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Broad or narrow? Questions of scope in relation to dispute resolution clauses

Lepcanfin Pty Ltd v Lepfin Pty Ltd [2019] NSWSC 1328

A recent NSW Supreme Court decision considers the construction of a dispute resolution clause, whether the parties were bound by the clause and the scope of an expert's mandate in determining the dispute.

The Facts
The dispute which was the subject of these proceedings concerned a Development Deed (the Deed) entered into by Lepcanfin Pty Ltd (LPL) with a number of other parties, including Lepfin, Lepcon, Lepdev, Antegra and Berlyn (the Applicants), on 21 August 2014. The Deed related to the development of a block of land in Leppington, NSW. The parties also entered into two amended deeds, dated 18 May 2015 and 8 July 2015 respectively.

LPL lent $10 million towards the development and under the deed LPL would receive a "facilitation fee" after the money was repaid. As well as this, under Clause 3.3 of the deed, Lepcon was required to make an interest free loan to Lepfin of $3.9 million within a specified time. Lepcon did not make the required payments and LPL claimed that it was entitled to the increased facilitation fee as outlined in Clause 3.3. However, the Applicants claimed that LPL's entitlement to the facilitation fee was waived following the parties having entered into the second amended deed.

Dispute Resolution Clause
The Deed contained a dispute resolution clause, which provided a mechanism for negotiated resolution. The Deed also provided for the appointment of an expert if the negotiations failed.

Following the parties' failure to reach a negotiated resolution of their dispute regarding the facilitation fee, Dr Elisabeth Peden, a barrister, was appointed as the expert and an Expert Determination Agreement (EDA) was entered into by LPL, the Applicants and Dr Peden. Dr Peden determined that LPL had waived the right to enforce Lepcon's obligation to pay the loan under Clause 3.3, but had not waived the entitlement to the facilitation fee. However, Dr Peden determined that the facilitation fee was not enforceable as it was a penalty.

The Dispute[i]
LPL brought proceedings against the Applicants claiming that Dr Peden had exceeded her mandate by considering the issue of whether the facilitation fee was a penalty. In response, the Applicants contended that this aspect of LPL's claim should be struck out as the dispute referred to Dr Peden included the issue of penalty, and as such was an issue which fell within her mandate.

LPL also claimed that, even assuming the facilitation fee was a penalty, it was still enforceable and that it was free to litigate this point. The Applicants disputed this claim, arguing that if there was a remedy available to LPL it could not be determined through litigation proceedings but through the expert determination procedures to which LPL had contracted, both in the Deed and the EPA.

What did the Court decide?
In deciding the first claim in dispute, the Court held that the words of the EDA were wide enough to include the issue of whether the facilitation fee was a penalty and as such, the issue was within Dr Peden's mandate to determine. The Court found that, at the time the EDA was entered into, LPL and the Applicants were fully aware that the penalty issue was a matter that would form part of the dispute to be referred and as such the parties had intended Dr Peden to determine the penalty issue.

In deciding whether LPL was able to seek determination of the facilitation fee issue through litigation as opposed through expert determination, Justice Rein referred to a long line of cases which consider the construction of dispute resolution clauses. In particular, Justice Rein referred to Chief Justice Gleeson's judgment in Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160, in which his Honour held that dispute resolution clauses should not be construed narrowly and that such clauses are unlikely to have intended that different disputes should be resolved before different tribunals, or that the appropriate tribunal should be determined by specific differences in the legal character of individual issues. Relying on these authorities, the Court held that it was clear that the parties had intended that disputes of this kind would be referred to an expert.

Finally, the Court held that LPL had the onus of establishing that the Court proceedings should continue and that onus had not been discharged. As such, the Court determined that LPL's claim that Dr Peden had exceeded her mandate should be dismissed and the proceedings should be stayed.

Key Takeaways
Where a deed, agreement or contract contains a dispute resolution clause that compels parties to engage in alternative dispute resolution, parties should be aware that a court is likely to interpret such a clause broadly. A court would be prepared to look to the specific wording of the clause, as well as the parties' objective intentions at the time of entering into the relevant deed, agreement or contract.

Further, parties should be prepared for their dispute resolution clause to apply to different types of disputes arising under or out of the deed, agreement or contract, unless the document provides otherwise.


[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.]