Abigroup Contractors P/L v Hardesty & Hanover International LLC - [2009] SASC 95

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Preliminary Issue)
ABIGROUP CONTRACTORS P/L v HARDESTY & HANOVER INTERNATIONAL LLC & ORS
[2009] SASC 95
Judgment of The Honourable Justice Anderson
8 April 2009
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - THE CONTRACT - CONSTRUCTION OF PARTICULAR CONTRACTS AND IMPLIED CONDITIONS - SETTLEMENT OF DISPUTES
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - ILLEGAL AND VOID CONTRACTS - EFFECT OF ILLEGALITY OR INVALIDITY - SEVERANCE
ALTERNATIVE DISPUTE RESOLUTION - REFERRAL FOR EXPERT DETERMINATION
Counterclaim by defendant seeking declaration that expert determination binding and payment of amount in determination - trial of preliminary issue of enforceability of expert determination - whether expert had jurisdiction to make determination - whether dispute resolution clause in contract void for uncertainty - whether first limb of dispute resolution clause severable.
Held: Dispute resolution procedure not followed - expert did not have jurisdiction to make determination - expert determination not enforceable - dispute resolution clause void for uncertainty - clause not severable. Declaration refused.
Laing & O'Rourke (BMC) Pty Ltd v Transport Infrastructure [2007] NSWSC 723, distinguished.
Abigroup Contractors Pty Ltd v Hardesty & Hanover International LLC [2008] SASC 369, considered.

ABIGROUP CONTRACTORS P/L v HARDESTY & HANOVER INTERNATIONAL LLC & ORS
[2009] SASC 95
Civil
ANDERSON J.
Introduction

In this matter the Full Court ordered a separate trial on the issue of whether an expert determination, purportedly made pursuant to the terms of a contract between the parties, is binding upon both parties.
The basic facts relevant to the background of this dispute can be found in the judgment of the Full Court: Abigroup Contractors Pty Ltd v Hardesty & Hanover International LLC [2008] SASC 369.
Abigroup Contractors Pty Ltd (“Abigroup”) contracted with Hardesty & Hanover International LLC (“HHI”) to provide both construction support services and design services. Certain issues arose between the parties after construction commenced and it was agreed by the parties that they would attempt to resolve these issues by referring them to a mediator. The mediation took place but was unsuccessful.
HHI claims that it then correctly invoked the process of expert determination provided for in the contract. Abigroup objected to the process because, it argued, the mediation process had by agreement replaced the process of expert determination provided for in the contract. Abigroup disputed the jurisdiction of the expert to hear and determine the matters referred to him by HHI.
Abigroup claims that what was referred to the expert did not constitute the dispute between the parties. It claims that the process was contrived and that what was presented unilaterally to the expert was a sham.
The main thrust of the argument by HHI is that it was entitled by the terms of the contract to have individual disputes determined at any time by reference to an expert for a speedy resolution of the individual issues. Further, it argues that such an expert determination is final and binding.
There have been two such expert determinations to date, with a potential third determination depending on the decision in this matter.
In order to resolve this preliminary issue it will be necessary to examine the terms of the contract generally and in particular those terms which are relevant to expert determination and alternative dispute resolution.
HHI claims that when the mediation failed it was then open to it to refer for determination whatever individual disputes it chose. HHI maintains that there was no written variation to the terms of the contract which affected its right to resort to expert determination. It argues that it was entitled, when the mediation was unsuccessful, to go to an expert serially with its individual disputes. HHI argues that there is no sham, as alleged by Abigroup.
It will be necessary to examine precisely what dispute or disputes were referred to the mediator and then to examine the nature and extent of the disputes which were later individually referred to the expert for his determination.
Background
The issues between the parties stem from the design and construction of two opening bridges spanning the Port River at Port Adelaide. The State of South Australia (“SA”) engaged Abigroup to build the bridges. Before Abigroup had been awarded the contract with SA, it engaged Hardesty & Hanover LLP (“HHL”) to design certain aspects of the bridges to enable it to tender for the contract. An agreement known as the Tender Services Agreement (“TSA”) was entered into between HHL and Abigroup.
Later, after being awarded the contract by SA, Abigroup contracted with HHI for the provision of specialist consultancy services related to Abigroup’s performance of the contractual obligations which it owed to SA. HHI was a company controlled by the same personnel who also controlled HHL. HHI was incorporated, amongst other reasons, for the purpose of this contract.
The agreement reached was known as the Consultant Services Agreement (“CSA”). A specific term of that agreement, Part 7, clause 1, was that HHL’s obligations under the earlier TSA became part of HHI’s obligations under the CSA.
Although the question in this preliminary issue is the dispute relating to the validity of expert determinations, there were earlier issues between the parties which led up to the significant issues the subject of the litigation between the parties.
Abigroup had earlier alleged deficiencies in design by HHI. These deficiencies related to what has become known as the ship impact claim. Abigroup claimed that HHI had not made sufficient provision in its design for the type of ship impact envisaged by the parties, and as a result Abigroup alleged that it was put to extra expense because of the suggested design deficiencies by HHI.
In addition to that design dispute there was a dispute in relation to consultancy fees. Abigroup claimed that it had overpaid fees and sought to recover those additional fees and it also disputed HHI’s assertion of its entitlement to additional fees for the future.
Both of those areas of dispute were referred to mediation. As I have earlier indicated, the mediation was unsuccessful. I have briefly referred to the nature of the issues which arose following the mediation in my earlier remarks. However, it will be necessary to set later out in more detail the history of the disputes as they emerged.
The issues
As the arguments on both sides were developed, the issues appeared to narrow down somewhat. It seems that there is no real dispute that the contract (CSA) by its terms does provide for serial determinations by an expert.
The issue is whether what was referred to the expert in this matter represents the actual disputes which existed between the parties and were the subject of the mediation. In other words, was the subject matter of each expert determination validly before the expert in accordance with the dispute resolution procedures of the contract? Abigroup has submitted that what was referred to the expert was part of a sham because the reference to the expert was a contrived dispute which had never been properly notified in accordance with the terms of the contract.
