Editor’s Note:

 

In Empire Glass and Aluminium Pty Limited v Lipman Pty Ltd [2017] NSWSC 253, the NSW Supreme Court (Ball J) was considering a dispute resolution provision in a construction contract where an expert determination had been completed, then one of the parties to the construction contract sought to have that expert determination reviewed by the court. In this 2017 case, the court referred to an earlier NSW Court of Appeal decision, involving one of the parties, namely Lipman Pty Limited v Emergency Services Superannuation Board [2011] NSWSCA 163 .

 

In the 2001 Court of Appeal decision, Allsop J had reasoned as follows:

 

The applicant submitted that his Honour erred by failing to recognise and give proper weight to the words of cl 42.10 and in particular the phrase commencing with the word “unless” which operated, it was said, to make the expert determination never final and binding should a notice of appeal be filed.

6 I disagree. I find the reasons of the primary judge to be correct. His Honour approached the construction of the dispute resolution clause by reference to a liberal approach expressed in Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 and Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40; [2008] 1 Lloyd’s Rep 254 . The approach is also reflected in the reasons of the Full Court of the Federal Court in Comandate Marine Corporation v Pan Australia Shipping Pty Ltd [2006] FCAFC 192; 157 FCR 45 and can now as Lord Hope of Craighead said in Fiona Trust be seen as part of the law of international commerce (at 260 [31]). This is of course domestic commerce but the principle applies equally.

7 Further, that these cases were concerned with arbitration clauses and not expert determination clauses does not detract from their equal force to the type of dispute resolution clause that the parties agreed here.

8 To adopt the liberal approach is not to depart from the meaning of the words chosen by the parties. Rather, it is to give effect to a coherent business purpose through an assumption commercial 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.

9 Here there occurred what the commercial parties would plainly have anticipated as likely could have been the case, that is a major dispute: the conduct of a detailed case before people experienced in the building industry and the production of a careful and detailed expert determination – all this at considerable expense. Is it to be thought likely that the mere statement by one side that they wish to seek to discuss and negotiate the result in good faith would mean that the product of the expert determination would never be binding? Far more likely is the construction favoured by the primary judge that the clause as a whole meant that the expert determination was to be fully given effect to subject to it not being final and binding if the parties were able to give substance and effect to the good faith negotiations that were anticipated and provided for by cl 42.11.

10 In my view, substantially for the reasons his Honour gave and for these additional reasons the expert report and determination is to be given effect to, not in a provisional way, but in a way the balance of the clause identifies.

(emphasis added)

In the 2017 case, the dispute resolution provision provided (similarly) as follows:

 

42.11 Determination of expert

The determination of the expert:

(a) must be in writing;

(b) will be:

(i) substituted for the relevant direction of the Subcontract Superintendent; and

(ii) final and binding, unless a party gives notice of appeal to the other party within 15 Business Days of the determination; and

(c) 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.

In the 2017 case, Ball J reasoned as follows:

 

20 In my opinion, this is a case where the parties have made it clear that they intended the appeal process to involve a rehearing by a court.

21 It is relevant to bear in mind that the question in this case is not whether the parties should be taken to have agreed that the dispute resolution process they have chosen should apply in some situations, but not others or that it should operate in parallel with normal court processes. As Allsop P pointed out in Lipman Pty Ltd v Emergency Services Superannuation Board, in cases such as those, there are compelling reasons for adopting a liberal approach to the construction of the relevant clause so that it applies to all disputes between the parties which are connected with the contract in question.

22 However, in the present case, there is no question that the dispute resolution clause is broadly drafted and applies to all the disputes between the parties. Rather, the issue is what that dispute resolution clause requires. Although there are commercial reasons for thinking that the parties may have preferred to avoid the necessity of re-agitating the issues between them, it is plain that it was also important to them to incorporate an appeal process in the mechanism they adopted. An appeal process that involves a fresh hearing is not uncommon, particularly in the context where the initial decision is undertaken by a specialist tribunal. It is not obvious that the parties must be taken to have intended to reject that process in this case. The Contract was for a substantial sum of money. Empire was liable for liquidated damages of $3,000 per day capped at 30 percent of the contract sum and liquidated damages payable under the head contract at $3,000 per day. It would not be commercially unreasonable to incorporate a substantive right of appeal into their dispute resolution process in those circumstances.

23 In my opinion, the difficulty with the interpretation advanced by Lipman is that it does not sit easily with the words of the Contract and does not really provide for a right of appeal at all.

