The decision of WTE Co-Generation v RCR Energy Pty Ltd [2013] VSC 314 is authority for the proposition that commonly appearing, standard form dispute resolution clauses may be unenforceable for lack of certainty.

In the case before the Victorian Supreme Court, WTE Co Generation (WTE) entered into a construction contract with RCR Energy Pty Ltd (RCR) for the supply of a co-generation facility intended to be fired by paper mill residues. On 11 November 2011 a show cause notice was issued by WTE to RCR, resulting in WTE taking the remaining works out of RCR’s hands.

A further notice to show cause was issued by WTE on 14 March 2013, culminating in WTE purporting to terminate the contract and commencing legal proceedings against RCR, without first complying with the dispute resolution clause. RCR sought to stay the legal proceedings pending compliance with the dispute resolution clause of the contract.

WTE contended that the clause was uncertain and unenforceable on the basis that clause 42.2 contained an “agreement to agree”. Subclause 42.2 of the contract provided:

in the event the parties have not resolved the dispute then within a further 7 days a senior executive representing each of the parties must meet to attempt to resolve the dispute or to agree on methods of doing so

After considering relevant case law including the decision of the Queensland Supreme Court in Downer EDI Mining Pty Ltd v Wambo Coal Pty Ltd [2013] QSC 290 which found that proceedings should be stayed to enforce compliance with the dispute resolution clause (in that case, unenforceability was contended on the basis of the time requirements in the clause – click here to read our article on this), Justice Vickery held that subclause 42.2 was unenforceable. He found that what was necessary for a valid and enforceable dispute resolution clause was to “set out the process or model to be employed, and in a manner which does not leave this to further agreement”. The option to “agree on methods of doing so” did require a further agreement.

Whilst RCR contended a stay would be consistent with the obligations on parties and their legal advisers under the Civil Procedure Act 2010, it would not appear that this Act was specifically considered in finding that the dispute resolution clause was unenforceable.

The decision has widespread implications due to the breadth of contracts which adopt the wording “meet to attempt to resolve the dispute or to agree on methods of doing so”. Such contracts include AS4000 (construct only), AS4300 and AS4902 (both design and construct), AS4905 (minor works), AS4911 (supply of equipment without installation), AS4916 (construction management) and AS4122 (consultant’s agreement).

The decision also puts into doubt the enforceability of arbitration agreements, given the reference to arbitration is typically contained in clause 42.2 (or its equivalent) which has been found to be unenforceable.