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Category Archives: Construction Law

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Glenvill Projects Pty Ltd v North Melbourne Pty Ltd & Taylor [2013] VSC 717

In Glenvill Projects Pty Ltd v North Melbourne Pty Ltd & Taylor [2013] VSC 717 (Vickery J), Justice Vickery (the Judge in Charge of the Supreme Court Technology, Engineering and Construction List) was considering a challenge to a decision of an expert appointed under an expert determination clause in a residential building contract.

His Honour referred to 500 Burwood Highway v Australian Unity & Ors in which His Honour had analysed the role of a contractually appointed expert, and the basis upon which an expert determination might be invalidated following judicial intervention. His Honour had said in 500 Burwood Highway:

…. there is no procedural code for expert determination, in contradistinction to arbitration. The activities of an expert are subject to little control by the court, save as to jurisdiction or departure from the mandate given. Unless the parties specify the procedure, the expert determines how he will proceed; it is rare for what might be perceived as procedural unfairness in an arbitration to give rise to a ground for challenge to the procedure adopted by an expert ….
For these reasons, unless required by the contract in question, the parties have no entitlement to insist that the expert adopt any particular procedure; or that the appointed expert seek their approval to the proposed determination; or that they are given any hearing or facility to provide input into the process. An expert is not obliged to afford to the parties procedural fairness in the manner required of a court or arbitration in a curial context. A certifying expert is not under an obligation to provide procedural fairness or natural justice in the absence of an express contractual provision, and there is none in the present case …. How the task is undertaken is in the hands of the expert, subject to anything to the contrary in the contract pursuant to which the appointment was made.
This result is in part the product of the contract and what is to be gleaned from it as to the intention of the parties. When the parties appoint an expert, they usually do so because they agree to place reliance on the expert’s skill and judgment. They implicitly agree to accept and be bound by the determination. In the usual case, provided the decision is arrived at honestly and in good faith, the parties will not be able to re-open it and will be bound by the result.
It is also in part the product of a particular body of expert experience, learning, skill and judgment which the parties wish to apply to the problem to be dealt with. This is to be applied in a manner which is untrammelled by procedural considerations, so that the specialist skills and insights of the expert can be freely applied to the issue.
Finally, considerations of commercial utility are likely to be relevant factors. Efficiency, the production of a speedy and authoritative outcome and the elimination of the expense of a more elaborate procedure, undoubtedly play a part in parties selecting the contractual process of expert determination.
Mistake or error in the process of the determination of the appointed expert will not invalidate a decision. However, if the expert asks the wrong question or misconceives the function of the appointment, the task required to be performed by the contract will not have been fulfilled. In this event, the determination will be exposed to being set aside.
Parties to a contract who, by the terms of that contract, agree to submit a question to an independent expert, are bound by the determination of that expert acting honestly and in good faith.

His Honour reasoned further in relation to the construction of the expert engagement contract:

An expert is appointed by contract to make an expert determination in respect of specific matters which may arise during the course of a commercial relationship. An expert, in making a determination, is not obligated to abide by the rules of procedural fairness in the manner required of a court or an arbitration in a curial context. The expert’s obligations with regard to procedural fairness, or natural justice …. , are defined by the content of the express contractual agreement between the parties comprised in the Expert Engagement Contract, which in this case includes the terms of the IAMA Rules.
The manner in which the task of making the determination in question is undertaken is in the hands of the expert, subject to anything to the contrary in the contract which governs the appointment of the expert and in the IAMA Rules.
The result which is arrived at by the expert – the determination, in this case – is thus ultimately the product of the contract in the full sense of the word, as properly construed in accordance with the usual approach to the construction of commercial contracts.
The approach was recently considered in ICM Investments Pty Ltd v San Miguel Corporation & Ors [No 2]). Where it was observed that the applicable principle is often stated in terms of a necessity to construe commercial agreements so as to accord with ‘business commonsense’ or ‘commercial reality’.
As Santow J said in Spunwill Pty Ltd v BAB Pty Ltd, in construing a written document, the object is to discover and give effect to the contractual obligations that reasonable persons in the position of the parties would objectively have intended the document’s language to create.
Further, the language used in the contract is generally assigned its natural and ordinary meaning, read in the light of the contract as a whole. Where it is ambiguous, surrounding circumstances may be taken into account in assigning the constructed meaning. The surrounding circumstances include the matrix of mutually known facts, and the background, object, context and commercial purpose of the transaction, in the objective sense of what reasonable persons in the position of the parties would have had in mind.
…. The commercial context in which a reference of disputes to an expert in a commercial contract is thus most relevant. The decision to refer disputes for determination by a contractually appointed expert will usually arise because the parties desire a particular body of expert experience, learning, skill and judgment to be applied to the resolution of defined issues which may arise in the course of the relationship and need to be dealt with. This problem-solving role is usually intended to be applied in a manner which is untrammelled by overly restrictive procedural considerations, so that the specialist skills and insights of the expert can be fully applied to the issues for resolution, in an expeditious and cost effective manner which is attended with an appropriate measure of ‘finality’.
This may give rise to the parties agreeing that they will abide by a decision which in hindsight appears to be ‘wrong’. In such circumstances, mistake or error in the process of the determination of the appointed expert will not invalidate a decision, as long as it is made in accordance with the terms of the agreement.
This is not to say that there are no parameters of fairness or that the determination will be unreviewable. For example, if the expert asks the wrong question or misconceives the function of the appointment, the task required to be performed by the contract will not have been fulfilled…..

In this case, His Honour ultimately concluded that the Expert had acted within the terms of his engagement in making the procedural determinations that he did.

Plenary Research Pty Ltd v Biosciences Research Centre Pty Ltd [2013] VSCA 217

In Plenary Research Pty Ltd v Biosciences Research Centre Pty Ltd, the Victorian Court of Appeal was considering the dispute resolution provisions under a Project Agreement for the design, construction, and operation of a biosciences research facility at Latrobe University. The parties were arguing as to the correct dispute resolution procedure under the Project Agreement in respect of three extension of time claims. At trial, the Supreme Court (Croft J) had referred to a number of Australian authorities, noted that the position is entirely dependent upon the proper construction of the relevant agreement, and decided that the particular disputes, under this agreement, were to be resolved by the “Accelerated Dispute Resolution Procedures”, essentially an expert determination procedure.

In the primary judgment, Garde AJA reasoned as follows:

Despite the arguments of the appellant, I am of the opinion that the construction of cl 26.16 adopted by the trial judge is correct.

As to the construction of cl 26.16, I note: 

(a)             the Project Agreement is the sole and exclusive repository of the agreement between the parties;

(b)             the object is to discover and give effect to the contractual obligations that reasonable persons in the position of the parties would objectively have intended the language of the Project Agreement to create. The language of cl 26.16 and of cls 51 to 53 should be given its natural and ordinary meaning in the light of the Project Agreement as a whole;

(c)              clause 26.16 is expressed to apply to ‘any dispute about an extension of time claim’[1] or ‘acceleration under this cl 26’.  The use of the word ‘any’ suggests a comprehensive approach to the class of disputes identified in the provision;

(d)             clause 26.16 stands to be read as part of cl 26, and as part of the whole Project Agreement.  Clause 26 is a code dealing with ‘Time’.  Clause 26.16 is the provision in that code which describes how extension of time disputes are to be resolved.  Parts of that code involved the submission of Change Notices,[2] the grant of extensions of time by the Project Director,[3] and the unilateral extension of time by the respondent in its absolute discretion when it considers that any act or omission by it or certain other parties will, or is likely to, delay the appellant;[4]

(e)              clause 26.16 refers to any dispute about any extension of time or acceleration under cl 26.6 expressly including determinations or rejections by the Project Director under cl 26.9.  Decisions of the Project Director under cl 26.9 are well suited for ‘fast track’ determination by an Independent Expert;

(f)               the matrix of facts mutually known to the parties includes the background, object, context and commercial purpose of the Project Agreement, including the nature of claims and disputes as to extensions of time and acceleration, the significance of cl 26 and its provisions relating to time, and the role of the Project Director in seeking to resolve extension of time and acceleration disputes;

(g)             the right to refer a dispute under cl 26.16 is conferred on either party. As the word ‘may’ indicates, it is not obligatory for either party to refer a dispute but if neither party does so, the status quo will remain. Typically, although not invariably, the status quo will be the decision made by the Project Director under cl 26.9.  The use of the word ‘may’ in cl 26.16 gives either party a choice as to whether or not it seeks to invoke these provisions.  Such a construction is reasonable, and consistent with business efficacy;

