When Will a Dispute Resolution Clause be Void for Uncertainty?
June 4, 2021
A recent decision by the New South Wales Supreme Court in LWB Qld SBB Limited v State of Queensland  NSWSC 462 found that a dispute resolution clause, which failed to specify the process for appointing and conducting an expert determination, was not void for uncertainty. The Court also held that parties subject to an expert determination process may be obliged to co-operate so as to secure the appointment of a suitably qualified expert.
Life Without Barriers (LWB) entered an agreement with the State of Queensland (State) to provide services aimed at reducing re-offending in Queensland.
The dispute resolution clause in the agreement (clause 34) provided, amongst other things, that:
- the Parties must attempt to resolve any dispute before resorting to court proceedings or other external dispute resolution mechanisms;
- if a dispute arises, the parties must attempt to resolve it within 10 Business Days of receipt of a Notice of Dispute, failing which the dispute will be escalated to the parties’ senior representatives; and
- if the senior representatives are unable to resolve it within 10 Business Days, either party may, within 5 Business Days, refer the dispute to expert determination.
A dispute arose between the parties, and LWB issued a Notice of Dispute in accordance with clause 34. As the parties were unable to resolve the dispute through senior executive negotiation, LWB issued a notice to the State referring the dispute to expert determination. LWB proposed three potential candidates for appointment as expert to determine the dispute.
The State indicated on a ‘preliminary basis’ that it was willing to refer the matter to expert determination and that it did not object to the proposed panel of experts. However, the State subsequently advised that it would not engage in the expert determination process on the basis that the agreement did not mandate its participation. The State argued that clause 34 was void for uncertainty as it did not specify:
- the process for the appointment of an expert;
- whether the expert’s decision would be final and binding;
- how costs would be apportioned;
- the procedure for the determination; and
- the scope of issues capable of determination.
LWB commenced proceedings in the NSW Supreme Court seeking a determination that, amongst other things, clause 34 was not void for uncertainty and that the State should be required to participate in a binding expert determination process.
Sackar J ultimately agreed with LWB. In reaching his decision, his Honour held that:
- When interpreting a contract, the Court must objectively search for the parties’ intentions and construe the contract in a way so as to avoid making commercial non-sense.
- The tiered dispute resolution provision in the agreement reflects the parties’ intention to create a prompt dispute resolution process which avoids litigation.
- Absent express terms to the contrary, every contract has, at a minimum, two implied obligations; (1) to do all things necessary to enable the other party to have the benefit of the contract and (2) to do all that is necessary to secure performance of the contract. In light of this, his Honour considered that the State was required to co-operate in securing the appointment of an expert so that the expert determination process could proceed.
- Clause 34 of the agreement was not void for uncertainty as, in the absence of a prescriptive process:
- the scope of an expert determination should be determined by the subject of the notice(s) of dispute issued by the parties;
- the precise process to be followed in conducting the determination could be agreed by the parties and, if there was no agreement, would be determined by the expert; and
- the cost of the expert determination should, consistent with the fact that the dispute resolution provision is drafted for the benefit of both parties, be borne equally between the parties.
- The circumstances in which a court will find a contract to be void should be limited to those where the contract is incapable of precise meaning, and the court is unable to construe the contractual intention of the parties.
This decision provides a useful reminder that courts will do all things necessary to give effect to the intentions of the parties, even when that intention may not be clearly gleaned from the express words of the contract.
The full decision can be found here.