In brief

  • A dispute resolution clause provided that the parties may only commence proceedings if there was a determination of damages over an amount specified in the details section of the agreement.
  • However, as the parties did not specify any amount, the court found that the dispute resolution clause did not give UXC the right to commence proceedings at all.

Summary

In The State of NSW v UXC Limited [2011] NSWSC 530,1 the court considered the proper construction of a dispute resolution clause which prevented a party from commencing proceedings if an expert makes a determination of damages exceeding a specified amount, but which amount was left unspecified. Ultimately, it found that not specifying an amount resulted in no right for the parties to commence proceedings at all.

The court also considered the enforceability of a clause which provided that an expert’s determination is final and binding. It found that the clause does not oust jurisdiction of the court as the parties remained free to commence proceedings to enforce or challenge the determination if such determination was not made in accordance with the contract.

Background

On 23 October 2008, the New South Wales Registry of Births, Death and Marriages (BDM) entered into an IT contract with UXC Limited to replace BDM’s core computing system for registration of life events, maintain the database and provide related services.

The contract contained a dispute resolution clause which provided that in the event of a dispute which could not be resolved by negotiation, that it be referred to an expert for determination. If the expert determines that one party must pay the other an amount exceeding the amount specified at the relevant item in the ‘Agreement Details’ section of the contract, then either party may commence litigation, but only within 56 days after receiving the determination. Otherwise, the parties must treat the expert’s determination as final and binding.

However, the item number in the ‘Agreement Details’ section relating to the dispute resolution clause did not specify any amount, ie the item was not filled out.

A dispute arose and pursuant to the dispute resolution clause, an expert determined that BDM was entitled to terminate the contract and recover $2,594,063 in damages.

UXC commenced proceedings challenging the determination.

Issues

The main issue was whether UXC was entitled to commence proceedings given that a party could only commence proceedings if the amount of damages exceeded an amount which was not specified by the parties. UXC argued that, on the proper construction of the dispute resolution clause, the parties had intended to specify a limit of $250,000 or, in the alternative, that the parties intended the amount to be zero.

UXC also argued that the clause providing that the expert determination was to be final and binding is unenforceable as it purports to oust the jurisdiction of the court.

Decision

Ball J accepted BDM’s submission in relation to the dispute resolution clause to the effect that as no amount was specified in the Agreement Details, the parties had no right to commence proceedings at all.

In this case, not specifying the amount over which a party may commence proceedings, whether deliberate or not, was considered to specify no amount—in other words, the parties were not able to commence proceedings whatever amount was determined by the expert.

UXC’s argument that the parties intended that the amount be $250,000 was also not accepted due to the inconsistency when considering the order of precedence of documentation.

The court also confirmed the principle that parties to a contract are generally free to identify the rights and liabilities to which the contract gives rise in the way they choose, including determination of those rights and liabilities by a third party. Such a clause was never regarded as ousting the jurisdiction of the court as the parties remained free to commence proceedings to enforce the determination or challenge it if it was not made in accordance with the contract.

Implication from the decision

This decision serves to caution parties entering into agreements that contain terms that expressly refer to a separate agreement details section. In particular, the parties should carefully go through each item and ensure blank items or fields are filled in correctly, and draft provisions to reduce ambiguity in the event such items are left unspecified.