(h)             the use of the word ‘may’ attracts a prima facie presumption that the word is to be understood in its natural meaning, that sense being permissive or facultative only.[5]  This is also the ordinary meaning of the word ‘may’ read in the light of the Project Agreement as a whole;

(i)               whilst the appellant contends that the exercise of cl 26.16 by one party requires the consent of the other party before the dispute is referred to the Independent Expert under cl 52, there is nothing in cl 26.16 which supports such a limitation on the operation of the right of each party to have the dispute determined under the Accelerated Dispute Resolution Procedures.  The exercise of the right conferred by cl 26.16 is open to ‘either party’;

(j)               if one party does refer a dispute for resolution under cl 26.16, there are a number of important consequences:

(i)                   first, the dispute is referred for resolution by an Independent Expert.  There is no reference to the Senior Negotiations procedure or to arbitration in cl 26.16;

(ii)                 secondly, cl 26.16 states that the dispute is to be resolved ‘in accordance with the Accelerated Disputes Resolution Procedures’.  This is a clear and unequivocal reference to cl 52;

(iii)                thirdly, cl 26.16 contemplates only the application of the Accelerated Dispute Resolution Procedures.  It directs that an Independent Expert must be instructed, and that those instructions must have regard to the Change Compensation Principles;

(k)              clause 26.16 requires the Independent Expert to act in accordance with the Accelerated Dispute Resolution Procedures;

(l)               the definitions in the Project Agreement support such a construction of the Project Agreement:

(i)                   the definition of ‘Accelerated Dispute Resolution Procedures’ makes express reference to cl 52, and not to cls 51 or 53;

(ii)                 likewise the definition of ‘Accelerated Dispute Panel’ makes express reference to cl 52 and not to cls 51 or 53;

(iii)                again, the definition of ‘Independent Expert’ makes express reference to appointment in accordance with cl 52, and does not refer to cls 51 or 53;  and

(iv)                clause 26.16 contemplates and proceeds on the basis of an Independent Expert determination under cl 52;

(m)            the construction adopted by his Honour gives cl 26.16 important work to do.  Clause 26.16 is intended as the gateway by which the code agreed by the parties as to ‘Time’ in cl 26 interacts with the dispute resolution process contained in cls 50 to 53.  By contrast, the appellant’s construction of cl 26.16 would give that provision very little work to do.  It is unlikely that this is what the parties intended when they agreed on cl 26.16 in the context of cl 26 which deals with the very important topic of time in a large building contract;

(n)             it is commercially efficacious for the parties to agree on dispute resolution procedures so that disputes as to the decisions of the Project Director concerning extensions of time directly engage the Accelerated Dispute Resolution Procedures.  Before making an extension of time decision under cl 26.9(a), the Project Director will already have taken into account all relevant evidence presented by the parties.[6]  Extension of time claims are notorious in building disputes and it is reasonable and sensible for them to be resolved using a ‘fast track’ process;

(o)             the range of disputes which can be referred under cl 26.16 is limited, and not co-extensive with the disputes that fall under cl 50.1. Consistently with its role as part of a code of provisions dealing with time, cl 26.16 applies to disputes about extensions of time or acceleration under cl 26;  and

(p)             the selection by the parties of Accelerated Dispute Resolution Procedures for the resolution of specified types of disputes necessarily means that other types of disputes will be resolved by a different process.  The parties in the Project Agreement provided for different types of disputes to be dealt with by different types of dispute resolution mechanisms.  This result is not capricious, unreasonable, inconvenient or unjust.  To the contrary, the reference to the Accelerated Dispute Resolution Procedures in cl 26.16 shows that the parties
intended to bypass the Senior Negotiations process contained in cl 51. They also decided not to directly engage the Arbitration procedures in cl 53.  Neither consequence is in any way unlikely or unreasonable, particularly given that in the typical extension of time case the Project Director will, and is required under cl 26.09(b) to, have taken into account all relevant evidence presented by the parties.  The result achieved by this construction is consistent with business efficacy.

 

His Honour concluded (and Maxwell P and Tate JA agreed) that the appeal should be dismissed.

 


[1]              Emphasis added.

[2]              Clauses 26.6 and 26.7.

[3]              Clause 26.9.

[4]              Clause 26.10.

[5]              Commissioner of State Revenue (Vic) v Royal Insurance Australia Ltd (1994) 182 CLR 51, 63 (Mason CJ); Ward v Williams (1955) 92 CLR 496, 505 (Dixon CJ, Webb, Fullagar, Kitto and Taylor JJ).

[6]              Clause 26.9(b).

Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd [2013] VSC 437 (Vickery J)

In Lysaght Building Solutions Pty Ltd  v Blanalko Pty Ltd, the Judge in Charge of the Supreme Court of Victoria Technology, Engineering and Construction List (Vickery J) was considering the dispute resolution provisions under a design and construct contract for the construction of a rail freight terminal, a container paved area and a locomotive workshop together with associated facilities in Penfield, South Australia (though the Contract was governed by the law of Victoria). The General Conditions of Contract incorporated Australian Standard form of contract, AS4300-1995.

 

Summary Judgment:

 

The Contractor asked for summary judgment in respect of three unpaid payment claims, for approximately $3.13 million. The Principal claimed damages for breach of contract, and claimed a number of waivers and estoppels against the Contractor. His Honour ordered that the argument as to the principles to be applied in respect of summary judgment be argued before the Court of Appeal. His Honour then applied those principles. At paragraph 19, His Honour said:

 

The Court of Appeal determined the following upon the present state of authority, which I adopt and apply in these reasons:[1]

(a)           the test for summary judgment under s 63 of the  Civil Procedure Act 2010 is whether the respondent to the application for summary judgment has a “real” as opposed to a “fanciful” chance of success;

(b)           the test is to be applied by reference to its own language and without paraphrase or comparison with the “hopeless” or “bound to fail test” essayed in General Steel;

(c)           it should be understood, however, that the test is to some degree a more liberal test than the “hopeless” or “bound to fail” test essayed in General Steel and, therefore, permits of the possibility that there might be cases, yet to be identified, in which it appears that, although the respondent’s case is not hopeless or bound to fail, it does not have a real prospect of success;

(d)           at the same time, it must be borne in mind that the power to terminate proceedings summarily should be exercised with caution and thus should not be exercised unless it is clear that there is no real question to be tried; and that is so regardless of whether the application for summary judgment is made on the basis that the pleadings fail to disclose a reasonable cause of action (and the defect cannot be cured by amendment) or on the basis that the action is frivolous or vexatious or an abuse of process or where the application is supported by evidence.

Payment Claims:

 

His Honour then set out Clause 42.1 of the General Conditions of Contract (the standard form provision) and reviewed the facts surrounding the unpaid payment claims.

 

His Honour referred to a number of authorities to be followed where a progress payment certificate was not properly issued by the Superintendent under Clause 42.1. At paragraphs 29-31:

 

In Daysea v Pty Ld v Watpac Australia Pty Ltd (“Daysea”)[2] the Court of Appeal of the Supreme Court of Queensland considered the position under a contract which contained provisions very similar to clause 42.1 of the AS4300-1995 standard form.  In that case the Superintendent failed to issue a progress payment certificate within the stipulated 14 days after receipt of a claim, but did so before the expiry of the 28 day period for payment.  The Court of Appeal accepted that if the Superintendent under an AS4300-1995 failed to respond to a claim for payment under clause 42.1 within 14 days, even if it did respond shortly thereafter, the Principal was still obliged to pay the amount of the claim.  Williams JA observed that a strict approach to the construction of clause 42.1 should be adopted at least with respect to the provisions for payment, set off and deductions, and this was so because of the consequences which flow from the issuing of the certificate.  His Honour reasoned as follows:

Of more significance is the decision of Rolfe J in Algons Engineering Pty Ltd v Abigroup Contractors Pty Ltd (1997) 14 BCL 215. The clause in question there was in the same terms as clause 42.1 here. The learned Judge found that the certificate issued by the Principal’s Representative did not satisfy the requirements of paragraph (a) to paragraph (f) of paragraph [4]. In consequence he said that “the Payment Certificate failed to comply with various contractual obligations as to its contents and that, accordingly, it was not a valid notice”. His reasoning for so concluding is set out in the following passage:

“… the effect of a Payment Certificate is to require the recipient to pay the amount stated. Failure to do so could lead to summary judgment and there is no right to dispute the amounts payable until the dispute resolution procedures are activated. Accordingly, the recipient of the certificate is required to pay money during the course of the contract which, at the end of the day, it may be found it does not owe. The requirement to pay money may lead to financial difficulties for the payer, just as the failure to receive money during the course of the contract may cause financial difficulties to the payee. Also the payee may not be able, at the end of the day, to refund any overpayment. Considerations such as these lead me to the conclusion that a certificate must comply strictly with cl 42.1 if it is to have the consequences specified”.

