Another reminder from the NSW Court of Appeal of the care required around dispute resolution provisions - Lipman Pty Ltd v Empire Facades Pty Ltd (formerly known as Empire Glass and Aluminium Pty Ltd) [2017] NSWCA 217

Dispute resolution clauses rarely feature heavily in contract negotiations. However, given that dispute resolution provisions will only ever be read in anger, this is perhaps an unfortunate by-product of the relative optimism shared by the parties at the start of a project and the discomfort most people feel in agreeing on what to do if it all goes wrong.

The recent decision of the NSW Supreme Court of Appeal in Lipman Pty Ltd v Empire Facades Pty Ltd [2017] NSWCA 217 has provided guidance on the interpretation of commonly used provisions in dispute resolution clauses in building contracts.

In this case, the court in dismissing the appeal favoured a natural interpretation of the provisions finding that on the correct construction of the clause, Empire did hold the right to litigate in the circumstances, essentially enabling it to “appeal” an unfavourable an expert determination.

Factual background

In late 2014, Lipman and Empire entered into a contract for $3,750,000 whereby Empire agreed to supply Lipman with the design, supply and construction works for the refurbishment of a building lobby located at 580 George Street, Sydney (the Contract). Clause 42 of the Contract contained a dispute resolution mechanism which provided that the parties were to refer the matter to expert determination should they fail to resolve the dispute in negotiations. The determination of the expert was expressed in the Contract to be (amongst other things) “…final and binding, unless a party gives notice of appeal…” [emphasis added] within a required period. Clause 42.12 stated that “if the determination of the expert does not resolve the dispute then, subject to clause 42.11, either party may commence proceedings in relation to the dispute”. The dispute clauses was stated as surviving termination.

A dispute arose between Empire and Lipman, leading to the subsequent termination of the Contract. Notices of dispute were issued by the parties and the disputes were referred to expert determination. On 29 November 2016, the expert found in favour of Lipman in an amount of $106,943.63.

Empire served a “notice of appeal” together with originating process on Lipman within the time period stated in clause 42.11, seeking to re-agitate the issues considered by the expert. Lipman sought a dismissal of the proceedings submitting that the disputes between the parties had been resolved by the expert determination and it was not open to Lipman to commence proceedings.

Decision at First Instance

Lipman identified the issue of construction as whether Empire was permitted by clause 42 to litigate court disputes that had already been resolved by way of expert determination. It argued that the clause did not allow for a party to litigate unless the determination of the expert did not resolve the dispute.

In response, Empire advanced two reasons. Firstly, it argued that the party did not require clause 42.12 to invoke the common law right to challenge an expert determination. Secondly, the contract’s reference to an appeal procedure which could result in an expert determination being “reversed, overturned or otherwise changed” did not include a proceeding for a declaration of nullity in relation to the expert determination.

The primary judge agreed with the interpretation advanced by Empire, acknowledging that it was “plain that it was also important to them [the parties] to incorporate an appeal process in the mechanism they adopted”.[1] Ball J stated that the interpretation advanced by Lipman did not provide for a right of appeal at all.

Court of Appeal

In a unanimous judgment, the Court of Appeal held that Lipman had failed to demonstrate an error in the primary judge’s construction of the dispute resolution clause and dismissed the appeal.

In the application for leave to appeal, Lipman repeated the argument that had been rejected at first instance. It contended that the opening words of clause 42.12 imposed a pre-condition on the right to litigate. It submitted that the purpose of the clause was to allow for an option to litigate the dispute if; (a) notice had been given under clause 42.11 within the time period, and (b) it is found by a court or between the parties, that the determination was not in accordance with the contract.

The Court of Appeal held that Lipman’s argument would give the expression “determination of the expert” in clause 42.12 an unusual meaning and would be interpreted differently in the preceding sub-clause. Rather it applied the A Hudson[2] interpretation of “determination of the expert” as meaning determination in accordance with the terms of the contract.

The court also distinguished between the facts of the present case and Lipman Pty Ltd v Emergency Services Superannuation Board [2011] NSWCA 163. In that case, the dispute resolution clause did not have a “litigation” sub-clause similar to that of clause 42.12 and the expert determination was found to be final and binding. In the present case it was established that the parties intended, through the progression of dispute resolution mechanisms (senior negotiation, expert determination and litigation), to accept that determination would not “resolve” the dispute if either party provided notice of appeal within 15 business days.

Conclusion

In assessing a dispute resolution clause, the court in this case applied well established principles of contract interpretation in rejecting a strained interpretation of the contested provision.

This case (as was Lipman Pty Ltd v Emergency Services Superannuation Board) is a salutary lesson in the care that must be taken when drafting and interpreting dispute resolution clauses.