The age old proclamation “we’ll see you in court” has been limited by the recent Victorian Supreme Court decision of 1144 Nepean Highway Pty Ltd v Leigh Mardon Australasia Pty Ltd [2009] VSC 226. This decision should serve as a warning to contracting parties to ensure that they abide by dispute resolution procedures that form part of the contract. This case is significant as alternative dispute resolution mechanisms such as mediation or binding expert determinations are increasing in popularity as means to resolving commercial disputes. Many contracts now include a procedure that require the parties to employ these, or similar methods, before court proceedings can be issued. This decision is a reminder that such clauses “mean what they say”, and any attempt to avoid their effect will be opposed by the courts.

Background

Leigh Mardon Australasia Pty Ltd was the landlord of a property at 1144 Nepean Highway, Highett (Landlord). The Landlord had entered into an agreement to lease property to the tenant that included a clause that set out the procedure that the parties were required to follow in certain situations (Lease). Specifically, the procedure had to be followed if a dispute or difference arose, or the parties failed to agree in connection with any matter arising out of, or relating to, the Lease.

The procedure relevantly required that:

  • a notice be issued by one party to the other setting out the dispute,
  • if the parties were unable to resolve the matter within a certain time, the dispute was to be referred to an independent expert, and
  • the expert’s determination would be conclusive and binding on the parties.

Importantly, the relevant clause also stated that no legal action could be commenced until the clause had been complied with.

The parties fell into dispute regarding a planning permit that the Landlord was required to obtain and that the tenant alleged was deficient. That dispute, and the tenant’s consequential right to terminate the Lease, was referred by the tenant to the dispute resolution procedure. The Landlord then sought to depart from the dispute resolution procedure and instituted legal proceedings, seeking a declaration that the Lease remained on foot between the parties (on the basis that the planning permit complied with the Lease). The Landlord also sought an injunction restraining the tenant from referring the question of termination to the dispute resolution procedure. During the proceedings, the Landlord claimed the dispute resolution procedure only applied to disputes concerning the performance of the agreement and did not extend to questions about the termination or existence of the agreement.

Judgment

The Court held that:

  • the language in a dispute resolution clause should be given its full meaning and construed on its terms,
  • dispute resolution clauses should be given a wide interpretation so as to avoid different processes having to be followed depending on the particular issue in dispute,
  • the dispute regarding the issue of whether the Lease had been terminated was clearly a matter “arising out of” the agreement (thereby invoking the dispute resolution procedure),
  • accordingly, the Landlord should be held to its bargain, and the dispute should be determined pursuant to the prescribed procedure (that is, by expert determination), and
  • in the absence of any strong, countervailing circumstances, the Landlord’s proceedings were stayed.

Implications

This decision is a reminder that when you sign up to a dispute resolution clause, you get what you bargain for. Once the dispute arises, parties must play by the rules. The prescribed procedure must be strictly followed, or the non-complying party risks wasting time and money on alternative action which will be restrained by the court, so that the agreed dispute resolution procedure can instead be followed.

To ensure that your rights are properly protected, you should only agree to a dispute resolution clause if you believe the procedure is the best way of resolving any disputes which might arise, and you are willing to fully engage in each part of the procedure should a dispute arise. If there is an aspect of the transaction that you want dealt with in some other manner (such as commencing court proceedings), you should specifically reserve this right.