That reasoning is in my view compelling. As all of the cases I have just referred to establish, the consequences of issuing a certificate are serious. The proprietor is bound to pay the amount of the certificate notwithstanding that the amount is provisional only and subsequently may be found to be incorrect. Notwithstanding such considerations the proprietor must pay the amount specified in the certificate and take the chance that any excess can be recovered subsequently. Similarly, the contractor is not entitled to payment of anything more than the amount specified in the certificate though it may well be less than the progress claim made. Even though it may ultimately be found that the contractor was entitled to more, the recovery of any such amount must await the determination of disputes at the end of the contract.

Because of the consequences which flow from the issuing of the certificate strict compliance with the provisions of clause 42.1 is required …[3]

[Emphasis added]

 

Daysea was applied by Byrne J in Southern Region Pty Ltd v State of Victoria (No 3) (“Southern Region”).[4]

 

It follows that a certificate purportedly issued under clause 42.1 which does not satisfy the formal requirements of theclause is ineffective and invalid, or as Byrne J said in Southern Region: “… it was as if no certificate had issued at all.” 

 

(emphasis added)

His Honour then considered the principles to be adopted where the Contractor failed to support the payment claim with evidence and any information required by the Superintendent. His Honour referred to  the NSW Court of Appeal decision in Brewarrina Shire Council v Beckhaus Civil Pty Ltd . In that decision, the majority concluded that under clause 42.1 of AS2124–1992 the obligation of the Superintendent to issue a payment certificate in relation to a progress claim was subject to the condition precedent that the contractor support that claim with evidence of the amount due to it and with such information as the Superintendent might reasonably require.

 

His Honour referred to the Victorian Court of Appeal decision in Aquatec-Maxcon Pty Ltd v Minson Nacap Pty Ltd . The Court of Appeal, in adopting Brewarrina, said:

 

The decision is a recent, and carefully considered, decision by the New South Wales Court of Appeal which, so far as we have been told and so far as we are aware, is the only decision which currently exists on this particular point of construction of this paragraph of the clause. The point was argued by counsel for the appellant before the trial judge, in the course of which counsel referred his Honour to evidence which showed, or suggested, that the superintendent had repeatedly been seeking substantiation for the “one line variation claims”, and submitted that where the contractor persisted – in the face of opposition and request for further information – in submitting “one line claims” there must come a point where clearly the Progress Claim as presented is entitled to be regarded by the superintendent as not a claim within the meaning of clause 42.1. His Honour requested of counsel whether he (ie counsel) was able to show to him any authority where such an approach had been adopted to a claim, ie “where the claim has been treated by the court as being invalid for noncompliance …”. Trial counsel for the appellant conceded that he was not able to refer his Honour to any authority on the point; and his Honour then indicated to trial counsel for the respondent that he would not “trouble him” about the criticisms made of the progress claims.

 

His Honour, noting further that Warren CJ in Kane Constructions Pty Ltd v Sopov, while expressing some reservations regarding the application of Brewarrina and Aquatec as to the timing issue in the matter before her, had concluded that she was bound by the adoption of Brewarrina in Acquatec at the very least, or to regard Brewarrina as highly persuasive, concluded:

 

Accordingly, pursuant to clause 42.1 of the AS4300-1995 standard form contract, a failure by the contractor to support a payment claim with evidence and any information required by the Superintendent means that the Superintendent is not be obliged to issue a payment certificate to certify the payment of a progress claim.

(emphasis added)

 

His Honour concluded that on the facts before him, the Principal had a “real” chance of success on the material presented in the application, and concluded that summary judgment should not be awarded to the Contractor.

 

Stay Application – Section 8 Commercial Arbitration Act 2011 (Vic):

 

His Honour then addressed a claim for a stay of the Supreme Court proceedings pursuant to Section 8 of the Commercial Arbitration Act 2011 (Vic), on the grounds that there was an arbitration clause (the provision was the standard form Clause 47 of AS4300-1995). His Honour noted the important change between the new Act and the 1984 superseded Act. At paragraphs 125-126, 143 :

 

The use of the imperative word “must” in s 8(1), rather than the permissive “may”, which was employed  in the superseded Commercial Arbitration Act 1984, removes the court’s discretion to refuse to grant a stay, and renders the provision mandatory.  The only reason a court can refuse to grant a stay is if the arbitration agreement is found to be “null, void, inoperative or incapable of being performed”.[5]  This means that if the requirements of the section are met the Court has no choice but to grant a stay of the proceeding before it and refer the matter to arbitration.[6]

 

This may result in some inefficiencies in case management in some cases, arising from the potential for litigation on the same project being conducted before different tribunals. Nevertheless the statutory meaning is clear.[7]

 

……. It follows that a Court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests, not later than when submitting the party’s first statement on the substance of the dispute, refer the parties to arbitration.

 

(emphasis added)

Ultimately, His Honour decided that a stay should not be ordered in respect of certain parts of the claims, on the basis that the particular dispute was not, on the basis of other provisions of the Contract excluding a right of a party to institute proceedings to enforce payment under the Contract from the arbitration clause. In respect of the balance of the claims, His Honour ordered that those claims were to be referred to arbitration and ordered a stay.

 

 

 

 


[1]               Lysaght Building Solutions Pty Ltd (t/as Highline Commercial Construction) v Blanalko Pty Ltd [2013] VSCA 158 [35].

[2]               Daysea v Pty Ld v Watpac Australia Pty Ltd (2001) 17 BCL 434.

[3]               Daysea Pty Ltd v Watpac Australia Pty Ltd (2001) 17 BCL 434, 439 [20]–[22].

[4]               Southern Region Pty Ltd v State of Victoria (No 3 ) (2002) 18 BCL 211.

[5]               D Jones, Commercial Arbitration in Australia (2nd ed, Lawbook Co., 2013) p 108.

[6] Although in the 2009 Consultation Draft Bill the provisions vested a discretionary power in the court  and more closely reflected s 53 of the Superseded Uniform Acts, following submissions from over 17 different organisations, the final Bill reflected s 8 of the Model Law.  The imperative “must” replaced the permissive “may” such that granting a stay is now mandatory unless the court finds that the arbitration agreement is “null, void, inoperative or incapable of being performed”. D Jones, Commercial Arbitration in Australia (2nd ed, Lawbook Co., 2013) p 110.

[7]               It has been noted that there will be situations that arise where matters are referred to arbitration as a consequence of the word “must” that would have been more efficiently conducted in court, for example, multi-party proceedings that will require arbitrations and potentially different findings of fact.  See: D Jones, Commercial Arbitration in Australia (2nd ed, Lawbook Co., 2013) p 111.

500 Burwood Highway Pty Ltd v Australian Unity Limited & anor [2012] VSC 596

In 500 Burwood Highway Pty Ltd v Australian Unity Limited & anor [2012] VSC 596, the Victorian Supreme Court (Justice Vickery) was considering the appointment of a quantity surveyor to facilitate an adjustment to the purchase price in a Contract of Sale for an aged care facility. the Contract of Sale provided for the purchaser to appoint an “independent” quantity surveyor to assess the cost of the works required to complete the development (that cost then to be deducted from the $35 million purchase price at settlement). The independent surveyor ultimately estimated the cost to complete at $2.86 million approx, but the Vendor had its own report, by a different quantity surveyor, estimated the cost to complete at $0.52 million approx. His Honour concluded on the particular facts that the expert report did not comply with the requirements of the Contract of Sale and was not binding on the parties.

 

His Honour reviewed a number of key legal principles in relation to expert determination:

Legal Principles as to the Role of a Contractually Appointed Expert

164.            An expert appointed under a contract is in a different position to an arbitrator and has a distinctly different range of duties. In Beevers v Port Philip Sea Pilots Pty Ltd[1] (“Beevers”), Dodds -Streeton J described the differences in the following terms:

A valuer acting as an expert unlike an arbitrator is generally not obliged to receive submissions from the parties. An arbitration is characteristically quasi-judicial and the parties intend that they should have the right to be heard if they so desire.  It is clear that, whereas a primary function of an arbitrator is to hear and resolve opposing contentions, in contrast, an expert is appointed to appraise value of loss or damage ‘by use of some special knowledge or skill … without being required to hear the parties.  It has been held that, due to the distinction between the arbitral and expert functions, a report by an expert will not be vitiated by the appearance alone of partiality.[2]

165.            In Beevers Dodds-Streeton J referred to Macro v Thompson (No. 3)[3] (“Macro”) with approval. Macro involved a valuation of shares in family companies was, under a pre-emption clause in the articles, committed to the companies’ auditor acting as an expert, rather than an arbitrator.  Robert Walker J stated that

[a]n expert entrusted with the duty of issuing certificates under contractual arrangements between two other parties is under a duty to act fairly and impartially, and the other parties implicitly contract on that basis.

