Where possible, the Court will hold parties to their contractually agreed dispute resolution procedures and it may order a stay of proceedings to ensure that parties comply with such procedures, before allowing recourse to legal proceedings.  Contracting parties should take care to ensure that their intentions are accurately reflected in the drafting of their dispute resolution clauses and consider whether particular types of dispute should sit outside any dispute resolution regime.

Downer EDI Mining Pty Ltd (DEM) and Wambo Coal Pty Ltd (Wambo) entered into an operation agreement for the provision of services relating to the maintenance of Wambo’s plant and equipment. After Wambo refused to make payments owing under the contract, DEM brought proceedings alleging breach of contract.

Wambo argued that the proceedings should be stayed because the parties had not complied with the contractually agreed dispute resolution procedure. The contract provided that the parties were to attempt to resolve their disputes by means of:

  • an escalating negotiation process, or failing that;
  • expert determination (for a claim of less than $1 million in any one year and in certain other circumstances); or
  • litigation only if the claim is not resolved by the expert within a specified timeframe or if there is manifest error in the expert’s decision (or for a claim in excess of $1 million in any one year).

DEM in turn argued that the dispute resolution procedure was void because it was uncertain or because compliance with it would be futile due to Wambo’s demonstrated intransigence on the issue in dispute.

The Court firstly affirmed existing case law that, where possible, Courts will construe parties’ dispute resolution procedures in accordance with their intentions and that there is a heavy onus on a party opposing a stay of proceedings to persuade the Court that the proceedings should proceed and so preclude the contractual mode of dispute resolution.

Was the dispute resolution procedure uncertain?

Clause 46.3 of the operation agreement required that within 10 days after exchange of a dispute notice, the Project Review Group (PRG) would meet and “attempt to resolve” the dispute, and that if the dispute was not resolved within 5 business days, the Business Review Group (BRG) would then meet and use its best endeavours to resolve the dispute. Failing resolution by the BRG, the dispute would then be escalated to the relevant CEOs.

The Court rejected the following arguments by DEM that the dispute resolution procedure was uncertain:

  • it did not provide for a specific mechanism to deal with the possibility of a meeting by the PRG or BRG not being able to be held within the specified time – The Court found that the parties could have simply amended clause 46.3, or possibly severed the clause;
  • there was a hiatus in the procedure because clause 46.3 did not expressly provide a time frame within which the BRG was to meet – The Court found that it could be implied that the BRG was to meet within a “reasonable time” after the PRG failed to resolve the dispute; and
  • the requirement that the PRG “attempt to resolve” the dispute lacked a readily ascertainable objective standard – The Court found that the question of whether an attempt had been made was capable of assessment.

Was the dispute resolution procedure futile?

DEM argued that given that parties had previously held three informal meetings, none of which resulted in the dispute being resolved, compliance with the contractual procedure was unlikely to resolve the dispute.  However, the Court noted that these meetings had not involved the PRG or BRG and that it was still possible that the parties, through a formal process of negotiation, would be able to reach an agreed position.

As a result, the Court ordered that the proceedings be stayed until the parties complied with the contractual dispute resolution procedure.

See the case.