If the matters referred to the expert were not valid disputes which existed between the parties, then the expert did not have jurisdiction and should not have proceeded to make determinations. Accordingly any such determinations would be invalid and HHI would not be entitled to the declarations it seeks.
To decide the question of the actual disputes which existed between the parties and whether they were the same disputes which were referred to the expert requires an analysis of the background and findings of fact based on the evidence before me. The evidence is documentary.
This in turn involves a consideration of the way in which HHI purported to avail itself of the clauses in the contract relating to dispute resolution and whether it was entitled to act as it did in purporting to use those clauses for the reference of the disputes to the expert.
History of disputes
On 2 June 2004, Abigroup engaged HHL to provide Tender Phase Services for Abigroup’s bid for the design and construction of the Port River Expressway Stages 2 and 3. This project involved the design and construction of two parallel bascule bridges, one for road and one for rail. In accordance with the Tender Services Agreement (“TSA”), HHL provided a preliminary design for the bascule bridges in 2004, and Abigroup subsequently won the tender for the project in July 2005.
HHI was incorporated in June 2005, as the entity responsible for conducting Hardesty & Hanover’s international operations. Once Abigroup won the tender, HHL initially and then HHI were to provide construction support services (“CSS”) and to develop the preliminary tender design. The detailed design work commenced in 2005, and HHI began CSS in early 2006. This work was performed prior to any formal agreement between the parties for consultancy services.
In July 2006 Abigroup and HHI started negotiations to draw up the CSA to govern the provision of services by HHI to Abigroup for the project. After some months of negotiation a copy of the CSA was sent to HHI on 1 December 2006 and was executed on or around that date. Therefore considerable design work and CSS had taken place before the CSA was finally agreed.
Pursuant to the CSA, HHI was to provide the detailed design services for a lump sum fee of $2,263,558.18 and the CSS on the basis of a schedule of rates but capped at $1,025,468.40 plus $123,120.00 for disbursements. The CSS fees could only be varied by written approval by Abigroup in the form of a Change Order. Clause 6.3 of the CSA stated that any adjustment to the fees payable for CSS must be agreed prior to HHI commencing the work the subject of the request.
On 27 January 2006, not long after the CSA was executed, HHI sent two Change Order request forms to Abigroup (“CSS1” and “CSS2”) requesting an adjustment to the CSA lump sum for fees. CSS1 requested an additional $466,091 for CSS completed through to 31 December 2006. CSS2 requested an additional $704,146 for extra work done to January 2007 and in anticipation of the work required to complete the CSS to 31 August 2008.
At the time the Change Order requests were sent to Abigroup, HHI had, to that time, claimed $720,284.73 in invoiced fees for CSS, the last invoice being Invoice 6 of 29 December 2006 for $138,312.97 for the period 2 October 2006 through 8 December 2006. It is in the next invoice, Invoice 7 of 28 February 2007, that the CSA lump sum cap for CSS was exceeded, when $467,368.62 was claimed for 8 July 2006 through 19 January 2007, a period largely overlapping that in the previous invoice. This brought the total CSS fees claimed to 19 January 2007 to $1,187,653.35.
Abigroup’s response to the Change Order requests was on 14 March 2007 in an email from Mr Allen to Mr Roody of HHI. Mr Allen stated that Abigroup would have “significant difficulty” in agreeing to HHI’s claim and indicated that it had cost issues relating to HHI’s acts and omissions, being $2 million in additional steelwork, $2 million in additional ship impact protection and $2 million of additional bascule concrete works compared with the original tender design. Mr Allen stated that HHI was only required to check critical design drawings, and suggested that it was spending excessive time and money checking drawings that it was not required to. Abigroup indicated it would therefore have difficulty in agreeing to HHI’s Change Order requests. Abigroup did not consent to the request for charge orders made by HHI.
In a further email from Mr Allen to Mr Roody on 13 April 2007, Mr Allen confirmed that Abigroup had not approved any variation to the CSS fees. Abigroup’s position was that HHI was under an obligation to continue to perform the contract despite the dispute, that its design was supposed to be free of defects, and that much of HHI’s extra work was due to design defects. Abigroup conceded that some additional CSS had been done by HHI that warranted an adjustment to the fees for those services, but that as HHI requested additional fees “in the order of $1 million”, a more detailed claim needed to be provided. Again Abigroup was conveying to HHI that it was not consenting to HHI’s requests for change orders.
Before further steps could be taken to resolve the fees dispute, HHI sent Abigroup a third Change Order request, CSS3 on 28 April 2007. This was for additional CSS work that HHI anticipated would be required to complete the project. CSS3 requested an additional $384,318.00 in fees for the period 27 April to 31 August 2007. On 3 May 2007, in an email to Mr Roody, Mr Allen of Abigroup described CSS3 as a “complete shock” and stated that HHI seemed intent on checking every drawing despite earlier instructions from Abigroup not to do so. Mr Allen stated that CSS3, like CSS1 and CSS2 should be considered rejected until advised otherwise, because there was no significant change in the scope of CSS that warranted a doubling of the quantum of the fee provided for in the CSA. Each of the change order requests had now been rejected by Abigroup.
Mediation
In a letter to Mr Skelton of HHI on 14 June 2007, Mr Watson of Abigroup indicated that discussions had taken place in relation to mediating the various disputes which had by now arisen. Mr Watson suggested that HHI’s fee claims for CSS and Abigroup’s claims regarding HHI’s design performance should be the subject of a mediation. Mr Watson requested confirmation from Mr Roody, that it was HHI’s intention to mediate in lieu of the dispute resolution process provided for in either clause 8.1 or special condition 12 of the CSA. In a further letter from Mr Watson to Mr Skelton on 27 June 2007, Mr Watson again sought confirmation that the mediation would replace the dispute resolution process stipulated in the CSA. HHI did not confirm the replacement of the dispute resolution process in the CSA but stated that the mediation rendered the first phase, namely, manager’s meetings, redundant. Managers’ meetings were to be conducted following the notification of a dispute. It suggested that the second phase, being expert determination, could be replaced with a binding “adjudication procedure.”