Robert Walker J accepted that

[o]n the authorities as a whole I accept the submission made by Mr Rhys that when the court is considering a decision reached by an expert valuer who is not an arbitrator performing a quasi-judicial function, it is actual partiality, rather than the appearance of partiality, that is the crucial test.

His Honour adopted that view because –

[t]o hold otherwise would mean that auditors who have had a longstanding professional relationship with an association with one party to the contract might be unduly inhibited in continuing to discharge their professional duty to their client, by too high an insistence on avoiding even an impression of partiality.

In Macro, as noted by Dodds -Streeton J in Beevers, [4]Robert Walker J found that the auditor (while not guilty of fraud or collusion or any conscious and positive cooperation in forwarding the interests of one party) was extremely imprudent in seeking advice and information from the purchaser’s solicitor, with whom he discussed figures.  The auditor allowed the solicitor ‘to obtain a position of psychological ascendancy over him’ which the solicitor seemed to exploit.[5]

166.            Nevertheless, Robert Walker J, despite finding that “[the auditor] should have taken a much more independent line from the outset”, on the balance of probabilities was:

not persuaded that [the auditor] yielded sufficiently to [the solicitor’s] influence as to invalidate his valuation on the ground of partiality.[6]

167.            In the recent case of McGrath v McGrath (“McGrath”) [7] Pembroke J cited with approval the observations of the English Court of Appeal in Barclays Bank v Nylon Capital [8] which are to similar effect:

As I have said, there is no procedural code for expert determination, in contradistinction to arbitration. The activities of an expert are subject to little control by the court, save as to jurisdiction or departure from the mandate given. Unless the parties specify the procedure, the expert determines how he will proceed; it is rare for what might be perceived as procedural unfairness in an arbitration to give rise to a ground for challenge to the procedure adopted by an expert: see Kendall, Freedman & Farrell, Expert Determination, 4th ed (2008), ch 16.[9]

168.            For these reasons, unless required by the contract in question, the parties have no entitlement to insist that the expert adopt any particular procedure; or that the appointed expert seek their approval to the proposed determination; or that they are given any hearing or facility to provide input into the process. An expert is not obliged to afford to the parties procedural fairness in the manner required of a court or arbitration in a curial context. [10]  A certifying expert is not under an obligation to provide procedural fairness or natural justice in the absence of an express contractual provision, and there is none in the present case: Hounslow London Borough Council v Twickenham Garden Developments Ltd. [11] How the task is undertaken is in the hands of the expert, subject to anything to the contrary in the contract pursuant to which the appointment was made.

169.            This result is in part the product of the contract and what is to be gleaned from it as to the intention of the parties. When the parties appoint an expert, they usually do so because they agree to place reliance on the expert’s skill and judgment. They implicitly agree to accept and be bound by the determination. In the usual case, provided the decision is arrived at honestly and in good faith, the parties will not be able to re-open it and will be bound by the result.

170.            It is also in part the product of a particular body of expert experience, learning, skill and judgment which the parties wish to apply to the problem to be dealt with. This is to be applied in a manner which is untrammelled by procedural considerations, so that the specialist skills and insights of the expert can be freely applied to the issue.

171.            Finally, considerations of commercial utility are likely to be relevant factors. Efficiency, the production of a speedy and authoritative outcome and the elimination of the expense of a more elaborate procedure, undoubtedly play a part in parties selecting the contractual process of expert determination.

172.            Mistake or error in the process of the determination of the appointed expert will not invalidate a decision.[12] However, if the expert asks the wrong question or misconceives the function of the appointment, the task required to be performed by the contract will not have been fulfilled.[13] In this event, the determination will be exposed to being set aside.

173.            Parties to a contract who, by the terms of that contract, agree to submit a question to an independent expert, are bound by the determination of that expert acting honestly and in good faith.[14]

174.            Actual bias or partiality must be demonstrated in order to impugn the determination. Further, the party alleging actual bias by a decision-maker carries a heavy onus. So much was made clear in Minister for Immigration v Jia by Gleeson CJ and Gummow J.[15]

175.            As observed by Pembroke J in a recent decision on point, McGrath,the appearance of partiality is not sufficient even if made out.  McGrath concerned the appointment of an expert under a shareholders’ agreement to determine the value of a corporate group following a dispute between shareholders.[16]  The plaintiff shareholder sought to avoid the appointment of a particular expert to carry out the valuation on the basis of communications between that expert and one appointing shareholder prior to the expert’s formal engagement. The plaintiff’s application to avoid the expert’s appointment failed for want of evidence of partiality.[17]  Pembroke J held that, based as it was on an apprehension that, if appointed, the expert would fail to act impartially, the plaintiff’s case was akin to one of apprehended bias, which would not entitle the Court to prevent the expert from taking appointment.[18]  Pembroke J was thus not required to make findings as to whether or not the expert had breached his duty to act impartially (meaning without actual bias). His Honour made the following observations in McGrath:

The obligation on an expert to act impartially is of course a foundational requirement. It finds its source in an implied term that subsists in agreements of this kind: Ceneavenue Pty Ltd v Martin (2008) 106 SASR 1 at [69]; Legal & General v A Hudson Pty Ltd at 335; Holt v Cox (1997) 23 ACSR 590 at 595. Within that constraint however, the expert may act as he likes and may give such opportunities to the parties to make submissions, and on what terms, as he alone considers necessary or appropriate. He may even choose not to do so – so long as he acts honestly and impartially.[19]

176.            In Beevers Dodds-Streeton J held that “a report by an expert will not be vitiated by the appearance alone of partiality”.[20]  Having referred to the orthodox position,[21] her Honour then introduced the concept of “a credible appearance or soundly based apprehension of partiality”.[22]  However, her Honour did not finally rule on the question on the facts of the case before her, finding it unnecessary to do so.

177.            To the extent that Dodds-Streeton J in Beevers opened the door to the prospect of the appearance of bias as being sufficient to call into question and bring down the determination of a contractually appointed expert, I do not follow the decision. Absent something in the contract which works against this outcome in a particular case, actual partiality and not the appearance of partiality is the critical test: Macro v Thompson (No 3).[23]  Such observations are consistent with the views expressed by the Court of Appeal concerning experts called upon to give independent opinion evidence, such experts not being disqualified from that role due to previous association with the parties; see FGT Custodians Pty Ltd (formerly Feingold Partners Pty Ltd) v Fagenblat.[24]

178.            There is a substantial body of further authority on the point. In Ceneavenue Pty Ltd v Martin, Debelle J took the conventional approach in adopting the view that actual bias is required.[25]  In Candoora No 19 Pty Ltd v Freixenet Australasia Pty Ltd (No 2), Hargrave J referred to and approved the ruling in Macro that actual partiality, rather than the appearance of partiality, was necessary.[26]  In Kenros Nominees Pty Ltd v Tipperary Group Pty Ltd, Hollingworth J gave further approval to this approach, observing:  “All of the cases to which the parties referred deal with the setting aside of a valuation after it has been performed, on the basis of actual bias”.[27]  Other authorities are to similar effect in support of the orthodox approach.[28]

179.            This view of the law accords with sound policy.  Pembroke J in McGrath explained the policy considerations in the following terms:

When it comes to the principle of apprehended bias in relation to independent experts, I prefer the orthodox approach. To my mind, that approach accords with sound principle and persuasive authority. Too high an insistence on independent experts being required to avoid even an impression of partiality would not be in the interests of justice. It might, as it has in this case, encourage unwarranted challenges and unnecessary litigation by those too readily prone to suspicion and paranoia. The better course would be to allow the independent expert to complete his determination. [29]

180.            In the light of the weight of these authorities, 500 Burwood conceded that an apprehension of bias on the part of Mr Hogg is not a sufficient basis for setting aside the DCWC assessment.

181.            500 Burwood also concedes that Mr Hogg owed no obligation to accord procedural fairness or natural justice to 500 Burwood or AU. 

182.            Accordingly, in order to have the DCWC assessment set aside, 500 Burwood must show, on the balance of probabilities, either actual bias or lack of impartiality on the part of Mr Hogg rather than mere apprehension of it.[30]

…….

Assessment in Accordance with the Contract

Legal Principles

267.            The circumstances in which a court will intervene to overturn an expert determination, where the assessment is undertaken pursuant to a contractual mechanism, are very limited.

