Interpretation of dispute resolution clauses – a right to litigate?
November 22, 2017
The NSW Court of Appeal has recently considered the approach to be taken in interpreting contractual dispute resolution clauses in relation to a party’s right to litigate after an expert determination.
Lipman Pty Ltd (Lipman) and Empire Facades Pty Ltd (Empire) entered into a contract under which Empire was to design, supply and construct works for Lipman. A dispute arose concerning the performance of the works and the subsequent termination of the contract. The dispute was referred to executive negotiations and then expert determination.
Following the expert determination, Empire gave notice of an appeal and commenced and served proceedings against Lipman seeking to re-agitate the issues considered by the expert. Lipman sought a permanent stay or dismissal of the proceedings on the grounds that the dispute in question had been resolved by expert determination and it was not open for Empire to ask a court to reconsider such issues.
Relevantly, the contract provided:
42.11 Determination of expert
The determination of the expert:
(c) is to be given effect to by the parties unless and until it is reversed, overturned or otherwise changed under the procedure in the following subclauses.
If the determination of the expert does not resolve the dispute then, subject to clause 42.11, either party may commence proceedings in relation to the dispute.
Lipman argued that the drafting in clause 42 operated such that the parties were prevented from litigating a dispute unless it was unresolved by an expert. Lipman submitted that if a determination was made by an expert in accordance with the contractual requirements, the expert determination ‘resolved the dispute’ thereby preventing either party from commencing litigation in respect of the dispute.
In contrast, Empire argued that clause 42.12 should not be limited only to situations where the expert’s determination was not in accordance with the contract, and that by allowing for an appeal process the parties had expressly agreed that litigation was a part of the steps to resolving a dispute.
The primary judge found in favour of Empire. On appeal, in determining how to interpret the dispute resolution clause, the Court of Appeal agreed with the primary judge that Lipman’s interpretation of the clause did "not sit easily with the words of the contract.
"Specifically, the court preferred a construction that was not ‘unusual’ and which took account of the relevant context of clauses 42.11 and 42.12 and their effect when read together. The court rejected an argument that the primary judge’s reasoning led to an ‘unbusinesslike consequence’ as they considered there "is nothing unbusinesslike in giving effect to [the] bargain that the parties have chosen."
The Court of Appeal, in dismissing the appeal, unanimously held that Lipman had failed to demonstrate an error in the primary judge’s decision. In reaching this view, the court applied several well-established principles of contractual interpretation, and considered the clause in light of the contract as a whole and adopted a businesslike, commercial understanding of the parties’ intended bargain.