In a letter to Mr Skelton on 6 July 2007, Mr Watson sought clarification as to the meaning of an “adjudication procedure” and the exact dispute resolution process HHI intended to proceed with. Mr Skelton confirmed that the mediation would address HHI’s claimed fees and the disputed construction phase services fees, Change Order requests CSS1, CSS2 and CSS3. As construction phase services do not include detailed design work, only fees for CSS were to be the subject of the mediation along with Abigroup’s claim that the design was defective according to the mediation agreement. However, HHI’s mediation position paper included a claim for additional detailed design work fees originating from a series of Change Order requests in March 2006, and this claim was included in the mediation pursuant to the Mediation Agreement.
Abigroup’s claim that HHI’s design performance was inadequate related to the omission of ship impact protection on the bridge piers by HHI. In an email to Mr Skelton on 2 July 2007, Mr Watson stated that the additional cost of including ship impact protection in the bridge design would be in the order of $2.278 million.
HHI’s claim for additional construction support services was detailed in an invoice sent to Abigroup on 3 August 2007 (Invoice 9A), being $860,340.95 in addition to the $1,087,653.25 it had already been paid by Abigroup for CSS services rendered between 1 December 2005 and 31 March 2007. Abigroup agreed to pay HHI $108,000 representing CSS work done from 1 April to 7 June 2007. Abigroup and HHI had also entered into a tripartite agreement with a certifier, Mr McDowell, that Abigroup would pay HHI up to $300,000.00 for CSS work done from 8 June 2007 onwards in order to allow the bridge project to continue in the lead-up to the mediation. Accordingly, Invoices 9B to 9D for work done from 1 April 2007 were included in HHI’s mediation paper but were not in dispute. HHI’s fee claims, which were the subject of the mediation, covered the period 1 December 2005 to 31 March 2007.
It was therefore Invoice 9A, in the sum of $860,340.95, which delineated for the first time the extent of any actual money claim by HHI for additional construction services. It was referred to as the “revised payment request”.
The mediation occurred on 13 and 14 August 2007 with Mr Murdoch QC as mediator. The mediation failed to resolve the dispute and on 21 August 2007 Abigroup formally rejected the claim for fees in HHI’s Invoice 9A of 3 August 2007.
Abigroup, in rejecting the request for payment of $860,340.95, referred to a lack of sufficient detail in the invoice as to the hours worked for construction support services. Specifically, Abigroup maintained that the two sheets of data which were provided showed that considerable design work had been incorrectly included as construction support services.
Abigroup further claimed that it had incurred rectification costs due to HHI’s defects and omissions in its detailed design, and reserved the right to offset these costs in accordance with the CSA.
Notice of Dispute 1
It was then not until 23 October 2007 that HHI sent a Notice of Dispute to Abigroup (“Notice of Dispute 1”) in a letter from Mr Skelton to Mr Watson. Instead of claiming the $860,340.95 in fees for the period 1 December 2005 to 31 March 2007, which was the subject of the mediation and the subject of their revised payment request, HHI claimed $275,861.15 for unpaid CSS fees, including interest, for work done from the commencement of the project (presumably 1 December 2005) to 1 December 2006 (when the CSA was executed). HHI claimed that the period to 1 December 2006 was the subject of the first dispute, because it was based on Change Order request 1 (CSS1).
In Notice of Dispute 1, HHI also claimed $159,390.00 in fees for additional detailed design work that was outside the scope of the CSA. This claim was raised in HHI’s mediation position paper and at the mediation itself, and was originally contained in Change Order requests of 24 March 2006, which have not been provided to the court. In the correspondence leading up to the mediation, claims for detailed design fees were not mentioned as being included in the mediation dispute. However, the Mediation Agreement states that the issues to be mediated were those included in the parties’ respective mediation position papers. As the detailed design fee claim was included in HHI’s position paper, it appears that it was legitimately part of the mediation dispute. The total fees claimed for both CSS and detailed design services in Notice of Dispute 1 therefore totalled $435,251.15.
HHI claimed that Notice of Dispute 1 represented the first in time of its serial chronological disputes and was loosely based on CSS1. The CSS claim was for work done prior to the execution of the CSA on or around 1 December 2006. The detailed design claim was for work done outside of the scope of the CSA and occurred before the CSA was executed and did not form part of CSS1. HHI stated that the first limb of Special Condition 12 had been replaced by the failed mediation, and indicated that the dispute would be referred to expert determination if Abigroup refused to pay the fees claimed.

Abigroup responded to Notice of Dispute 1 by stating in a letter to HHI on 5 November 2007 that expert determination was not an expeditious means of resolving the dispute, particularly because its position was that an expert determination would not be binding. Abigroup indicated that the dispute with HHI related to a claim that was greater than $2,000,000 because it included Abigroup’s ship impact claim worth approximately $2.278 million and HHI’s fees claims in CSS2 and CSS3. This would preclude the use of expert determination because of SC 12(h)(ii). Abigroup commented that if HHI intended to refer its other claims in CSS2 and CSS3 for expert determination in amounts less than $500,000.00, this was not in the contemplation of the CSA and would be an improper use of the expert determination mechanism. Abigroup argued that it would be contrary to SC 12(h)(i). HHI argued in a letter of 12 November 2007, that Abigroup’s claim could be set off against the payment of HHI’s fees, but that these were less than $500,000.00 and so fell within the enforceability threshold for expert determinations.
