This case illustrates the importance of contracting parties either including a full set of provisions governing the expert dispute resolution process, or alternatively expressly adopting an external set of such rules such as those published by Institute of Arbitrators and Mediators Australia. Failure to do so may result in uncertainty (and possible further dispute) about the process for resolving a dispute under the contract.
A dispute resolution clause in a consultancy agreement between the parties in connection with the construction of a commercial office building, television studios and associated facilities in Sydney for Channel 7 (Agreement):
- provided that if a dispute was not resolved by conference between the CEOs of the parties within 7 days of referral by a party, the matter was to be referred to independent expert determination;
- further provided that the expert was to be appointed by the President (NSW Chapter) for the time being of the Institute of Arbitrators and Mediators Australia (IAMA); and
- set out a number of matters which the expert was required to do or not do in making a determination; but
- critically, did not expressly incorporate the expert determination rules which are published by IAMA.
Following a dispute under the Agreement, an expert was duly appointed by the President of IAMA, who circulated a proposed Expert Determination Agreement (EDA) for execution by the parties.
Ball J in the Supreme Court of New South Wales held firstly that a conference between the CEOs was not a pre-condition to the expert determination procedure. Focussing on the words of the clause and also commercial sense, his Honour found that the key question was whether the dispute had been resolved within 7 days, which may not occur either because of a failure to resolve the dispute despite the best endeavours of the parties or a failure to meet at all. To find otherwise, would have meant that a party could defeat the expert determination procedure by refusing to meet.
A second issue concerned the terms on which the expert should be appointed, a matter on which the Agreement was silent. By contrast, the proposed EDA contained various clauses setting out the terms on which it was proposed that the expert be appointed including clauses by which the parties agreed not to subpoena the expert to give evidence or to join him to legal proceedings, and by which they released and indemnified him, including against third party claims (which were taken by the expert from the IAMA expert determination rules).
Ball J held that:
- where parties agree to appoint an expert but do not agree on the terms of appointment, they should be taken to have agreed to appoint the expert on terms that are reasonable (or alternatively, the parties are taken to have agreed to appoint the expert on the terms proposed by the expert, except possibly where such terms were unreasonable);
- there was “much to be said” for the view that, where the parties have agreed that the expert will be appointed by an appointing authority such as IAMA, “they must have impliedly agreed absent any other terms that the appointment would be on terms identified by the appointing authority”; and
- the disputed terms were taken from the IAMA rules and were reasonable, and accordingly could be validly included in the EDA.
A third issue concerned the procedure to be adopted by the expert, specifically whether he could require the production of documents. The Agreement was silent as to how the expert’s determination was to be conducted, save for requiring the expert to give due weight to submissions made within a reasonable time.
Ball J held that:
- in the absence of express terms, it was a matter for the expert to determine what procedure he should follow; and
- the clause drafted by the expert in the proposed EDA in relation to procedure was not inconsistent with the Agreement and therefore could be included.