 

268.            In Beevers Dodds -Streeton J outlined the applicable principles in the following terms:

Historically, there has been a considerable degree of diversity in judicial identification of the deficiencies or flaws sufficient to vitiate an expert valuation.  The fundamental principle endorsed in modern Australian authority is that an expert valuation will be binding if it is within the terms of the contract.  Conversely, if an expert valuation can be said to depart from the terms of the contract, it will invite curial review and intervention.  The fundamental principle is very general, and its application will, in each case, depend on the terms of the particular contract.  The decided cases provide guidance on the construction of a contract under which an expert is appointed to determine a value or price.  An expert’s determination on discretionary matters is not
ipso facto immune from review, but where, by the contract, such matters are entrusted to the expert without the prescription of criteria or restrictions, whether express or implied, it has frequently been inferred that the parties intended to be bound by the expert’s bona fide judgment, even if it is in some way erroneous.  On the other hand, it has been inferred that the parties would not intend to be bound by gross errors of objective fact or mechanical calculation.  Further, the expert’s determination may fail to satisfy a term of the contract because, when construed in context, the term is held to bear a special meaning which was not addressed. [31]

269.            Recently, in TX Australia Pty Ltd v Broadcast Australia Pty Ltd (“TX Australia”) Brereton J described the potential scope of the enquiry, in a case such as the present, in the following terms:

In Legal & General Life of Aust Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314, McHugh JA recognised, and it has repeatedly been accepted, that the fundamental question is whether the exercise performed in fact satisfies the terms of the contract so as to make the determination binding. Absent fraud or collusion, a valuation is binding if it was made in accordance with the contract, and if so it is beside the point that it proceeded on the basis of error, or was a gross over or under value, or took into account irrelevant considerations [Legal & General Life of Aust Ltd v A Hudson Pty Ltd, 335-336 (McHugh JA); Holt v Cox (1997) 23 ACSR 590, 596 (Mason P)]. This does not mean that a valuation will stand regardless of error; it depends on the terms of the contract [Holt v Cox, 597 (Mason P)]. Accordingly, the question is whether the Expert’s determination binds the parties in accordance with their contract, and that depends on whether the Expert has performed the task allocated him by the contract, in a way that the contract makes binding on the parties. [32]

270.            In  Legal & General Life of Aust Ltd v A Hudson Pty Ltd (“Legal & General”) McHugh JA held[33]:

While mistake or error on the part of the valuer is not by itself sufficient to invalidate the decision or the certificate of the valuation, nevertheless the mistake may be of a kind which shows that the valuation is not in accordance with the contract. A mistake concerning the identity of the premises to be valued could seldom, if ever, comply with the terms of the agreement between the parties. But a valuation which is the result of the mistaken application of the principles of valuation may still be made in accordance with the terms of the agreement. In each case, the critical question must always be: Was the valuation made in accordance with the terms of a contract? If it is, it is nothing to the point that the valuer may have proceeded on the basis of error or that it constitutes a gross over or under value. Nor is it relevant that the valuer has taken into account or has failed to take into account matter which he should have taken into account. The question is not whether there is an error in the discretionary judgment of the valuer. It is whether the valuation complies with the terms of the contract.[34]

[Emphasis added]

271.            Accordingly, the DCWC assessment contained in the DCWC Report may not be set aside by reason of error, such as a factual or arithmetic error, even if, in some cases, that error resulted in a “gross over or under value” where it was otherwise made under the terms of and within the scope of the governing contractual terms.[35]

272.            However, and conversely, an expert determination may be set aside where it has not been undertaken in accordance with the prescription contained in the contract under which the appointment of the expert was made.

273.            The distinction between those circumstances which may justify setting aside an expert determination and those which will not, was considered in Khayat Investments Pty Ltd v Winston Holdings Pty Ltd (No.2).[36] Martin CJ, with whom Newnes and Murphy JJ agreed, explained the test, in the context of a contractual appointment of an expert valuer under a lease, as follows:

If the determination accords with the terms of the lease, it binds the parties even though it might be the product of mistake or error. As McHugh JA observed in Legal and General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314:

‘By referring the decision to a valuer, the parties agree to accept his honest and impartial decision as to the appropriate amount of the valuation. They rely on his skill and judgment and agree to be bound by his decision (335).’

However, if the determination of the rental payable does not accord with the lease agreement because, for example, it is not honest or is vitiated by collusion, or falls outside the scope of the provision in the lease because, for example, the valuer has assessed the wrong premises, the parties will not be bound, and one or other could seek a remedy setting aside the purported determination of the valuer, on the basis that it was not a valid determination under the lease. However, an error in the discretionary judgment of the valuer, or a mistake in the reasoning process, will not result in the invalidity of the determination unless it is of the limited kind to which I have referred, and which takes the purported determination beyond the scope of the powers conferred upon the valuer by the lease agreement (see also Campbell v Edwards [1976] 1 WLR 403, 407; Jones v Sherwood Computer Services plc [1992] 1 WLR 277, 287; TXU Electricity Ltd v Commonwealth Custodial Services Ltd [2003] VSC 88).[37]

274.            In TX Australia, Brereton J formulated an appropriate test and identified the task required of the Court where an expert determination delivered under a contract is challenged, in these terms:

[23] It is not in doubt that there will be an error of law, and that the determination will not be binding, if the Expert misconceived his function, asked himself the wrong question or applied the wrong test [Ex parte Hebburn Limited; Re Kearsley Shire Council (1947) 47 SR (NSW) 416, 420 (Jordan CJ); Avon Downs Pty Limited v Federal Commissioner of Taxation [1949] HCA 26; (1949) 78 CLR 353, 360 (Dixon J); Coal and Allied Operations Pty Limited v Australian Industrial Relations Commission [2000] HCA 47; (2000) 203 CLR 194, 208-209, [31] (Gleeson CJ, Gaudron and Hayne JJ)], as in that event, he would not have addressed himself to, nor performed, the task required of him by the contract.

[24]   Consideration of this ground requires analysis of two issues: first, what was the Expert’s task; and secondly, what did the Expert actually do. [38]

[Emphasis added]

  1. 275.            Accordingly, and by way of a summary of the legal position, the DCWC assessment may be set aside if the Court determines that it did not comply with the exercise required by the Contract to be undertaken

 


[1]               Beevers v Port Philip Sea Pilots Pty Ltd [2007] VSC 556.

[2]               Beevers v Port Philip Sea Pilots Pty Ltd [2007] VSC 556 [263] –[ 266].

[3]               Macro v Thompson (No. 3) [1997] 2 BCLC 36.

[4]               Beevers v Port Philip Sea Pilots Pty Ltd [2007] VSC 556 [268 – 270].

[5]               Macro v Thompson (No. 3) [1997] 2 BCLC 36 [64].

[6]               Macro v Thompson (No. 3) [1997] 2 BCLC 36 [66].

[7]               McGrath v McGrath [2012] NSWSC 578.

[8]               Barclays Bank v Nylon Capital [2011] EWCA Vic 826; [2012] Bus LR 542.

[9]               McGrath v McGrath [2012] NSWSC 578 [7].

[10]             Lahoud v Lahoud [2010] NSWSC 1297 [59]; Barclays Bank v Nylon Capital [2011] EWCA Cic 826; [2012] Bus LR 542 [37].

[11]             Hounslow London Borough Council v Twickenham Garden Developments Ltd [1971] Ch 233, 258-60; Capricorn Inks Pty Ltd v Lawter International (Australasia) Pty Ltd [1989] 1 Qd. R. 8; cf Fletcher Construction Australia Pty Ltd v MPN Group Pty Ltd (unreported) Supreme Court, NSW, 14 July 1997 p.20.

[12]             Legal & General Life of Australia v A Hudson Pty Ltd (1985) 1 NSWLR 314, 334-336 (McHugh JA).

[13]             TX Australia Pty Ltd v Broadcast Australia Pty Ltd [2012] NSWSC 4 [23] (Brereton J); AGL Victoria Pty Ltd v SPI Networks (Gas) Pty Ltd [2006] VSCA 173 [51].

[14]             See Campbell v Edwards [1976] 1 WLR 403, 407 per Lord Denning MR; followed in Baber v Kenwood Manufacturing Co Ltd and Whinney Murray & Co [1978] 1 Lloyds Rep 175 (Court of Appeal); Jones & Others v Sherwood Computer Services PLC [1992] 1 WLR 277; applied in Australia in Legal & General by McHugh JA. The critical distinction is between a mistake in process of the valuation or assessment where in the absence of dishonesty or partiality, the courts will not interfere, in contrast to a valuation or assessment which actually departs from the contract, where the courts will intervene.