24 Clause 42.11(c) states that the parties must give effect to the determination until it is “reversed, overturned or otherwise changed” under the procedure in cl 42.12. If Lipman is right, cl 42.12 only operates if the determination does not resolve the dispute in the sense that the determination is itself not effective to do so because it was not made in accordance with the Contract and is therefore void. But it seems odd in those circumstances that the parties should agree that they would nevertheless give effect to it until it is reversed, overturned or otherwise changed under cl 42.12. If the true position is that a right of appeal only exists in respect of a determination that is void because it does not comply with the Contract, it is difficult to make sense of an agreement that the parties are bound by the determination until it is reversed, overturned or otherwise changed.

25 Moreover, Lipman accepts that if the determination does not resolve the dispute in the sense for which it contends then, irrespective of the operation of cl 42.12, one party or the other would be liable to commence court proceedings for a declaration that the determination was void because it did not comply with the Contract. Consequently, on its interpretation, the appeal rights conferred by cl 42.12 do not extend the circumstances in which the determination of the expert could be challenged, but only the relief that could be obtained. In claiming that the determination does not comply with the Contract, the court could only declare the determination void. It could not substitute its own views for those of the expert. However, it could do so under cl 42.12. It is doubtful that the parties intended to confer on themselves a right of appeal which effectively only expands the remedies otherwise available to them. It is unclear what the commercial purpose of such a limited right of appeal is. What is the rationale of extending the remedies that a party can seek if the party gives a notice of an appeal within 15 business days of the expert’s determination if the same party is entitled to commence proceedings to have the determination declared void even if it has not given a notice of appeal?

26 In addition, it is more natural to read the words “If the determination of the expert does not resolve the dispute” as connecting words referring back to the previous subclause rather than as words that introduce a completely new condition on the exercise of a right of appeal arising from the service of a notice of appeal within the timeframe specified in cl 42.11. The conditions for the exercise of a right of appeal are set out in cl 42.11. The nature of the appeal is set out in cl 42.12.

27 Lastly, the precondition is expressed as a condition on the right to commence court proceedings. That precondition makes sense where the condition is the service of a notice within the specified time. It makes less sense where the condition is a failure on the part of the expert to comply with the requirements of the Contract, which on Lipman’s interpretation is a question that would be determined as part of the court proceedings rather than as a precondition to their commencement.

28 Lipman submitted that the interpretation I prefer makes the words “subject to clause 42.11” redundant. I have already explained why that is not the case. Those words make it clear that notwithstanding the commencement of court proceedings the parties remain bound by the determination until it is reversed, overturned or otherwise changed. That makes commercial sense where the right is a general right of appeal.

29 It might be thought that if the words of the precondition were merely connecting words then the parties would have used words more closely aligned to the connection that is sought to be made. So, for example, they might have said “If a party serves a notice of appeal in accordance with clause 42.11 then …”. But equally, if what was intended was that the right to commence court proceedings depended on the expert’s failure to comply with the Contract, they might have specifically said so. As Mr Kidd SC, who appeared for Lipman, acknowledged, the fact that the parties could have expressed themselves more clearly is of little assistance in this case in determining the meaning of the words they chose to use.

(emphasis added)

In this 2017 case, His Honour adopts the reasoning of the earlier 2011 Court of Appeal decision, and applies those principles to the dispute to conclude that, in this case, the parties had intended that there would be a right of appeal to the courts in certain circumstances. In summary His Honour reasoned:

 

  1. This particular dispute was a case where the parties have made it clear that they intended the appeal process to involve a rehearing by a court.
  2. In this instance, there was no issue that the dispute resolution clause is broadly drafted and applies to all the disputes between the parties. Rather, the issue was what that dispute resolution clause required.
  3. An appeal process that involves a fresh hearing is not uncommon, particularly in the context where the initial decision is undertaken by a specialist tribunal. It is not obvious , here, that the parties must be taken to have intended to reject that process in this case.
  4. In Ball J’s reasoning, an interpretation that could never be an appeal process did not sit easily with the words of the Contract and does not really provide for a right of appeal at all.
  5. It is more natural to read the words “If the determination of the expert does not resolve the dispute” as connecting words referring back to the previous subclause rather than as words that introduce a completely new condition on the exercise of a right of appeal arising from the service of a notice of appeal within the timeframe specified in cl 42.11.
  6. The precondition is expressed as a condition on the right to commence court proceedings. That precondition makes sense where the condition is the service of a notice within the specified time.