In Lipman Pty Limited v Emergency Services Superannuation Board [2010] NSWSC 710 (29 June 2010), the NSW Supreme Court (Hammershclag 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. The court said:
….
17 The plaintiff accepts that if the expert determination is binding, these proceedings cannot be maintained.
18 It puts that the effect of cl 42.10 is to make the expert determination final and binding only where a party does not give a notice of appeal.
19 In effect it puts that if a notice of appeal is given, there are three possible outcomes:
a the procedure in cl 42.11 is enlivened and the negotiations contemplated in 42.11(a) result in a resolution in place of the expert determination; b the negotiations contemplated in cl 42.11(a) do not result in resolution but the parties agree upon a procedure to resolve the dispute which procedure results in a resolution in place of the expert determination; or c there is no agreement on a resolution or a procedure to resolve the dispute in which event (as happened here) the expert determination earlier obtained is not binding and either party is free to pursue its claims curially. 20 It puts that if failure to agree means that the expert determination is binding, this would be an abrogation of the parties’ common law rights for which express words would be required. 21 It will suffice only briefly to set out the legal principles which apply to the construction of a commercial document such as the contract.
22 In construing a commercial contract the Court has regard to the language used, the surrounding circumstances known to the parties, the purpose of the transaction and the objects which it was intended to secure: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179; International Air Transport Association v Ansett Australia Holdings Ltd (Subject to Deed of Company Arrangement) (2008) 212 ALR 47 at [8].
23 The whole of the instrument has to be considered. Preference is given to a construction supplying a congruent operation to the various components of the whole of an instrument: Wilkie v Gordian Runoff Limited [2005] HCA 17; (2005) 221 CLR 522 at 529.
24 If the words used are unambiguous, the Court must give effect to them. If the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust: Australian Broadcasting Commission v Australasian Performing Right Association Limited [1973] HCA 36; (1973) 129 CLR 99 at 109.
25 In relation to alternative dispute resolution clauses in particular, in Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 at 165, Gleeson CJ said:
When the parties to a commercial contract agree, at the time of making the contract, and before any disputes have yet arisen, to refer to arbitration any dispute or difference arising out of the agreement, their agreement should not be construed narrowly. They are unlikely to have intended that different disputes should be resolved before different tribunals, or that the appropriate tribunal should be determined by fine shades of difference in the legal character of individual issues, or by the ingenuity of lawyers in developing points of argument.
26 More recently in Fiona Trust & Holding Corporation v Privalov [2008] 1 Lloyd’s Rep 254 at 256 Lord Hoffmann said:
In approaching the question of construction, it is therefore necessary to inquire into the purpose of the arbitration clause. As to this, I think there can be no doubt. The parties have entered into a relationship, an agreement or what is alleged to be an agreement or what appears on its face to be an agreement, which may give rise to disputes. They want those disputes decided by a tribunal which they have chosen, commonly on the grounds of such matters as its neutrality, expertise and privacy, the availability of legal services at the seat of the arbitration and the unobtrusive efficiency of its supervisory law. Particularly in the case of international contracts, they want a quick and efficient adjudication and do not want to take the risks of delay and, in too many cases, partiality, in proceedings before a national jurisdiction.
27 For the following reasons, I consider that the plaintiff’s construction is untenable.
28 Firstly and somewhat fundamentally, the plain and unambiguous words of cl 42.10(c) require the expert determination to be given effect to unless and until it is reversed, overturned, or otherwise changed under the procedure in cl 42.11.
29 That procedure has done whatever work it could do in the present circumstances and the expert determination has not been reversed, overturned or otherwise changed. It follows that it remains binding. It is not suggested that the parties did not comply with whatever obligations they had under cl 42.11, nor is it suggested that that procedure has not been exhausted. It may also be observed that cl 42.11 refers to the persons described in Annexure Part A. That annexure contained no such description. Both parties accepted, however, that the clause was given effect to by the negotiations between the parties and no party put that cl 42.11 was void for uncertainty.
30 If this entails an abrogation of the parties’ common law rights, it has come about by express provision. In my view, these commercial parties clearly intended by the alternative dispute resolution process agreed to, to abrogate their common law remedies. 31 Secondly, to give cl 42 the plaintiff’s construction is to conclude that the parties intended that the same disputes should be resolved before different tribunals. I consider this both unlikely and that if it were correct, it would result in consequences which are unreasonable, inconvenient and costly.
32 Thirdly, the parties chose an expert tribunal to deal with disputes. The plaintiff’s construction would permit a party by non-agreement (albeit subject to an obligation of good faith) unilaterally to render a determination by the expert tribunal which they chose, ineffective. I consider it unlikely that the parties had this intention.