[15]             Minister for Immigration and Multicultural Affairs v Jia  [2001] HCA 17.

[16]             McGrath v McGrath [2012] NSWSC 578.

[17]             McGrath v McGrath [2012] NSWSC 578 [16].

[18]             McGrath v McGrath [2012] NSWSC 578 [17].

[19]             McGrath v McGrath [2012] NSWSC 578 [12].

[20]             Beevers v Port Philip Sea Pilots Pty Ltd [2007] VSC 556 [266] and [300].

[21]             Beevers v Port Philip Sea Pilots Pty Ltd [2007] VSC 556 [263] – [272].

[22]             Beevers v Port Philip Sea Pilots Pty Ltd [2007] VSC 556 [300].

[23]             Macro v Thompson (No. 3) [1997] 2 BCLC 36.

[24]             FGT Custodians Pty Ltd (formerly Feingold Partners Pty Ltd) v Fagenblat [2003] VSCA 33.

[25]             Ceneavenue Pty Ltd v Martin (2008) 106 SASR 1 [69] and [71].

[26]             Candoora No 19 Pty Ltd v Freixenet Australasia Pty Ltd (No 2) [2008] VSC 478 [25].

[27]             Kenros Nominees Pty Ltd v Tipperary Group Pty Ltd [2009] VSC 524 [95].

[28]             See: Legal & General Life of Australia Ltd  v A Hudson Pty Ltd  (1985) 1 NSWLR 314, 335; Holt v Cox (1997) 23 ACSR 590, 595; Andrews v Queensland Racing Ltd (No. 2) [2009] QSC 364 [24] – [25]; Bernhard Schulte GmbH & Co KG v Nile Holdings Ltd [2004] 2 Lloyd’s Rep 352 372.

[29]             McGrath v McGrath [2012] NSWSC 578 [21].

[30]             McGrath v McGrath [2012] NSWSC 578 [16].

[31]             Beevers v Port Philip Sea Pilots Pty Ltd [2007] VSC 556 [295].

[32]             TX Australia Pty Ltd v Broadcast Australia Pty Ltd [2012] NSWSC 4 [18].

[33]             Legal & General Life of Australia Ltd v A Hudson Pty Ltd [1985] 1 NSWLR 314; applied in Beevers v Port Philip Sea Pilots Pty Ltd [2007] VSC 556, Candoora No 19 Pty Ltd v Freixenet Australasia Pty Ltd (No. 2) [2008] VSC 478, Kenros Nominees Pty Ltd v Tipperary Group Pty Ltd [2009] VSC 524 and McGrath v McGrath [2012] NSWSC 578.

[34]             Legal & General Life of Australia Ltd v A Hudson Pty Ltd [1985] 1 NSWLR 314, 335-6.

[35]             Legal & General Life of Australia Ltd v A Hudson Pty Ltd [1985] 1 NSWLR 314, 336.

[36]             Khayat Investments Pty Ltd v Winston Holdings Pty Ltd (No.2) [2011] WASCA 196.

[37]             Khayat Investments Pty Ltd v Winston Holdings Pty Ltd (No.2) [2011] WASCA 196 [10] – [11].

[38]             TX Australia Pty Ltd v Broadcast Australia Pty Ltd [2012] NSWSC 4 [23] – [24].

WTE Co-generation and Visy Energy Pty Ltd v RCR Energy Pty Ltd and RCR Tomlinson Ltd [2013] VSC 314

In WTE Co-generation and Visy Energy Pty Ltd v RCR Energy Pty Ltd and RCR Tomlinson Ltd [2013] VSC 314, , the Victorian Supreme Court, Vickery J, the Judge in Charge of the Technology List, was considering an application for a stay on the basis that the plaintiff has not complied with a dispute resolution clause requiring a meeting between senior management. His Honour reviewed the cases and set out the principles applying as follows:

PULLING THE THREADS TOGETHER, THE FOLLOWING PRINCIPLES MAY BE STATED AS TO A STAY SHOULD BE GRANTED WHERE A CONTRACTUAL DISPUTE RESOLUTION PROCESS IS EXPRESSED TO BE A PRE-CONDITION TO LITIGATION, AND WHERE THE ENFORCEABILITY OF SUCH PROVISION IS PUT IN ISSUE: 1. The general rule is that equity will not order specific performance of a dispute resolution clause, notwithstanding that it may satisfy the legal requirements necessary for the court to determine that the clause is enforceable.  This is because supervision of performance pursuant to the clause would be untenable. 2. The Court may, however, effectively achieve enforcement of a dispute resolution clause by default, by ordering that a proceeding commenced in respect of a dispute subject to the clause, be stayed or adjourned until such time as the process referred to in the clause, is completed.  What is enforced by this means is not co-operation and consent of the parties but participation in a process from which consent might come. 3. A circumstance which will operate to preclude the ordering of a stay on this ground arises where the particular dispute resolution clause is determined to be unenforceable, as where for example, the clause is found to be uncertain. 4. Dispute resolution clauses in contracts should be construed robustly to give them commercial effect.  The modern approach to the construction of commercial agreements is generally to endeavour to uphold the bargain by eschewing a narrow or pedantic approach in favour of a commercially sensible construction, unless irremediable obscurity or a like fundamental flaw indicates that there is, in fact, no agreement. 5. Honest business people who approach a dispute about an existing contract will often be able to settle it.  If business people are prepared in the exercise of their commercial judgment to constrain themselves by reference to express words that are broad and general, but which nevertheless have sensible and ascribable meaning, the task of the court is to give effect to and not to impede such solemn express contractual provisions.  Uncertainty of proof does not detract from there being a real obligation with real content. 6. A dispute resolution clause in a contract, consistently with public policy in promoting efficient dispute resolution, especially commercial dispute resolution, requires that, where possible, enforceable content be given to contractual dispute resolution clauses. 7. The trend of recent authority is in favour of construing dispute resolution clauses where possible, in a way that will enable those clauses to work as the parties appear to have intended, and to be relatively slow to declare such provisions void either for uncertainty or as an attempt to oust the jurisdiction of the court. 8. The court does not need to see a set of rules set out in advance by which the agreement, if any, between the parties may in fact be achieved.  The process need not be overly structured.  However, the process from which consent might come must be sufficiently certain to be enforceable.  A contract which leaves the process or model to be utilized for the dispute resolution ill defined, or the subject of further negotiation and agreement, will be uncertain and unenforceable. 9. An agreement to agree to another agreement may be incomplete if it lacks  the essential terms of the future bargain. 10. An agreement to negotiate, if viewed as an agreement to behave in a particular way, may be uncertain, but is not incomplete.  The relevant question is whether the clause has certain content. 11. An obligation to undertake discussions about a subject in an honest and genuine attempt to reach an identified result is not incomplete. His Honour concluded on the facts that the stay should be refused, in particular, on the ground that the particular clause, requiring the parties to “meet to attempt to resolve the dispute or to agree on methods for doing so”, was unenforceable. His Honour noted that further agreement would be required before the process could proceed. At paragraph 46:

It is one thing for a court to strive to give commercial effect to an imperfectly drafted contractual clause, which is well accepted as the approach to construction of contractual terms.  It is also accepted that a valid dispute resolution clause does not require a set of rules to be set out in advance which directs the parties how an agreement is to be achieved, if agreement is possible.  But, as a minimum, what is necessary for a valid and enforceable dispute resolution clause, is to set out the process or model to be employed, and in a manner which does not leave this to further agreement.  It is not for the court to substitute its own mechanism where the parties have failed to agree upon it in their contract.  To do otherwise would involve the court in contractual drafting, which is a distinctly different exercise from contractual construction of imprecise terms.

470 St Kilda Road P/L (ACN 006 075 341) v Reed Constructions Australia P/L (ACN 003 340 341) & Philip Martin

n 470 St Kilda Road P/L (ACN 006 075 341) v Reed Constructions Australia P/L (ACN 003 340 341) & Philip Martin, Vickery J was reviewing an adjudication determination, where the Principal had argued that a statutory declaration provided by the Contractor was patently false. His Honour reviewed the authorities in relation to several questions, including:

  1. The Principal argued that the Act implies a duty of “good faith” into the making of a payment claim. His Honour concluded, consistent with authority albeit seemingly contrary to other obiter statements, that there is “good faith” pre-condition to valid payment claim under the statutory regime created by the Act.
  2. The Principal argued that compliance with the adjudication application time limits provided in s 18(3) of the Act a basic and essential condition of validity. His Honour concluded that this was a factual issue for the adjudicator, not reviewable as a “basic and essential condition”. His Honour concluded that the adjudicator’s determination on compliance with the adjudication time limit was not reviewable in the present case.
  3. The Principal argued that the failure of the Contractor to provide a (non-false) statutory declaration had the effect that the payment claim was not valid under the Contract. His Honour concluded that the adjudicator’s assessment of the correct factual position (in this case, the Contractor’s statutory declaration was contradicted by 5 statutory declarations provided by the Principal)  Whether finding by adjudicator that payment claim valid reviewable), even if an error of fact, did not constitute an error of law that was reviewable.
  4. His Honour then considered the requirement that an adjudicator provide reasons pursuant to Section 23 of the Act, and concluded, in the present case, that the reasons, albeit brief, were sufficient.

