A dispute resolution clause which provided for the parties to “meet to attempt to resolve the dispute or to agree on methods of doing so” was just an agreement to agree and, as such, was uncertain and unenforceable. Contracting parties should ensure that any process for resolving disputes is specified clearly and fulsomely, to minimise the risk of it being unenforceable.
This case arose out of a dispute resolution clause in a contract for RCR Energy Pty Ltd (RCR) to supply a co-generation facility. The clause, which was a pre-condition to litigation, stipulated that “in the event the parties have not resolved the dispute… a senior executive representing each of the parties must meet to attempt to resolve the dispute or to agree on methods of doing so”. WTE Co-Generation (WTE) applied for a stay of proceedings (relating to a separate alleged breach of contract) until the dispute resolution clause was complied with.
In finding that the dispute resolution clause was uncertain and therefore unenforceable, Vickery J held that:
- at a minimum, what is needed for a valid and enforceable dispute resolution clause is to set out the process or model to be employed in a manner which does not leave this to further agreement; and
- if there are stages in the process where agreement is needed on some course of action (ie in this case, agreement as to whether to meet or agree other methods to resolve the dispute, and also agreement as to the other methods of resolving the dispute) before the process can proceed, the clause will amount to an agreement to agree, and will be inherently uncertain and unenforceable.
On this basis, the stay application was refused. However, Vickery J noted that where a dispute resolution clause is enforceable, the Court will not order specific performance (because supervision of performance pursuant to the clause would be untenable), but rather will indirectly enforce the clause by ordering that litigation proceedings be stayed or adjourned until the clause has been complied with.
See the case.