33 In my view, the outer limit of the protection given by cl 42.11 to an aggrieved party to an expert determination is to require the other party to engage in genuine and good faith negotiations in relation to an expert determination or to endeavour to agree (perhaps in good faith although this is not expressly imposed in cl 42.11(b)) on a further procedure which might result in a different outcome, but no more: see United Group Rail Services Ltd v Rail Corporation NSW [2009] NSWCA 177.
34 The consequence is that the expert determination is final and binding and the proceedings in this Court are not maintainable, and must be dismissed as disclosing no cause of action.
…….
ANNEXURE A
42 DISPUTE RESOLUTION 42.1 Notice of Dispute
If a dispute or difference (dispute) between the Contractor and the Principal arises in connection with the Contract or the subject matter thereof, including a dispute concerning: (a) a direction given by the Superintendent; or (b) a claim: (i) in tort; (ii) under statute; (iii) for restitution based on unjust enrichment; or (iv) for rectification or frustration,
then either party must deliver by hand or send by certified mail to the other party and to the Superintendent a notice of dispute in writing adequately identifying and providing details of the dispute.
Despite the existence of a dispute, the Principal and the Contractor must continue to perform the Contract and, subject to clause 39, the Contractor must continue with WUC and the Principal and the Contractor must continue to comply with clause 37. 42.2 Expert Determination
The dispute must, if it is not resolved within 14 days after a notice is given under clause 42.1, be submitted to expert determination. 42.3 The Expert
The expert determination under clause 42.2 is to be conducted by: (c) the independent industry expert specified in Annexure Part A; or (d) where: (i) no such person is specified; or (ii) the independent industry expert specified in Annexure Part A or an independent industry expert appointed under this clause 42.2: (A) is unavailable; (B) declines to act; (C) does not respond within 14 days to a request by one or both parties for advice as to whether he or she is able to conduct the determination; or (D) does not make a determination within the time specified by clause 42.8,
an independent industry expert appointed by the person specified in Annexure Part A. 42.4 Not Arbitration
An expert determination conducted under this clause 42 is not an arbitration and the expert is not an arbitrator. The expert may reach a decision from his or her own knowledge and expertise. …..
42.10 Determination by Expert
The determination of the expert: (n) must be in writing; (o) will be: (i) substituted for the relevant direction of the Superintendent; and (ii) is final and binding
unless a party gives notice of appeal to the other party within 21 days of the determination; and (p) 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 clauses. 42.11 Executive Negotiation
If a notice of appeal is given under clause 42.10, the dispute is to be referred to the persons described in Annexure Part A who must: (q) meet and undertake genuine and good faith negotiation with a view to resolving the dispute; and (r) if they cannot resolve the dispute or difference, endeavour to agree upon a procedure to resolve the dispute. 42.12 Survive Termination
This clause 42 will survive the termination of the Contract. …….
(emphasis added)
His Honour sets out authority for, and re-confirms, key principles to be adopted in relation to alternative dispute resolution clauses:
- When the parties to a commercial contract agree, at the time of making the contract, to refer to arbitration any dispute or difference arising out of the agreement, their agreement should not be construed narrowly.
- In approaching the question of construction, it is necessary to inquire into the purpose of the alternative dispute resolution clause (ie whether the parties want those disputes decided by a tribunal which they have chosen, on such grounds as its neutrality, expertise and privacy, the availability of legal services at the seat of the process, the unobtrusive efficiency of its supervisory law….).
The difficult question, here, for His Honour, was the effect of the appeal provision in Clause 42.10, and whether that meant that, the parties having met as required by Clause 42.11, failing resolution, a dissatisfied party could then challenge the expert determination in court. His Honour’s reasoning, in concluding that Clause 42 required no more than a good faith participation in the Clause 42.11 negotiation process, and should not be interpreted to mean that, failing agreement, entitle a party to open up the expert determination in court:
- the plain and unambiguous words of Clause 42.10(c) require the expert determination to be given effect to unless and until it is reversed, overturned, or otherwise changed under the procedure in cl 42.11 do not support a construction that a still dissatisfied party could then open the expert determination in court;
- a proper construction of Clause 42 should be based on a conclusion that the parties intended that the dispute resolved by expert determination and the dispute the subject of the Clause 42.22 further negotiations should be resolved before different tribunals, this is both unlikely, and , if correct, would result in consequences which are unreasonable, inconvenient and costly;
- the parties chose an expert tribunal to deal with disputes, it is unlikely that the parties intended that one party, by non-agreement at the Clause 42.11 negotiations, could render the expert determination ineffective.
With respect, His Honour’s reasoning seems correct in relation to this dispute resolution provision.