Braceforce Warehousing Limited v Mediterranean Shipping Company (UK) Limited

In Braceforce Warehousing Limited v Mediterranean Shipping Company (UK) Limited [2009] EWHC 3839 (QB) Ramsey J (Sir Vivian Ramsey, the judge in charge of Technology and Construction, Queens bench Division), was considering arguments in relation to the commencement of an expert determination over defects in a warehouse the subject of an Agreement to Lease. Just before the 6 year limitation period (dating from the agreement) was to expire, the parties had exchanged letters in relation to extending the limitation period and appointing the expert.

His Honour observed that the Limitation Act did not seem to apply to expert determination (His Honour did not need ultimately to resolve this). Ultimately, His Honour concluded that Mediterranean’s letter proposing an expert for agreement, and advising that failing agreement it would apply to appointing body for an appointment, had commenced the expert determination procedure sufficient to stop any limitation period applying (if, in fact, a limitation period did apply in relation to expert determination).

His Honour, then, in addressing the appropriate forum where two valid sets of proceedings had been commenced, referred to the following passage from the speech of Lord Mustill in the House of Lords in Channel Tunnel Group v Balfour Beatty ….

Having made this choice I believe that it is in accordance not only with the presumption exemplified in the English cases cited above that those who make agreements for the resolution of disputes must show good reasons for departing from them, but also with the interests of the orderly regulation of international commerce that, having promised to take their complaints to the experts and if necessary to the arbitrators, that is where the appellant should go. The fact that the appellants now find their chosen method too slow to suit their purpose is, to my way of thinking, quite beside the point.

His Honour concluded:

This is a case where the Part 8 proceedings have been brought to prevent the expert determination continuing on grounds of lack of jurisdiction and I have rejected that application. The general position is that parties should be held to the terms of their contracts, but the court retains a discretion in each case. I am not persuaded in this case that the existence of the protective proceedings in court or the fact that, as in the Channel Tunnel case, the claimant now finds the chosen method of dispute resolution unsuitable, are factors which are so persuasive that they should outweigh the principle that the parties should be held to the agreed method of dispute resolution in accordance with clause 24 of the Agreement (emphasis added) .

This decision is modern high-level authority for the principle that, In cases where an expert determination clause is contained in an agreement, but one party then decides it prefers the proceedings to be litigated, the courts will require strong grounds to persuade them from the presumption that the parties should be held to their agreement.

Thiess Pty Ltd & Anor v Arup Pty Ltd & Ors [2012] QSC 185

In Thiess Pty Ltd & Anor v Arup Pty Ltd & Ors [2012] QSC 185, (10 July 2012), the Queensland Supreme Court (Applegarth J) was considering the terms of a Collaborative Consultancy Agreement (CCA) in relation to the Airport Link, Northern Busway (Windsor to Kedron) and East-West Arterial Gateway Projects, between Thiess John Holland (TJH) and Parsons Brinkerhoff Australia (PBA). TJH had engaged PBA as consultants for the design of the project. His Honour was asked to resolve whether, under the CCA, certain values of multipliers specified in the CCA were values agreed between the parties or were subject to audit by the Collaborative Agreement Auditor. His Honour concluded in favour of PBA, that the values were agreed between the parties and not subject to audit by the Collaborative Agreement Auditor.

His Honour considered the interpretation principles, reasoning as follows:

The proper interpretation of the contract is not determined in this case simply by competing contentions about which interpretation is the “more commercially sensible” construction. It is determined by the words of the agreement that were chosen by the parties, and the structure of Schedule 7.

His Honour reasoned in relation to the request for rectification:

These and other authorities appear to support the following propositions:

  1. The actual intention of each party is relevant in deciding whether they had the alleged common intention.
  2. The actual intention must have been disclosed.
  3. In determining whether there was the alleged common intention and the terms of the “prior consensus”, a Court is not confined to communications between the parties and their conduct from which the relevant intention may be inferred. Evidence of their subjective intention, including statements about their understanding of what was agreed, is admissible, and in some circumstances may be decisive.
  4. Where, however, the evidence given by a party about his or her subjective intention is inconsistent with the terms of their correspondence and/or conduct it may carry little weight.
  5. The existence or otherwise of a “common intention” (or prior consensus or prior concluded agreement) is determined on the basis of an objective assessment of the parties’ communications and conduct. Whilst evidence from a party about his or her subjective intention is admissible as to whether the alleged consensus was reached, the question of whether such a consensus existed and continued involves an objective assessment. The authorities suggest that the test is what an objective observer would have thought the intentions of the parties to be. In this regard, it is not the inward thoughts of the parties which matter but whether the alleged intention has been objectively manifested. To adopt the words of Street J, the intention on each side must be manifested “by some act or conduct from which one can see that the contractual intention of each party met and satisfied that of the other. On such facts there can be seen to exist objectively a consensual relationship between the parties.”

TJH had argued that there was a reasonable expectation that the multiplier was a genuine or reasonable estimate and that PBA had been acting in good faith in originally proposing them, and further, that it had a reasonable expectation of an auditor’s examination, and that if there was to be no such examination PBA would have disclosed this to TJH. His Honour summarised the cases:

[215] Silence or non-disclosure of information can be misleading or deceptive in various circumstances….. Whether silence constitutes misleading or deceptive conduct depends on all the relevant circumstances, and it is dangerous to essay any principle by which they might be exhaustively defined. However, “unless the circumstances are such as to give rise to the reasonable expectation that if some relevant facts exists it would be disclosed, it is difficult to see how mere silence could support the inference that the fact does not exist” …… Asking whether a reasonable expectation of disclosure exists is an aid to characterising non-disclosure as misleading or deceptive and has been described as a practical approach to the application of the prohibition in s 52.

[216] Sometimes a reasonable expectation of disclosure will not exist because parties to a commercial negotiation are not expected to disclose information which is confidential, and the starting point for their negotiations is the caveat emptor doctrine. On other occasions, a reasonable expectation of disclosure will exist because of the nature of the relationship, or because positive conduct or statements in the course of negotiations imply that a certain fact or matter exists or does not exist. A failure to qualify a statement made earlier in negotiations may be misleading or deceptive in the circumstances. Where, however, this is not the case, the reasonable expectation of disclosure of a certain fact must be found elsewhere. In this case, TJH seeks to source it by reference to the negotiation and entry into the Pre-Bid Agreement and the parties’ subsequent negotiations in relation to the commercial framework and the terms of Schedule 7, as pleaded in paragraph 85 of the second further amended defence and counterclaim. Whether conduct is misleading or deceptive or likely to mislead or deceive must be assessed on the basis of these facts and all the relevant circumstances.

Ultimately, His Honour concluded that there was no misleading and deceptive conduct in this instance, concluding that PBA should have the declaratory relief it sought.

 

 

 

CH2M Hill v State of NSW [2012] NSWSC 963

In CH2M Hill v State of NSW [2012] NSWSC 963, the NSW Supreme Court (McDougall J) was considering a design and construct contract between a joint venture (CHBM) and Sydney Water of an upgrade to a sewerage  treatment plant at West Camden (His Honour that the project was “inevitably and not inappropriately” referred to as “the WC project”). CHBM and Sydney water were disputing whether damage to earthen lagoons in the plant was due to poor design or poor construction.

 The substantive design defects argued were:

  1. failing to specify an anchor trench or other form of perimtere seal;
  2. failing to specify under-drainage;
  3.  failing to guard against risk of the geosyntheitic liner (GCL) not performing because of cation exchange.

 The substantive construction defects argued were:

  1. failing to install the GCL using an anchor trench …;
  2. putting spikes through the GCL allowing in moisture;
  3. failing to construct/maintain with adequate drainage;
  4. failing to compact the earthworks;
  5.  failing to protect the GCL from the elemants.

 CH2M argued that it was an express and/or implied term that the design would be “fit in all respects for its intended purpose”. The government department (DOC) who designed the project initially denied that term formed part of the design contract but ultimately accepted that the term was was at least an implied term.