Despite Abigroup’s opposition to an expert determination, HHI organised the appointment of Mr Fullerton by Engineers Australia to make an expert determination regarding Notice of Dispute 1. Abigroup became aware that formal steps had been taken to organise an expert determination when it was notified of Mr Fullerton’s appointment on 11 December 2007, the day he was appointed. Although Special Condition 12.1(c) required a dispute be referred to an expert by written notice in a prescribed form signed by both parties, HHI proceeded with the expert determination without Abigroup’s signature.
Mr Fullerton decided on 31 January 2008 that he had jurisdiction to make an expert determination on Notice of Dispute 1. Mr Fullerton stated that Notice of Dispute 1 was issued in relation to CSS1. This was despite the fact that Notice of Dispute 1 related to a slightly different time period and is essentially a hybrid claim, as it includes additional detailed design work fees that were not part of CSS1. Mr Fullerton concluded that he did have jurisdiction to make an expert determination because he considered the CSS1 claim to be a separate stand-alone dispute, and that the second limb of SC 12 contemplates that disputes can be referred to expert determination as they arise. He determined that both CSS1 and the hybrid claim in Notice of Dispute 1 fell within the $500,000 threshold limit.
In response to this determination, Abigroup filed proceedings in this Court on 4 February 2008 seeking an interim injunction restraining Mr Fullerton from proceeding with the expert determination and a declaration that clause SC 12 was void. An amended summons was then filed on 11 February seeking a permanent injunction to prevent Mr Fullerton from proceeding with his expert determination. The application for the injunction was refused on 12 February 2008 by a Master on the balance of convenience.
On 28 February 2008 Mr Fullerton made his expert determination in relation to Notice of Dispute 1. Abigroup was ordered to pay HHI $330,310.02 in CSS fees and $169,529.86 for additional design work fees. This determination scraped in under the limit by $160. It was argued by Abigroup that it was over the limit in any event because of an error of approximately $21,000 made by the expert which he failed to acknowledge. Mr Fullerton found that the additional CSS and design work by HHI were legitimately required for the completion of the project, and that HHI should be compensated accordingly. Mr Fullerton concluded that the CSA was drafted to allow for the lump sum fees for CSS and for design work to be exceeded, as the schedules of fees provided a mechanism for additional fee payments.
Notice of Dispute 2
A week after receiving the expert determination in its favour, HHI sent Abigroup a second Notice of Dispute (Notice of Dispute 2) in a letter to Mr Watson on 6 March 2008. HHI indicated that it was processing its disputes in a “logical manner, following the way in which they unfolded.” HHI stated that Notice of Dispute 1 essentially related to CSS1, and Notice of Dispute 2 flowed from CSS2. Notice of Dispute 2 claimed $473,712.79 for CSS fees from January 2007 through to the end of March 2007.
On 7 March 2008, HHI and HHL filed a counterclaim in this action seeking a declaration that the expert determination of Mr Fullerton for Notice of Dispute 1 (“ED1”) is binding, and payment of the $499,839.88 in the determination. On 17 March 2008 HHI took out an interlocutory application seeking a separate trial of the preliminary issue relating to the enforceability of the expert determination of Mr Fullerton.
In an email on 13 March 2008 to Mr Marchant of Maddocks, solicitors for Abigroup, Mr Fenwick Elliot for HHI, sought to enforce ED1 and payment of Abigroup’s share of the expert’s fees. Mr Fenwick Elliot also sought payment from Abigroup for the sum claimed in Notice of Dispute 2 or agreement as to the appointment of an expert for a second expert determination. Mr Marchant replied by email on the same day stating that Abigroup would not make any of the requested payments or nominate an expert.
On 28 March 2008, Abigroup filed a Statement of Claim in relation to its ship impact and design defect claim. Abigroup sought to recover $418,566.99 in payments it had earlier made to HHI and which it claimed HHI was not entitled to under the CSA. It claimed damages of $2,939,534.13 which comprised the cost of installation of ship impact protection measures and also for measures taken to correct the claimed defects in HHI’s design. Abigroup also sought damages under the Trade Practices Act 1974 (Cth) however this is not relevant to the preliminary issue.
An application for summary judgement on the counterclaim was made by HHI on 1 April 2008. The relief sought by HHI was refused by Gray J in a judgement of 8 September 2008 and leave to appeal to the Full Court on the separate trial issue was granted by the Full Court and the appeal allowed, ordering a separate trial on the enforceability of ED1
On 26 May 2008, in a letter from HHI to Engineers Australia, Mr Fenwick Elliot sought the nomination of an expert to make a determination in regards to Notice of Dispute 2. HHI “invited” Engineers Australia to nominate Mr Fullerton as he was familiar with the general factual background of the dispute. Abigroup received a copy of this letter and sent their own letter of clarification to Engineers Australia on 29 May 2008, maintaining that the notices of dispute had no lawful basis.
On 9 July 2008, Engineers Australia appointed Mr Fullerton as expert for the determination for Notice of Dispute 2. Mr Fullerton subsequently made his determination (“ED2”) on 13 August 2008, ordering Abigroup pay HHI $453,743.89 for additional CSS fees, inclusive of interest. On 29 September 2008 HHI filed proceedings in the Supreme Court of South Australia (Action No. 1440 of 2008) seeking a declaration that ED2 was binding upon Abigroup, as well as payment of the amount of the determination and the fees for Mr Fullerton. On the same day, HHI made an application for summary judgment in that matter. The parties agree that the outcome of that application in action No. 1440 of 2008 will follow the result of the decision in this matter.
On 12 February 2009, Mr Roody of HHI sent Mr Basile of Abigroup a letter enclosing HHI’s “final progress claim.” This claim “picks up the items not covered by ED1 and ED2” and also includes the amounts the expert determined Abigroup should pay in ED1 and ED2. The claim includes fees of $42,129.55 plus $6,519.12 for CSS for the period 2 December 2006 to 8 December 2006. The sum of $90,972.70 plus $14,077.09 in interest was claimed for CSS for the period 9 December 2006 to 22 December 2006.
