This case demonstrates the importance of clearly drafted contractual dispute resolution regimes. In particular, before including a separate regime to deal with a specific type of dispute, parties should consider the risk of uncertainty in relation to which regime is to apply to a particular dispute.
The case involved an agreement for waste services between WSN Environmental Solutions Pty Ltd (WSN) and four local government councils (Councils) (Agreement). The Agreement contained 2 separate dispute resolution regimes. One was a general dispute resolution regime that required negotiation, followed by mediation and then arbitration. The other applied to “variation circumstances” which included reasonably unforeseeable events that resulted in a demonstrable increase in costs to WSN and that the parties agreed should constitute a variation circumstance. This regime required negotiation, and failing negotiation, expert determination.
The waste facility constructed by WSN ended up producing an “odour footprint” that was wider and stronger than anticipated. As a result, the Councils decommissioned the site and transported the waste to a different site for processing. WSN claimed that the odour footprint was not capable of being foreseen and resulted in a demonstrable material increase in costs, and was thus a “variation circumstance”. The Councils disagreed.
The Councils argued that while questions of quantum in relation to variation circumstances (Quantum Question) should be referred to expert determination, in circumstances where the parties could not reach agreement that a variation circumstance applies (Threshold Question), either party can invoke the general dispute resolution regime.
Sackar J rejected the Councils argument, finding that:
- it was clear from the language used in the Agreement that the parties had intended to create 2 distinct self-contained dispute resolution regimes;
- the drafting of the “variation circumstances” clause did not seek to divide up the process between two decision makers; and
- separating the Threshold Question from the Valuation Question would make the dispute resolution process extremely cumbersome and commercially inconvenient,
and declared that the expert determination process under the “variation circumstances” regime was to apply.