In this case, the Victorian Court of Appeal considered an ambiguous commercial contractual dispute referral regime which contemplated both expert determination and arbitration.

Key Learnings

The case demonstrates that when interpreting dispute resolution clauses (and commercial contracts more generally), courts will seek to avoid consequences that are not consistent with business efficacy or that do not give effect to all provisions of a document. The Court also scrutinized use of the word “may”, as opposed to mandatory language such as “must” or “shall”.

Background

The case concerned a 2009 agreement under which Plenary Research Pty Ltd (“Plenary”) would design, construct and operate a biosciences research facility at the Bundoora Campus of Latrobe University for Biosciences Research Centre Pty Ltd (“Biosciences”) (“the Project Agreement”). Plenary submitted several claims for extensions of time (“EOT Claims”) due to delays on behalf of a subcontractor. Biosciences rejected these EOT Claims, meaning Plenary would breach its obligations under the Project Agreement. Plenary served a notice of dispute on Biosciences.

Two of the avenues for dispute resolution contemplated in the Project Agreement for disputes concerning extension of time claims were relevant. The first, sought by Biosciences, was to have the dispute referred to an Independent Expert in accordance with the fast-tracked “Accelerated Dispute Resolution Procedures” (“ADRPs”) in cl 52. The second, sought by Plenary, was referral to arbitration, which comprised part of the staged procedure for general dispute resolution under clauses 50 to 53 of the Project Agreement. The provision in contention was cl 26.16, which stated that “any dispute about an extension of time claim…maybe referred by either party for resolution by an Independent Expert in accordance with the ADRPs” (emphasis added).

Clause 52 of the Project Agreement explicitly disengaged arbitration as an avenue for dispute resolution in circumstances where the Project Agreement “expressly provides that a Dispute shall be referred for determination by an Independent Expert or by Accelerated Dispute Resolution”. Plenary argued that the use of the word “may” in cl 26.16 (rather than mandatory language such as “shall”) meant that cl 52 was not triggered, and that arbitration was still an available avenue of resolution.

At first instance, Croft J preferred Bioscience’s construction and declared that cl 26.16 required that the dispute be resolved by an independent expert under the ADRPs if requested, even if unilaterally.

Appellate Decision

The Court of Appeal unanimously upheld the trial judge’s construction of cl 26.16, by reference to relevant settled principles in the construction of commercial contracts. These included giving effect to the objectively apparent intentions of the parties, avoiding conclusions that would flout business common sense or render other provisions superfluous, and assigning a term its natural and ordinary meaning, read in the light of the contract as a whole.

The correct procedure applicable to cl 26.16 disputes was held to be that, once engaged by either party, the clause mandated reference to the ADRPs and an independent expert as the sole form of dispute resolution. The natural meaning of the word “may” was held to be permissive, and its use in cl 26.16 gives either party a choice as to whether or not it seeks to invoke the provisions. Garde AJA found that it was commercially efficient to give effect to the parties’ agreement on ADRPs, and accordingly provisions such as cl 26.16 must be reasonably and meaningfully construed to give parties the opportunity to avoid prolonged and expensive litigation or arbitration.

What the decision means for you

Clauses such as cl 26.16, which earmark certain types of dispute for specific dispute resolution avenues, are not uncommon in construction contracts. Such provisions must be carefully drafted and accurately reflect the intention of the parties. Additionally, while each case will be decided having regard to the particular wording of the contract in question, the case serves as a reminder that courts will generally prefer a whole-of-contract approach to narrow semantic interpretation, and will place importance on giving effect to business common sense.

To see the full judgment in this case, click here.