In total, $153,698.46 (inclusive of interest) was claimed by HHI for CSS from 2 to 22 December 2006, a period that chronologically should have been included either at the end of Notice of Dispute 1 or at the beginning of Notice of Dispute 2. Instead it appears as if it was claimed as an afterthought on completion of the project, and is likely to be the subject of a third notice of dispute if Abigroup refuses to pay.
Dispute resolution clauses in the contract
Within the CSA there are two clauses which are relevant to the manner in which this matter was referred for expert determination. Clause 8 states:
8.DISPUTE RESOLUTION
8.1Settlement of Disputes
If a dispute or difference arises between the parties in relation to any matter the subject of this Agreement (“Dispute”), any party seeking to resolve the Dispute must do so strictly in accordance with the provisions of this clause.
·          A party seeking to resolve a Dispute must notify the existence and nature of the Dispute to the other party (“Notice of Dispute”).
·          Upon receipt of a Notice of Dispute the parties must negotiate in good faith to resolve the Dispute.
If the parties fail to resolve the dispute or difference within seven (7) days after receipt by the other party of the Notice of Dispute, each party shall within a further seven (7) days nominate senior personnel to meet at a mutually convenient location.
The senior personnel shall use their reasonable endeavours to resolve the dispute or difference and failing resolution of the dispute or difference shall explore and, if possible, agree on methods of resolving the dispute or difference by other means. At any such conference each party shall be represented by a person having authority to agree to a resolution of the dispute or difference. In the event that the dispute or difference cannot be resolved to the mutual satisfaction of the parties within twenty eight (28) days from commencement of the meeting of senior personnel then either party may refer the dispute for Expert Determination administered by the Australian Commercial Disputes Centre (ACDC). The Expert Determination shall be conducted in accordance with the ACDC Expert Determination Guidelines which set out the procedures to be adopted, the process of selection of the expert and the costs involved. Those guidelines are incorporated as terms of this Agreement. The expert determination shall be final and binding provided;
(i)    neither party gives notice to the other party within fourteen (14) days of the Expert Determination that they intend to refer the matter to arbitration or litigation and;
(ii)     the amount awarded does not exceed $500,000.
Nothing in Clause 8 prejudices the right of either party to seek urgent injunctive or declaratory relief from a court in connection with a Dispute without first having complied with this Clause 8.
Despite the existence of a Dispute, each party must continue to perform its obligations under this Agreement. In particular, the Client must continue to comply with its payment obligations, except that the Client is entitled to withhold its reasonable assessment of the amount the subject of the Dispute.
Clause 9.13 of the CSA provides an order of precedence which operates within the various clauses of the contract. It places special conditions above general conditions in the order of precedence. Clause 8, as set out above, is part of the general conditions of the contract. Clause SC 12 is a special condition.
Clause SC12 is entitled “Alternative Dispute Resolution”. I set out the relevant parts:
SC12ALTERNATIVE DISPUTE RESOLUTION
In substitution of the provisions of Clauses GC 12(c) and GC 12(d) of the Agreement, within 7 days of a party receiving the notice referred to in Clause GC 12(b) of the Agreement, the Abigroup Representative and the Consultant’s Representative must meet and, in good faith, attempt to resolve the dispute or difference. If, within 14 days of this meeting, the dispute or difference is not resolved, the Division Managers (or their equivalents) of the parties must meet within 7 days of the expiry of that 14 day period and, in good faith, attempt to resolve the dispute or difference. If, within 21 days of the Division Manager’s meeting, the dispute or difference is not resolved, the General Managers (or their equivalents) of the respective parties must meet within 7 days of the expiry of that 21 day period and, in good faith, attempt to resolve the dispute or difference.
SC12.1Dispute resolution
(a)Unless otherwise agreed, if, within 14 days of the General Managers’ meeting under Clause SC12, the dispute or difference is not resolved, it must:
(i)    be dealt with in accordance with this Clause SC 12.1; and
(ii)     be determined by an independent expert in the relevant field agreed upon and appointed jointly by Abigroup and the Consultant.
(b)If, within 7 days of the end of the period referred to in Clause SC 12.1(a) Abigroup and the Consultant cannot agree on the appointment of a person to act as the Independent expert, they must appoint the person nominated (on the application by either party) by the Chairperson or other senior officer for the time being of the Institution of Engineers, Australia or his or her nominee.
(c)The dispute or difference must be referred to the expert (agreed or nominated pursuant to Clause SC 12.1(b)) by written notice in the form of Attachment 1 signed by both Abigroup and the Chief Executive Officer of the Consultant.
(d)The expert determination must be made in accordance with the rules for the expert determination process in Attachment 2.
(e)The expert must act in accordance with the code of conduct for an expert in Attachment 3.
(f)The expert:
(i)    acts at all times as an expert and not as an arbitrator; and
(ii)     may open up, review, decide again and substitute any Direction of Abigroup’s Representative under this Agreement.
(g)Abigroup and the Consultant must share equally the costs of the expert determination process.
(h)Any determination made by an expert pursuant to this Clause SC 12.1 is final and binding upon Abigroup and the Consultant except where the determination:
(i)    requires a party to pay an amount in excess of $500,000; or
(ii)     relates to a dispute or difference with respect to a Claim for greater than $2,000,000.
In which event the expert is deemed to be giving a non-binding appraisal and either party may commence litigation in respect of the dispute if it has not been resolved within 28 days of the expert giving his or her decision.
Therefore in normal circumstances clause SC 12 would take precedence over clause 8 because of the provisions of clause 9.13.
I will deal with the relevance of the clauses and the question of precedence in my summary of the arguments of both parties as to the construction of the contract as it relates to the use of the expert determination procedure. I will deal separately with the topic of the alleged sham expert determination.
