Justice Hammerschlag of the NSW Supreme Court has preserved the integrity of agreed alternative dispute resolution (ADR) processes, in particular the enforceability of a "final and binding" expert determination.

In Lainson Holdings Pty Ltd v Duffy Kennedy Pty Ltd [2019] NSWSC 576, the parties to a building contract for a commercial development in Sydney also entered into a deed with provisions relating to ADR processes.  Clause 9(b) of the deed provided that:

"Any dispute or difference whatsoever arising out of or in connection with this contract shall be submitted to an expert in accordance with, and subject to, The Institute of Arbitrators & Mediators Australia Expert Determination Rules (Rules)."

The deed also provided that a determination of an Expert would be final and binding.  The Rules included that "the Expert shall determine the Dispute as an expert in accordance with these Rules and according to law" (rule 5.1). 

Lainson Holdings sought to circumvent the expert determination process by arguing that:

  • the reference to "according to law" in rule 5.1 required the Expert to not make any mistakes of law which affect the result;
  • the Court is entitled to interfere with an Expert's determination which involves a mistake of law; and
  • it was not bound by the Expert's determination because it involved a mistake of law which affected the result.

Justice Hammerschlag did not consider the merits of the Expert's determination, and instead dismissed the arguments on the basis that the deed providing for expert determination did not have the meaning argued for by Lainson Holdings.  The overarching principle is that "the parties will be bound if the Expert did what the Contract, on its proper construction, required him to do, irrespective of the result". 

The meaning of the words "according to law" in the Rules, when incorporated into an enforceable ADR agreement, were to be determined objectively by what a reasonable person would have understood them to mean.  In the commercial context of an ADR agreement, the phrase "according to law" did not have the same meaning that an appellate court would give it when reviewing a judgment from an inferior court.  Instead, in this context

"the words "according to law" mean in the manner which the law requires a person in the position of the Expert to go about the mandated task, so as to give it contractual efficacy; for example, honestly, without bias or collusion, and while not intoxicated.  There is no suggestion that the Expert acted in any way not "according to law" in this sense…  The construction contended for by Lainson works commercial inconvenience."

Accordingly, Lainson Holding's arguments were rejected and the ADR process was enforced