In the recent case of Douglas Harper v Interchange Group Ltd the court decided, amongst other things, that the claimant’s claims in respect of underpaid commission failed because he had failed to invoke the dispute resolution mechanism set out in the contract. The contract provided for claims to be raised in a specified period and referred to expert determination if they could not be resolved. The claimant failed to follow the prescribed procedure and could not now advance the claims in the court. The case provides a clear warning that contractual dispute resolution methods must be strictly adhered to in order to avoid the possibility that the claims will become barred.
Expert determination is a binding method of resolving disputes usually relating to technical or valuation issues. It may be specifically provided for in contracts as part of a dispute resolution clause.
On 22 April 2006, the parties entered into an Asset Sale Agreement (ASA) pursuant to which the claimant sold his computer software business to the defendant. Under the ASA, the claimant was entitled to receive commission on specified transactions. The ASA provided for the manner in which commission should be finalised and paid. It also contained a provision for expert determination if the commission payments could not be agreed.
The defendant provided monthly commission statements between June 1996 and 1999. On several occasions the claimant made general comments and queries about the statements received. In May 1997, the claimant wrote to the defendant alleging that he was being underpaid commission on certain transactions. The defendant responded by indicating that any dispute should be dealt with using the mechanism prescribed in the contract. In 2002, the claimant’s solicitors wrote to the defendant with draft particulars of claim which sought to recover commission on certain contracts at a higher rate than set out in the commission statements. In 2005, the claimant issued proceedings claiming, amongst other things, a higher rate of commission on certain transactions.
The judge decided that on the construction of the contract, the claimant was not entitled to commission at the higher rate. Having decided on this point, it was not strictly necessary for the judge to consider the other issues. However, since they had been fully argued he gave judgment on them.
The most relevant point is that the judge decided that the claimant was precluded from recovering the sums claimed because he had failed to invoke the contractual dispute resolution mechanism. This mechanism required any objection to the commission payment to be raised within 28 days. The parties then had a further 28 days to resolve the issue, failing which it would be referred to expert determination. The general comments and queries made by the claimant at various times did not satisfy the mechanism. Nor did the issue raised in May 1997 as it was not related to a particular statement. Having failed to invoke the contractual dispute mechanism, the claimant was not now entitled to pursue the claims for commission.
The case provides a clear warning that where the contract provides for a dispute resolution mechanism it should be strictly adhered to. When including such clauses in a contract you should:
- Consider whether any contractual limitation period provides a realistic timetable for the submission of claims;
- Ensure that you fully understand the implications of agreeing to expert determination or any other prescribed method of dispute resolution.