HHI’s arguments
It was submitted that the contract makes clear that it is to be regarded as an entire agreement and can only be varied in writing. Mr Fenwick Elliott therefore submitted that the evidence contained in affidavits relating to matters which took place during the negotiation phase leading up to the signing of the agreement are irrelevant. He submitted that there is no ambiguity and there is no basis in this matter for any exceptions to the parole evidence rule. Therefore he argued that no extrinsic evidence is admissible. Some time has been occupied with these affidavits, both in oral argument and later by written submissions. As it happens, I have not resorted to any of the affidavit material to resolve the issues relating to the terms of the contract and therefore I do not make a ruling on their admissibility.
Clause SC 12, it was submitted, can be divided up into two sections, and it is possible to sever the first section from the rest of the clause. The first section refers to non-existent clauses in the contract and it is agreed by both parties that it is meaningless. It was submitted by HHI that clause 8 can then be used for outlining the dispute procedure, and further the balance part of clause SC 12, which relates to expert determinations, remains and can operate as intended by the parties.
It was submitted that the agreement between the parties to mediate their differences replaced only the first part of clause SC 12, that is, the staged negotiation process between representatives of each party.
Mr Fenwick Elliott accepted that the two change order requests, one for work already done, and one being an estimate for anticipated further work, are preliminary in nature and not sufficiently formal, as envisaged by the contract, to actually trigger the disputes, as he puts it. He submitted that the request for a change order is, however, “the gateway to a money claim”.
It was submitted that the first notice of dispute, given in October 2007, was given at a time after the mediation failed and after sufficient time to “let the dust settle”. It was submitted that the first notice of dispute was directed to CSS claims up to 1 December 2006 to accord with the date of the execution of the CSA.
Mr Fenwick Elliott submitted that the CSA permits serial references of disputes for expert determination. He does concede, however, that if the expert determination has proceeded without a proper reference in accordance with the terms of the contract, then the expert would have no jurisdiction.
Mr Fenwick Elliott emphasised throughout his submissions that there was nothing in the correspondence to show any agreement between the parties that the dispute which was referred to mediation should remain, as he put it, as “an indissoluble whole for the purpose of any notices of dispute”. He submitted that there were no express words which had been used to vary the contract and that no terms could be implied to the effect that if the mediation failed then the combination of disputes alleged in paragraph 55 of the statement of claim would remain as the “indissoluble whole”. He submitted that in relation to implying terms that there was no need to do this because there was no uncertainty and it was not necessary to imply any terms for business efficacy.
Mr Fenwick Elliott asserted that there was no legal impediment within the terms of the contract to prevent HHI, after the failure of the mediation, from proceeding with individual disputes by giving notices in relation to those individual disputes. In other words, merely because the mediation dealt with a combination of disputes, it was not a requirement that that same combination of disputes be regarded as “the dispute” for the purpose of referring the matter for expert determination under the terms of the CSA.
Very simply, the argument is that although there was an agreement to dispense with the first limb of SC 12, it did not amount to an agreement to dispense with the remaining provisions of the clause, and in particular the expert determination procedure.
Mr Fenwick Elliott submitted that if it were the case that the parties were not in agreement as to what role the mediation would play in the dispute resolution process, and in particular in relation to the nomination of “the dispute”, then the terms and conditions of the CSA would prevail and HHI had acted within those terms.
In answer to Abigroup’s claim for any estoppel, Mr Fenwick Elliott argued that an estoppel could not be used to deprive a party to the contract from its right to an expert determination.
In relation to the arguments of both counsel as to whether there was a sham in the referral to the expert, I will deal with that topic separately later in these reasons, as I have indicated earlier.
Abigroup’s arguments
Mr Walsh QC acknowledged that the CSA did allow for the resolution of multiple disputes on an individual basis. He stressed, however, that every such dispute must be a real dispute, as distinct from a contrived dispute.
He submitted that the dispute for the CSS fees which went to mediation was for $860,340.95 as set out in Invoice 9A. That dispute was clearly articulated between the parties and was the subject of the negotiations in the mediation. His other point was that any expert determination based on the CSS for that dispute, together with the other disputes, could not be binding because in total the limit of $2 million was exceeded.

In relation to the CSS fees alone, Mr Walsh submitted that the amount awarded in the first expert determination, namely, $160 less than the limit of $500,000, was indicative of a sham to contrive a dispute under the limits set in the CSA.
Mr Walsh further submitted that both CSS 1 and CSS 2, issued on the same date, namely, 27 January 2007, were not disputes under either clause 8 or clause SC 12. Mr Walsh submitted that they were not claims for money.
Leaving the ship impact claim to one side, Mr Walsh’s point is that the total amount in dispute for CSS was covered by Invoice 9A, prepared prior to the mediation. He submitted that what happened later was an attempt to relate both CSS 1 and CSS 2 to the later notices of dispute. This was part of the sham that is alleged.
Mr Walsh submitted that the Notice of Dispute 1 related to CSS work done through to 1 December 2006. He submitted that if the whole of December, for instance, had been taken into account the amount would have been well in excess of $500,000. He submitted that the basis for payment claimed in the notice of dispute is for hours worked whereas CSS 1 is instead based on an estimated number of hours per drawing in relation to the designs.
Mr Walsh submitted that at the time of entering into the contract, namely, 1 December 2006, the parties agreed a cap of $1,025,000 for CSS services but by 27 January 2007 it had more than doubled due to the Change Order requests.
Notice of Dispute 1, as I have indicated, does not include December 2006. Notice of Dispute 2 commences at January 2007. Mr Walsh submitted that it was no coincidence that December 2006 was omitted from both. If included in either it would have had the effect of taking the amount for the expert determinations beyond the $500,000 limit set by the contract. As Mr Walsh points out, the December 2006 claim later finds its way into what was an advance notice of proposed Notice of Dispute 3. By letter of 12 February 2009 HHI claimed approximately $133,000 (excluding interest) for CSS work done in December 2006 and indicated that if the amount was not paid it would issue Notice of Dispute 3.
