Supreme Court of NSW confirms high bar for challenging a Court appointed referee's report

The New South Wales Supreme Court has reaffirmed the high threshold for rejecting referee reports and the importance of the timely and comprehensive articulation of claims for recovering interest from insurers. 

Background

Acciona Infrastructure Australia Pty Ltd ("Acciona") contracted with the Queensland Department of Transport and Main Roads to upgrade a section of the Bruce Highway. The site was damaged by severe weather.

Acciona claimed various costs under its insurance policy. The costs included amounts related to remediating a road embankment. The insurers accepted that the policy responded to some of the damage claimed. However, the parties fell into dispute after the insurers denied coverage in respect of the embankment repair costs.

Acciona then commenced Supreme Court proceedings. The Court referred the dispute to a referee, being a New South Wales Senior Counsel, who was assisted by an expert quantity surveyor. The parties' positions on embankment repair costs were as follows:

1. The insurers refused to indemnify the embankment costs on the basis that the repair works were required to remedy defective construction materials rather than storm damage. The former was not an insured loss. The latter was.
2. Acciona argued that the severe weather necessitated the repairs as it had caused cracking that allowed water to infiltrate the embankment, leading to instability and a significant reduction in the strength of materials.

The referee conducted a reference hearing in March 2025.

Acciona tendered a geotechnical expert report from Mr Sharp at the reference hearing. It also annexed other expert reports to its closing submissions. Importantly, all of these reports had been provided to the insurers before proceedings were commenced. Notwithstanding, the insurers took issue with Acciona's allegedly newfound reliance on Mr Sharp's report.

The referee accepted that the insurers could raise this objection. However, he allowed Acciona's reliance on the reports as they had been disclosed well before the proceedings, and the insurers did not make submissions about needing time to lead contradictory evidence or that they wanted to cross-examine the relevant experts.

The referee subsequently issued two reports. The first dealt with the merits of the dispute. It found that, among other things, the embankment repairs were necessitated by insured damage and not solely defective construction. Consequently, the insurers were required to indemnify Acciona $2,109,335.42 for repair costs. The second report concerned the question of interest and determined that Acciona was not entitled to interest under the Insurance Contracts Act 1984 (Cth) ("ICA").

The dispute then returned to the Supreme Court of NSW to determine whether the referee’s reports should be adopted, varied or rejected. The insurers argued that the first report should not be adopted for two reasons.

First, the referee had denied them procedural fairness by allowing Acciona to deploy the expert reports and by relying on them in determining embankment costs.

Second, the referee failed to give adequate reasons to substantiate his findings and conclusions about Acciona’s claimed damages.

Acciona sought enforcement of the first report but submitted the referee's refusal to award interest in the second report should not be adopted.

Decision

Justice Peden of the New South Wales Supreme Court rejected both parties' challenges and adopted both reports in full.

First report

On the question of procedural fairness, the referee's report recorded the insurers' objection and that Acciona had not expressly notified the insurers that it relied on the various reports. However, the referee allowed Acciona's reliance on the reports.

In doing so, the referee also noted that:

1. he was not bound by the rules of evidence;
2. whilst Acciona had not expressly notified the insurers that it was relying on the various expert reports, the reports were included in Acciona's material which was tendered without objection;
3. it was not disputed that the insurers had been served with the relevant expert reports before the proceedings commenced; and
4. the insurers made oral and written submissions about the use and weight of the expert reports but did not contend that they required further time to lead contradictory evidence or that they wanted to cross-examine Mr Sharp or the other experts.

Peden J held that the referee had not erred in his exercise of the discretion not to exclude the reports.

As to the adequacy of the referee's reasoning, the insurers' primary argument was that the referee had not provided sufficient reasons for awarding Acciona the embankment repair costs.

The referee's report recorded that where insured damage was identified and required repair, the policy would respond, even if there were also defects requiring repair. The referee also explained that the combination of Mr Sharp's evidence, soil surveys in possession of the insurers and the evidence of Acciona's project manager were strongly supportive of damage being caused by the severe weather.

Peden J therefore held that the referee's reasoning was sufficient even though the referee had declined to closely scrutinise the quantum claimed by Acciona by verifying the nexus between the relevant invoices and the embankment repair costs.

Second report

Section 57 of the ICA provides that insurers are liable to pay interest on amounts payable under insurance policies. The period on which interest is payable commences on the date on which it became unreasonable for the insurer to have withheld payment.

The second report rejected Acciona's interest claim on the embankment costs on the basis that Acciona did not formulate the claim as it was ultimately presented until the reference hearing, given it was not until the reference hearing that the insurers received all information in support of the claim, which included the oral evidence of Acciona's project manager.

Peden J held there was no manifest error of law on the face of the report. Nor was there a misapprehension of the evidence or manifestly unreasonable finding of fact. In the absence of such deficiencies, Peden J held that it would not advance the just, quick and cheap resolution of the real issues in dispute for the Court to re-examine the interest issue.

Accordingly, Peden J adopted the second report in full.

Takeaways

The decision reinforces that Courts will generally adopt a referee’s findings unless there has been clear procedural unfairness, manifest legal error, or a conclusion that no reasonable referee could reach. As the Court emphasised, “rejection of a report is not justified by mere disagreement with a referee’s factual findings.”

The judgment also highlights that procedural fairness challenges are unlikely to succeed where a party had the opportunity to respond to evidence or insist on cross-examining a witness but failed to do so. Here, the insurers' prospects of successfully challenging the report may have been improved if they had made submissions noting that they required further time to lead contradictory evidence or that they wanted to cross-examine Mr Sharp or the other experts.

Peden J's judgment demonstrates that parties should contemporaneously seize the opportunity to address issues of procedural fairness. It is not sufficient to simply complain of being procedurally ambushed. Parties must take the further step of insisting on being afforded a sufficient opportunity to respond to the ambush. In the context of Court-appointed referees, waiting to address such issues until the Court is determining whether to adopt the referee's report may be fatal to any challenge.

Finally, Peden J's judgment also highlights the importance of claimants comprehensively articulating claims against insurers in full at the earliest point possible. Failing to do so may see a plaintiff not be awarded interest on successful claims or instead be awarded a reduction over the period for which interest is payable.