence of evidence to the contrary, that the state of mind of solicitors about their client’s position was based upon instructions.

25. [65]

    In a letter dated 1 October 2019, the respondent’s solicitors said the following (and this paragraph was actually quoted in Mr Doueihi’s affidavit):

26. [66]

    The letter sent by the respondent’s solicitor on 8 November 2019 has already been quoted (above at [10]).

27. [67]

    The primary judge correctly summarised the approach of the referee in this way:

28. [68]

    Moreover, as her Honour observed (J [67]), the fact that a year had passed since an “in principle” agreement had been reached, without final resolution, of itself “speaks volumes” about the parties’ inability to agree on rectification.

29. [69]

    There is an air of unreality about the appellants’ complaints. The following exchange in this Court illustrates the point:

30. [70]

    As explained, it was not incumbent on the respondent to prove why it decided not to allow Ceerose to rectify the defects; it was for the appellants to prove that that decision was unreasonable. The letters themselves are some evidence of the breakdown in the relationship, and there was other evidence going to the respondent having lost confidence in Ceerose. The suggestion that this breakdown was “engineered” was speculative. The appellants made no real attempt to prove that claim. They chose not to put their claim to Mr Machado in cross-examination.

31. [71]

    The appellants’ case before the referee, in the court below and in this Court was based on the misunderstanding that the respondent bore the onus because it had “shifted”. Their complaint relates to letters that they themselves tendered, where they sought no restriction on the use of the letters when this occurred. The retrospective ruling of the referee was not as unequivocal as they claim. And even if the ruling was understood so as not to allow the letters to be relied upon as going to the state of mind of the respondent, there is no unfairness because the referee’s conclusion that they did in fact manifest the view of the respondent was based upon other evidence. No procedural unfairness has been established.

The claimed error as to which version of the Australian Standard to apply

1. [72]

   The appellants argued that the primary judge erred by rejecting their contention that the referee had determined the respondent’s claims relating to claimed defects in the falls of bathroom floors by reference to a superseded standard. Each side had called a building expert who addressed the issue. In the liability hearing the appellants put to the referee that “[n]either expert carried out proper testing to determine whether ponding [of water] was in fact subsisting to such a degree (or at all), that it was causing damage” (quoting the Liability Report). There was no definition of ponding in the version of the relevant Australian Standard that applied when the building was constructed, being AS3740-2004. However, the current version of that standard, AS3740-2021, outlines a process for determining ponding, which potentially involves observing whether water evaporates within 5 hours in certain atmospheric conditions. That type of testing had not been done by either expert. The appellants submitted that “further tests should be conducted to ascertain whether the floors as they currently exist” complied with the later standard. The referee rejected the contention that the experts had failed to carry out proper testing, implicitly rejecting the appellants’ argument that his determination should await further testing.

2. [73]

   The appellants argued both in the court below and in this Court that a proper assessment of the reasonable cost of rectification must have regard to the standards in force at the time it is carried out, and that the referee erred in concluding to the contrary. It is not necessary to determine that point. The referee did indicate in the Liability Report that he considered the later standard was not applicable. However, he also based his decision upon a conclusion that the method of determining ponding in the later version of the standard “imposes a number of conditions which would be difficult, if not impossible, to achieve in practice”. And he noted that the preface to the later standard made it clear that the appendix which included the ponding test was provided only for information and guidance and was not an integral part of the standard. Thus the referee’s decision did not depend upon a conclusion that the later version of the standard was legally irrelevant.

3. [74]

   Further, there is no error in the following analysis by the primary judge:

4. [75]

   Grounds 8-9 of the notice of appeal are not established.

The claimed erred as to the Yedalian and Van Oort invoices

1. [76]

   The appellants contended that the primary judge erred in not rejecting that part of the referee’s report which allowed costs the subject of two categories of invoices: first, those issued by Mr Gary Yedalian, mechanical services engineer, for his works in the building; and second, those for other rectification works in the building attached to an affidavit of Mr Van Oort, the strata manager. The appellants argued below and on appeal that the claims for these invoices should have been rejected for three reasons:

   1. (1)

      they were rendered after the commencement of litigation and so were to be characterised as costs of litigation, not damages;

   2. (2)

      they did not form part of the Scott Schedule before the referee listing the defects in question and associated costs; and

   3. (3)

      details were lacking as to the works the subject of the invoices.

2. [77]

   As to the first point, the fact that the invoices were rendered after the litigation commenced does not necessarily mean that they cannot be claimed as damages. Whether the invoices were claimable was addressed by the referee. No error has been established in the conclusion of the primary judge that “[i]t is clear from the referee’s report that he closely examined each and every invoice and formed a view”, and “[w]hether that view was right or wrong, it was clearly available to the referee and is no basis to reject the report” (J [124]). The same answer applies to the third point, which the appellants supported with a half-hearted argument that the invoices were “potentially lacking sufficient detail and verification” and “may not have constituted adequate proof of the loss claimed”.

3. [78]

   As to the second point, the primary judge concluded that whether or not the invoices were included in the Scott Schedule, the respondents’ claim for them had been made clear well in advance, and there had been no denial of natural justice relating to the claim for these amounts (J [122]-[123]). No error has been shown in that conclusion. Procedural fairness is a matter of substance not form.

4. [79]

   Ground 10 is not made out.

Orders

1. [80]

   The orders of the Court should be as follows:

   1. (1)

      Appeal dismissed.

   2. (2)

      Appellants to pay the respondent’s costs.

2. [81]

   BALL JA: I agree with Kirk JA.