Mr Walsh submits that it was inconsistent with the intention of the parties that there should be three tranches of claims spread out from October 2007 to February 2009 for work which was done in 2006 and early 2007. He submitted that it was not consistent with the intention of the parties who were desirous of achieving a speedy resolution of disputes by using the procedure prescribed in the contract. He further submitted that neither clause 8 nor SC 12 contemplated a notice of dispute being delivered after the negotiation phase. It was intended, he argued, to negotiate after the delivery of the notice of dispute in accordance with the terms of the contract.
Mr Walsh submitted that neither party, when the circumstances are looked at objectively, could ever have agreed to vary the terms of the CSA so that after the negotiation phase, (mediation in this case), the other party could divide up the claim that was disputed, and then mediated, so that several components in total fitted within the $500,000 limit of the amount for the expert determination.
Mr Walsh relied on his arguments in relation to what he described as the sham as being determinative of the issue in this preliminary hearing. In the alternative, he argued that clause SC 12 was void for uncertainty in its entirety. He argued that it was not possible to sever the first limb, as suggested by HHI.
Mr Walsh also sought to rely on affidavits which dealt with the negotiating stage to explain why it was said by Abigroup that the method of using the procedure in the contract, as HHI did, was not in the contemplation of the parties. I have already indicated that I have taken no account of the affidavits.
Mr Walsh argued that if clause SC 12 is void for uncertainty then HHI has in any event failed to follow the procedure nominated in clause 8, which then becomes the operative clause. He submitted that it failed to give any proper notice of dispute and that after the mediation failed HHI was required to invoke the provisions of clause 8, start afresh, and clearly nominate the dispute which was to be referred for expert determination should the negotiation procedure fail to resolve the matter. He said that such a procedure was the intention of the parties to the contract.
Mr Walsh further argued that in any event because of an error made by the expert, the actual determination in Notice of Dispute 1 did in fact exceed $500,000. It is suggested that this error occurred because HHI included Abigroup’s payment of $21,007.46 for expenses as part of the payments already made by Abigroup for CSS fees. Accordingly, while Invoice 9A states that Abigroup had already paid HHI $1,087,653.25 for CSS and $21,007.46 for expenses, the expert deducted $1,108,660.71 in CSS payments by Abigroup from the $1,384,039.00 in fees claimed by HHI. The amount of $499,839.88 awarded by the expert should therefore have been increased by $21,007.46, which would have made the determination exceed the $500,000.00 threshold.
Furthermore, Notice of Dispute 1 deducts from the CSS fees claimed amounts paid by Abigroup for CSS up to 18 June 2007, despite the fact that this was outside of the time period for the fees claimed. This would have caused the award by the expert to exceed the $500,000.00 enforceability threshold even further.
Mr Walsh further argued that the scope of the claim overall exceeded the $2 million provided for in the clause. In brief, it is Mr Walsh’s submission that HHI, once the mediation failed, had to nominate the dispute, which was the same one that went to mediation, and in the case of the CSS for the amount of Invoice 9A, namely, $860,340.95.
Given the view that I take regarding the enforceability of the expert determination, it is not necessary in this preliminary issue to decide the question of the alleged error by the expert, and whether it should have been corrected.
Finally, Mr Walsh argued for an equitable set-off. Because I will find that the expert had no jurisdiction to make the determinations, it is not necessary at this stage to consider the claim for an equitable set-off. Any amount included in such a claim can be taken into account, if it becomes necessary, as part of the overall assessment of damages in the trial in due course.
The alleged sham expert determination
(i) HHI submissions on sham
Mr Fenwick Elliot submitted that Dispute No 1, arising from Notice of Dispute 1, was not intended to be mistaken for something else, that HHI had made no attempt to disguise anything and that it had referred the disputes to expert determination in a logical and appropriate manner. Mr Fenwick Elliot submitted that Dispute No 1 is essentially the dispute arising out of CSS1, and that the second dispute contained in Notice of Dispute 2 arose from CSS2. Mr Fenwick Elliot conceded that there are some differences between CSS1 and ED1, due to different methods of fee calculations and dates, as well as the incorrect characterisation of some detailed design work as CSS. Mr Fenwick Elliot submitted however, that this only reduced the amount determined in ED1 by $12,223 (excluding interest), and that ED1 and CSS1 were essentially the same dispute.
Mr Fenwick Elliot characterised disputes 1 and 2 and the ship impact claim as distinct disputes that could be referred to expert determination separately. Accordingly, HHI did not artificially carve up the disputes that had been referred to mediation. They were not, he submitted, one indissoluble dispute. Mr Fenwick Elliot argued it was not appropriate to refer the ship impact claim to expert determination within Notice of Dispute 1, because it was a dispute involving HHL not HHI. Mr Fenwick Elliott may well be correct in relation to the ship impact claim. However, that does not assist him with justifying how one dispute for CSS became something quite different in two separate notices of dispute.
Mr Fenwick Elliot claimed that the referral of the mediated disputes to expert determination in the above, logical chronological manner was objected to by Abigroup simply because it was “inconvenient,” and that “it is not incumbent upon HHI to justify where it has chosen to draw the battle lines”.
(ii) Abigroup submissions on sham
I have already covered much of Mr Walsh’s submission regarding the alleged sham.
Mr Walsh submitted that the notices of disputes are shams because “they are not what they purport to be”. HHI’s conduct in issuing them was contrary to the provision in the CSA allowing for a crystallised dispute to be referred to expert determination.
Mr Walsh submitted that the CSA required HHI to deliver accurate invoices for fees, yet it delivered the two Change Order requests for an increase to the CSA lump sum CSS budget on the same day and only weeks after signing the CSA. Mr Walsh submitted that HHI delivered invoices prior to and immediately after the signing of the CSA that misrepresented what it considered its entitlement to CSS was, and did not advise Abigroup of a need to adjust the budget cap contained in the CSA.
