The Victorian Supreme Court finds Expert Determination valid but not binding.

In the decision of Aligned Services Group Pty Ltd v Citi-Con (Vic) Pty Ltd [2022] VSC 286 the Victorian Supreme Court considered whether an expert’s determination delivered outside the contractual timeframe was intended to be final and binding.

In this case, a dispute arose when head contractor Citi-Con (Vic) Pty Ltd (Citi-Con) issued several notices to its hydraulics subcontractor, Aligned Services Group Pty Ltd (ASG), claiming liquidated damages in the sum of $778,033. In response, ASG issued a notice of dispute under the dispute resolution provision, clause 16, of its subcontractor agreements with Citi-Con. Clause 16 stipulated that the parties were to engage in negotiations in an attempt to resolve the dispute, failing which, the parties could refer the matter to expert determination. There were two available avenues  for appointing an expert:

•   the parties could agree upon an expert who would then determine the applicable rules which would govern the expert determination process; or
•   where the parties could not agree upon an expert, the Chair of the Resolution Institute would appoint one, and the Resolution Institute rules would apply to the expert determination process.

In both cases, the expert determination was to be made within 28 days of the referral. Relevantly, the Institute’s Rules provided that unless otherwise agreed, the expert’s determination would be final and binding. The subcontractor agreement was otherwise silent as to whether the parties intended the determination to be final and binding. After unsuccessfully attempting to engage Citi-Con in negotiations, ASG informed Citi-Con of its intention to refer the dispute to expert determination. Citi-Con advised ASG that it did not consider the expert determination process to be final and binding and accordingly, its preference was to resolve the dispute in litigation. ASG applied to the Chair of the Resolution Insitute who appointed an expert pursuant to the terms of the subcontractor agreement.

Citi-Con did not agree to be bound by the Resolution Institute’s rule that the expert determination would be final and binding, and declined to participate in the expert determination process. The expert proceeded to consider the dispute and determined that ASG was liable to Citi-Con for $155,746.58 in liquidated damages, significantly less than the amount  Citi-Con had sought from ASG ($778,033).

ASG subsequently applied to the Court for a declaration that the expert determination was final and binding. Citi-Con opposed the application on the basis that:

•   the Resolution Institute’s rule that the expert determination be final and binding was inconsistent with the dispute resolution clause under the contract; and
•   the expert determination was invalid as it was delivered more than 28 days after the referral of the dispute to the expert.

In relation to the first question, Stynes J endorsed the contractual interpretation principle that ‘a dispute resolution clause is to be construed so as to avoid making commercial nonsense or working commercial inconvenience’. Her Honour held that the most commercially sensible approach was that the expert determination was non-binding because (amongst other things):

•   clause 16.3 imposed a short timeframe on the expert determination process. This indicated that the clause aimed to facilitate a timely and informal dispute resolution process;
•   the Resolution Institute’s rules were not expressed in absolute terms and were subject to any written agreement not to be bound. In her Honour’s view clause 16 constituted such an agreement; and
•   the alternative construction would allow one party to unilaterally force a dispute to go to final and binding expert determination simply by withholding agreement in relation to the appointment of an expert.

In respect of the second question, Stynes J held that the expert’s failure to comply with the prescribed timeframe under clause 16, did not support a finding that the expert determination was invalid because:

•   the clause was designed to provide an expeditious alternative dispute resolution process as a precondition to litigation, with the aim of facilitating a negotiated settlement or otherwise narrowing the issues in dispute; and
•   a finding that the non-binding determination was invalid would be inconsistent with this intention, causing the parties to incur delay and additional costs by having to repeat the expert determination process.

Stynes J dismissed ASG’s application and ordered Citi-Con to pay half of the expert’s fees in conducting the expert determination.

The decision can be found here.