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Dispute(d) resolution clauses: upholding the commercial commonsense approach

Case note | NSW | May 2015 | Accessible to members only

An expert determination under a contractual dispute resolution clause has already been made. Can the parties have their dispute determined by the courts, or is that expert determination final and binding? The recent Supreme Court decision - Empire Glass and Aluminium Pty Ltd v Lipman Pty Ltd [2017] NSWSC 253 - sheds some light on how courts will determine if disputes can be re-agitated.

Background
Empire and Lipman entered into a contract for the design and refurbishment of a Sydney CBD building lobby. Clause 42 of the Contract contained a dispute resolution mechanism, which was triggered by either party giving written notice of a dispute. Senior executive negotiation in an attempt to resolve the dispute was the next step. If this failed, clause 42.3 required the dispute to be referred to an expert for determination, with subsequent clauses setting out the procedure for the expert determination.

The relevant procedural clauses provided:

42.11 Determination of expert
The determination of the expert:

  1. must be in writing;
  2. will be:
    1. substituted for the relevant direction of the Subcontract Superintendent; and
    2. final and binding,

unless a party gives notice of appeal to the other party within 15 Business Days of the determination; and

  1. is to be given effect to by the parties unless and until it is reversed, overturned or otherwise changed under the procedure in the following subclauses.

42.12 Litigation
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.

A number of disputes related to performance and termination of the Contract arose between the parties and the dispute resolution mechanism in the Contract was triggered. It resulted in two expert determinations. Empire served a notice of appeal within the specified timeframe and commenced proceedings seeking to re-agitate the disputes. Lipman consequently sought a permanent stay or dismissal of the proceedings, leading to this judgment.

A narrow interpretation?
Lipman relied on the decision of the Court of Appeal in Lipman Pty Ltd v Emergency Services Superannuation Board. [1] In that case, the Court of Appeal endorsed the liberal approach to the interpretation of dispute resolution clauses. In considering Lipman's argument, Ball J quoted from Allsop P's explanation of this approach, that it gives 'effect to a coherent business purpose through an assumption that courts around the world will make that parties are unlikely to have intended multiple venues or occasions for the resolution of their disputes unless they say so'.

In reliance on the Court of Appeal's decision, Lipman contended that clause 42.12 of the Contract should be read narrowly. It argued that the proper interpretation of the clause meant litigation could only be commenced where the determination of the expert did not resolve the dispute, and this would only happen if the determination was contrary to the terms of the Contract and therefore void. The parties accepted that neither of the determinations were contrary to the terms of the Contract.

What makes commercial sense?
Ball J held that Lipman's interpretation did not sit easily with the Contract. Unlike Lipman v Emergency Services, here there was no question that the dispute resolution clause was broadly drafted and applied to all disputes between the parties. Given this, and that the Contract was for a substantial sum of money, His Honour held that it 'would not be commercially unreasonable' for the parties in this case to incorporate a substantive right of appeal into their dispute resolution mechanism.

Ball J looked to the actual words of the Contract, determining that they made better sense if there was a contractual right to litigate. For example, that the words 'if the determination of the expert does not resolve the dispute' were more naturally read as connecting back to the previous clause than introducing a new condition on the right of appeal. Further, if they intended the right to commence court proceedings to only arise if the expert failed to comply with the Contract, 'they might have specifically said so'.

Ball J dismissed Lipman's application to stay the proceedings.

Implications
While Ball J distinguished this case from Lipman v Emergency Services on the facts, deciding that the liberal interpretative approach was not appropriate in these circumstances, his reasoning was consistent with the commercial commonsense approach adopted in that decision. He looked to the actual terms of the Contract, and its subject matter, in order to determine what would be the commercially reasonable interpretation of the parties' objective intention.

It is unusual to find a case where a court permits an appeal from an expert determination, let alone finds that the parties actually intended there to be an unfettered right of appeal (subject to complying with a time limit to notify of an appeal). For this reason, the decision is an important reminder that parties should take care when negotiating dispute resolution clauses. If parties want an expert determination to be final and binding, and there to be no or limited right to litigate, this should be made clear in the Contract.

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] [2011] NSWCA 163

Thanks

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

Tags: Expert determination, Legal practice, Dispute handling administration