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A ‘missing link’: cross-claims in expert determinations

Poonindie Pty Ltd trading as Ted Wilson and Sons (TWS) v Eurobodalla Shire Council [2019] NSWCA 1485

Usually contractual dispute resolution provisions in commercial agreements mandating expert determination processes aim to ensure quick, cheap and efficient resolution of disputes between the contracting parties. To that end, where cross-claims (or counter-claims) are allowed in a mechanism for expert determination, must these cross-claims possess a connection to the primary claim for the expert to have jurisdiction? This was addressed by the Court in Poonindie Pty Ltd trading as Ted Wilson and Sons (TWS) v Eurobodalla Shire Council [2019] NSWCA 1485.

Background facts

Ted Wilson and Sons (TWS) and Eurobodalla Shire Council (the Council) entered into a contract for the construction of works at Bodalla Sewage Treatment Plant (the Contract). The Contract contained an expert determination mechanism for the resolution of disputes; assuming those disputes (known under the contract as "Issues") had been ventilated — and attempts to resolve them undertaken — first via commercial negotiations.

A dispute arose between the parties in relation to a 'Road Issue', and the parties invoked the dispute resolution mechanism to undertake commercial negotiations. Those negotiations did not resolve the Road Issue.

The parties then made submissions to an Expert, which Expert was agreed to have been validly appointed at the time of his appointment. During the course of the parties making their respective submissions to the Expert, the Council raised three additional Issues as 'cross-claims'. That is, the Council raised three effectively 'new' Issues that had not been the subject of the prior commercial negotiation process. The Expert proceeded to give a determination on all four Issues.

Argument before the Court — did the Expert have jurisdiction to decide the cross-claims?

Ted Wilson and Sons commenced proceedings in the New South Wales Supreme Court seeking declarations that the Expert's Determination regarding the cross-claims were invalid. Ted Wilson and Sons argued that the Expert had no jurisdiction or authority under the Contract to determine the additional Issues raised by the Council in its 'cross-claims', because they had no connection with the subject matter of the Road Issue and had not undergone the prior commercial negotiation process.

The Council responded by arguing that the Expert Determination was within the scope of the dispute resolution provisions of the Contract. Specifically, clause 71.6 of the Contract provided: "[i]n response to any Issue referred to the Expert by a party, the other party may raise any defence, set-off or cross-claim". The Council argued that the word 'any' is broad, and no limitation should be imposed on cross-claims brought. TWS countered this by arguing that this broad interpretation would lead to “great commercial inconvenience” if parties encountering this wording were allowed to freely incorporate literally any dispute.

What did the Court decide?

The Court was not receptive of TWS' argument. The Court observed that it was a long-accepted practice that a cross-claim need not bear any relationship to the primary claim(s) being brought by a claimant.

Relevantly, the Court saw no reason why, as commercially contracting parties having agreed on the express wording of "cross-claim", that wording should not be given its usual wide, technical meaning.

Ultimately, the Court upheld the validity of the Expert's Determinations; including in respect of the three additional issues raised as 'cross-claims'.

Implications

As our regular Resolution Institute Pulse readers will already know, this case is yet another example of courts being very prepared to uphold a wide jurisdiction for decision-makers appointed pursuant to dispute resolution clauses in commercial contracts.

Interestingly, this case goes a little further in suggesting that courts will interpret technical and bespoke litigation terms (such as "cross-claim") as having their technical and litigious-based meaning even in alternative dispute resolution clauses in commercial contracts.

The relevance of this, for both contracting parties, and for those being appointed as Experts pursuant to contracts with similar language, is that the relevant wording of the contract needs to be carefully considered.

In the case of the contracting party/ies, the wording needs to be considered to ensure that, unless the parties have a contrary intention, the Expert's remit is not being extended to 'new' issues which have not previously been ventilated through other contractually mandated ADR processes.

In the case of an appointed Expert, language needs to be considered to ensure that the Expert understands their mandate and the extent of their jurisdiction. [i]


[i] [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.]