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Lipman prevented from paying lip-service to a contractual right to litigate

Empire Glass and Aluminium Pty Ltd v Lipman Pty Ltd [2017] NSWSC 253

Resolution Institute Pulse readers may recall that, in March this year, the NSW Supreme Court upheld a commercial common-sense approach to interpreting dispute resolution clauses in commercial contracts in the case of Empire Glass and Aluminium Pty Ltd v Lipman Pty Ltd [2017] NSWSC 253. You can refresh your memory by reading our May Legal Update here.

Lipman was not happy with the outcome at first instance and so appealed to the NSW Court of Appeal in Lipman Pty Ltd v Empire Facades Pty Ltd (formerly known as Empire Glass and Aluminium Pty Ltd) [2017] NSWCA 217. This time, it was the Court of Appeal being asked to decide whether the expert's determination had to be contrary to the terms of the agreed dispute resolution clause to engage a right to litigate; again emphasising the importance of clear and unambiguous wording in dispute resolution clauses.

The Contract
As readers may recall, Lipman entered into a $3,750,000 contract with Empire for the latter to provide design, supply, construction and associated works for the refurbishment of the lobby of a Sydney CBD premises (Contract).

The Contract contained a dispute resolution clause (DR Clause) which saw any dispute connected to the subject matter of the agreement escalate through a series of resolution mechanisms until the dispute was resolved. If a dispute was not reconciled through executive negotiation, clause 42.11 of the Contract deemed a determination by an expert to be "final and binding, unless a party gives a notice of appeal" within a stipulated period. Clause 42.12, titled "Litigation", then mandated that "if the determination of the expert does not resolve the dispute then, subject to clause 42.11, either party may commence proceedings in relation to the dispute."

Disputes arose and proceeded to a clause 42.11 determination, in which the expert found in favour of Lipman to the amount of $106,943.63. Empire subsequently served both a contractual notice of appeal and proceedings upon Lipman. Lipman sought to have those proceedings stayed however, this was rejected by the trial judge. Lipman subsequently appealed.

Interpretive language
The Court of Appeal noted that "the argument by Lipman [on appeal] essentially repeated the argument which the primary judge had rejected". [1] Lipman argued that the effect of the DR Clause was that litigation could only be commenced by one of the parties if the expert's determination did not comply with the procedure stipulated in the DR Clause. If the expert's determination had been delivered in accordance with the DR Clause, then the dispute had been resolved for the purposes of clause 42.12. As both parties agreed that the expert determination was validly made, Lipman asserted that Empire was prohibited from litigating.

Empire responded that the common law already provided for a judicial challenge of a non-conforming expert determination, meaning that any contractual clause doing so would be unnecessary. Further, the reference in clause 42.11 to an appeal resulting in the determination being "reversed, overturned or otherwise changed" does not appear to contemplate findings of invalidity. Empire argued that the only precondition on a party's right to litigate was the giving of a notice of appeal as required by clause 42.11; which Empire had done.

The Court of Appeal, agreeing with the trial judge, accepted Empire's construction of the DR Clause. The Court of Appeal rejected Lipman's argument that clause 42.12 created a separate precondition on a party's right to litigate, and found that Lipman's reading of the DR Clause was "unreasonable and unnatural". [2]

It noted that ordinarily, the expression "determination of the expert" refers to a determination in accordance with the contract. Lipman's interpretation would give the expression two different meanings in two consecutive clauses; its ordinary meaning in clause 42.11, and another ("a purported determination by the expert that is not valid") in clause 42.12. The Court found that when the clauses are read together, and in linear sequence, the expression was plainly intended to have the same meaning. [3]

In line with the trial judgment, the Court of Appeal distinguished the present case from Lipman Pty Ltd v Emergency Services Superannuation Board [4] in the drafting of the relevant dispute resolution clauses, noting that the latter did not contain a sub-clause titled 'litigation'. In the present case, it was clear from the language of the Contract that the parties intended to include a substantive right to litigate a dispute. Such an intention was also considered reasonable from a commercial perspective, as the Contract was for a substantial sum and contained significant liquidated damages.

Ultimately, Empire was again successful in arguing that the only prerequisite to litigating the expert's determination was giving the appropriate notice.

Conclusion
Parties who wish to pre-determine the processes for contractual disputes, whether by allowing or limiting potential judicial involvement, should be collaborative and clear in their intentions when drafting any agreement.

This case once again highlights that courts will look to commercial common-sense interpretations of both contracts and their dispute resolution clauses when called upon to resolve contractual disputes.

Note: The above material provides a summary only of the subject matter covered, without an assumption of a duty of care by Resolution Institute or Clayton Utz. The material is not intended to be nor should it be relied upon as a substitute for legal or other professional advice. Copyright in the material is owned by Clayton Utz.


[1] Lipman Pty Ltd v Empire Facades Pty Ltd (formerly known as Empire Glass and Aluminium Pty Ltd) [2017] NSWCA 217 at para 20.

[2] Lipman v Empire Facades at para 26.

[3] Lipman v Empire Facades at para 24.

[4] [2011] NSWCA 163.

Thanks

We thank the authors of this legal update to Karen Ingram and David Hamer from Clayton Utz Litigation and Dispute Resolution team for their contribution to Pulse.

Tags: Expert determination, Legal practice, Building and construction, Dispute handling administration