 McDougall J (a very experienced judge in the Construction List) concluded in relation to design that:

  1.  CHBM did not comply with GCL manufacturer’s guidelines requiring an anchor trench, did not seek DOC’s approval in relation to the anchor trench, and merely indicated (after the event) that the anchor spikes used would have the effect of preventing the GCL from moving while concrete was being poured;
  2. the use of anchor spikes made the GCL susceptible to moisture penetration;
  3. the substantive damage to the GCL was caused by leaving the GCL exposed to the elements for a considerable time after installation.

 McDougall J concluded in relation to the construction:

  1. CHBM failed to provide adequate site drainage (consistent with general construction practice);
  2. adequate protection did not end with the provision of the V-drains;
  3. adequate protection also required measures to prevent standing water from penetrating into the earthen embankments and behind the GCL, and protection of the GCL from the effects of  rainfall.

 McDougall J concluded that it was not incumbent on DOC to design under-drainage. Under-drainage would not have been required if the construction was adequate, and DOC did not have to design against every potential risk. The risk of accumulation of groundwater was remote to the point where the decision not to include under-drainage was justified. For those reasons, DOC did not breach its design obligations by designing without under-drainage. Further, DOC was entitled to proceed on the basis that its design, if followed, would have included an effective perimeter seal.

 McDougall J outlined some matters of principle in relation to the entitlement to corporate overheads:

 …. In Banabelle Electrical v State of New South Wales [2005] NSWSC 714, I referred to what Giles J said in Thiess Watkins White, and to what his Honour had said (to similar effect) in Bulk Materials (Coal Handling) Pty Ltd v Compressed Air and Packaging Systems (NSW) Pty Ltd (1997) 14 BCL 109 at 133 – 135. At [142], I drew from those cases the proposition that:

 “it is in principle wrong to make an allowance for recovery of an offsite (or head office, or fixed) overhead, or loss of profit, unless there is a basis for concluding that they could have been recovered or earned through the performance of other profitable work… where the effect of… delay is to prevent the contractor from undertaking other profitable work”.

 408 I remain of that view. Further, I remain of the view that the entitlement to corporate overheads is not just a question of principle, but is entirely fact-dependent. It must be shown that the breach of contract for which damages are claimed resulted in, among other things, the loss of opportunity to undertake profitable work, from which further work corporate overheads could have been defrayed.

 His Honour ultimately concluded that DOC did not breach its design obligations, the failures of the lagoons were caused by various deficiencies in CHBM’s construction work, including the unjustified omission of an anchor trench to secure the GCL, poor and uneven compaction of the embankments, and prolonged exposure of the GCL to the elements before the concrete panels were cast over it .

 

Skilled Group Ltd v CSR Viridian Pty Ltd & Anor [2012] VSC 290

In Skilled Group Ltd v CSR Viridian Pty Ltd & Anor [2012] VSC 290 (4 July 2012), Vickery J was considering a claim by Skilled Group for  monies due by way of a restitutionary quantum meruit for engineering work it performed , under a subcontract that was never executed between Skilled and Pilkington, at a glass manufacturing plant in Dandenong owned by CSR. Skilled said that no concluded subcontract had been made between Skilled and Pilkington because, the parties had never agreed on two essential terms of the proposed subcontracts, namely the dates for practical completion and the proposed milestone dates for the purposes of calculation of liquidated damages.

His Honour noted previous cases where, though no contract had been executed, by the parties proceeding to perform  the work, a contract had been formed. In relation to the formation of a contract, His Honour said:

94 In any determination as to whether a binding contract exists, it is the objective intent of the parties, as revealed in the factual context, that is the paramount consideration. The fact of agreement and its content is to be determined by the communications between the parties considered objectively. It is also legitimate to consider the factual context in which the communications took place. Regard may also be had to communications between the parties subsequent to the date of the alleged contract, at least to the extent to which those communications may inform the meaning of the language used by the parties in earlier exchanges between them which evidenced the fact of agreement and its content and defined the commercial context.

95 The subjective intention of the parties, as it may be expressed, for example in internal memoranda, or statements made by individuals as to as to subjective intention in the course of giving evidence, is generally inadmissible. However, in some circumstances such expressions of intention may amount to admissions and be admissible on that basis. However, care needs to be exercised in determining the content of any such admission.

His Honour considered the so-called “fourth class” of cases discussed in Masters v Cameron, where parties are content to be bound immediately and exclusively by the terms which they had agreed upon while at the same time expecting to make a further contract in substitution for the first contract, containing, additional negotiated terms, referring to Lord Loreburn, in Love & Stewart v S Instone & Co:

 

It was quite lawful to make a bargain containing certain terms which one was content with, dealing with what one regarded as essentials, and at the same time to say that one would have a formal document drawn up with he full expectation that one would by consent insert in it a number of further terms. If that were the intention of the parties, then a bargain had been made, none the less that both parties felt quite sure that the formal document could comprise more than was contained in the preliminary bargain.

 

 

His Honour concluded:

 

In my opinion, the parties reached agreement in this case in conformity with the fourth limb of Masters v Cameron as described by the High Court in Sinclair Scott. Their conduct clearly manifested an intention to elevate their commercial relationship beyond the clutches of the third class. …. By early May 2008 the parties reached finality in arranging all the terms of their bargain and intended to be immediately bound to the performance of those terms. At the same time the parties proposed to make a further contract in substitution for the first contract, containing negotiated additional terms relating to dates for practical completion of the three Sub-contracts and agreed milestone dates, upon which it was intended that the Sub-contracts would be formally executed……. 117 The factual analysis I have described, involving as it does the application of the fourth limb of Masters v Cameron, also goes to explain the negotiations between the parties which continued from early May 2008 as to dates for practical completion and milestone dates. What the parties were not about during this period was negotiating towards a set of original binding Sub-contracts, for by early May 2008 they were already bound to a concluded, but limited suite of bargains. What they were about was the negotiation of a new set of Sub-contracts in substitution for the already binding ones. The fact that the parties continued to negotiate for an alternative regime of dates, and this continued beyond early May 2008, had no bearing on the concluded bargains which were already in place. ……

 

In the light of the conduct described, I find it irresistible to conclude otherwise than implied contracts on the terms of the three Sub-contracts are to be inferred from the evidence and that these implied contracts operated to govern the Skilled works on the Project from the outset of their engagement.

 

His Honour concluded, therefore, that concluded subcontracts had been formed. Though no longer required, His Honour further concluded that, were it not possible to imply the existence of binding agreements, Skilled would have been estopped from denying the existence of the agreements as reflected in the three subcontracts.

 

 

Ipex ITG Pty Ltd (In liquidation) & Takapana Investments Pty Ltd v State of Victoria [2012] VSCA 201

In Ipex ITG Pty Ltd (In liquidation) & Takapana Investments Pty Ltd v State of Victoria [2012] VSCA 201, the Victorian Court of Appeal was considering a claim by an unsuccessful tenderer for a contract for the provision of ‘system integration services’ for the Parliament of Victoria. An evaluation plan had been prepared  but not distributed to tenderers. Ipex’s tender had been assessed as not demonstrating a good understanding of what Parliament was seeking under the project, and not representing value for money albeit that its tender price was low (Ipex’s tender price was around $2.8 million compared to the winner’s price around $7.8 million), and removed from further consideration.

 The trial judge held, and on appeal it was common ground, that there was a binding contract (‘the tender process agreement’) between Ipex and the respondent the express terms of which were contained in the Request for Tender (RFT). Ipex’s primary claim was for damages for breach of that contract.

 The Court of Appeal concluded:

  1. The method of evaluation identified in the RFT was, in fact, followed by the government.
  2. The requirement that price be kept out of the process until the “final decision point” was followed in that the price comparisons were left until the already assembled qualitative assessment and price comparisons were available to the evaluation team. (Even if this was wrong, this should be read in the context of the government not being bound to accept any tender.)
  3.  The evaluation, albeit involving subjective business judgments, had been objectively evaluated. This was not to be a “purely arithmetic exercise”.
  4. The trial judge had correctly assessed the misleading and deceptive conduct case, being based on the dismissal of the breach of contract claims, that claim being based on the same claimed departures from the RFT case.

 

 

 

 

 

Research Favours Use of Dispute Review Boards on Major Projects

The use of a Dispute Review Board (DRB) on major projects has substantial support on projects worldwide and in Australia. Several major world-wide standard form agreements now include DRB clauses. The statistics on the minimal number of disputes coming out of projects with a DRB is compelling. A number of academic studies have been published in this area. The substantive conclusion from the above is that DRBs are used widely on major projects, with great success in reducing construction contract disputes.