Mr Walsh submitted that HHI’s claim for CSS crystallised in its invoices to Abigroup, and that a single fee for CSS was mediated, that fee being the amount claimed in Invoice 9A. Once the mediation failed, Mr Walsh submitted that HHI artificially divided up the amount in Invoice 9A into two notice of disputes in order to achieve a series of binding expert determinations.
Conclusions on notices of dispute
(i) CSS1 and Notice of Dispute 1
There are several differences between CSS1 and Notice of Dispute 1. The former sought a change order for an additional $466,091.00 for CSS in addition to the CSA lump sum for the period through to 31 December 2006. Notice of Dispute 1 claims fees for CSS totalling $275,861.15 (including interest) for the period through only to 1 December 2006. Notice of Dispute 1 then claims $159,390.00 for detailed design work up to 1 December 2006 based on Change Order requests made in March 2006. These design work fees were not included in CSS1 though they were raised at the mediation. I find that Notice of Dispute 1 was not a notification of a fee claim directly from CSS1 but that it was an artificial combination of claims, including design work which was not the subject of CSS1.
(ii) CSS2 and Notice of Dispute 2
CSS2 requested an adjustment to the CSA lump sum of $704,146.00 for CSS completed in January 2007 and for future work through to 31 August 2007. Notice of Dispute 2, however, claimed fees in the amount of $473,712.79 (including interest) for CSS for the period January through to the end of March 2007. Accordingly, Notice of Dispute 2 was a retrospective claim for fees for a different time period than CSS2, which sought a change to the CSA lump sum largely on an anticipatory basis. I find that the two do not align and it is not correct to regard one as the sequel to the other.
(iii) Summary
Both counsel referred me to judicial statements of what had been held in other matters to constitute a sham on the particular facts of those cases. I do not believe that it is helpful in this case to consider those definitions of a sham. A sham can take on different shades of meaning depending on the facts of the individual case.
In this matter I would prefer to describe the method used by HHI as a contrivance, even though Abigroup has pleaded a sham. A contrivance by definition – see Macquarie Dictionary, 3^rd edition – is a plan or a scheme or an expedient. To contrive is to plan with ingenuity or to devise or to invent.
Mr Fenwick Elliott makes the point in his submissions that what was done by his client was open and transparent. Something may be open and transparent but nevertheless a contrivance. I consider that this was a plan by HHI to bring a dispute within the boundaries of the expert’s jurisdiction, namely, under $500,000. It was an expedient or an invention to achieve a purpose. It is not what was intended by the parties to the contract.
The real significance of what took place is that the mediation delineated the dispute. The mediation in turn had replaced the first stage of the dispute resolution provisions contained in clause SC 12. It is the reference to the expert of something quite different from the dispute mediated which is the problem for HHI, as I see it, regardless of whether it is called a plan, a contrivance or a sham.
The terms of the contract
As I have said earlier, the contract is an entire agreement and can only be modified in writing signed by the parties. The parties in this matter agreed in writing to replace the first part of SC 12 with a mediation procedure. Correspondence was exchanged confirming this. I am referring to the first part of the clause as including the requirement for the giving of a notice of dispute and then the staged negotiation phase as distinct from the referral for expert determination.
I have decided that it is not necessary in the circumstances of this matter to consider the use of any extrinsic material to assist in relation to establishing the terms of the contract.
The terms in the CSA regarding dispute resolution were inserted at the insistence of the South Australian government. It was a requirement of the government that the contractor include specific, nominated terms as to dispute resolution in the contract which it entered into with the consultant.
The intention of the parties, as evidenced by the terms of the contract, was to provide a quick and efficient method of disposing of disputes as they occurred during the course of construction. Further, it was clearly intended that not all disputes referred to an expert should be final and binding. The CSA provided that the amount awarded by the expert could not exceed $500,000 in the case of both clauses 8 and SC 12. In the case of SC 12 there was the additional restriction that the determination could not relate to a dispute or difference for more than $2 million.
The contract makes it clear that the dispute resolution procedure must be used in strict accordance with the provisions of the clause: see clause 8.1. That requires the notification of the existence and nature of the dispute to the other party.
It was clearly the intention of the parties that any dispute had to be specifically identified in the notice served on the other side. It was not intended, and indeed it would not make any commercial sense, that a notice of dispute, once given, could be varied at the whim of one party at a later stage to include matters which were not the matters identified in the notice of dispute.
As I have indicated, the mediation in this matter replaced the first stage by agreement. The first stage is a critical part of the overall procedure which can lead ultimately to an expert determination. The mediation in this matter, by agreement of the parties, replaced the stage of the process which nominated the dispute and provided for the staged negotiation. The dispute in this matter was the dispute mediated, namely, in the case of CSS in respect of an amount of $860,340.95. When the mediation failed, the only dispute eligible for reference to expert determination on the aspect of CSS was the dispute for $860,340.95.
If HHI wished to have any dispute, other than the one which was referred to mediation, determined by an expert it was then required to follow the procedure set out in the contract and properly identify and notify to the other side the exact nature and extent of the dispute and follow the staged negotiation process in respect of that precise dispute.
In the event that clause SC 12 is void for uncertainty, then the procedure in clause 8 had to be followed. The contract requires strict compliance with the provisions of clause 8. As I have said, this requires notification of the dispute to the other side, and then negotiations in good faith to resolve the dispute. Senior personnel then become involved and take the negotiation process one step further. If that fails, then the matter is referred for expert determination.
In the way the dispute was notified the two prerequisites for reference to an expert were not complied with. The matter was therefore wrongly considered by the expert, who had no jurisdiction. HHI did not comply with the terms of the contract.
If it were necessary, I would imply a term for the purpose of business efficacy that once a dispute, under either clause 8 or clause SC 12, is notified and acted upon it is not then open to one party to change either the nature or quantum of that dispute. In particular it is not open for one party to change one dispute relating to a certain sum of money into a series of smaller and more specific disputes. However, it seems to me that even without implying such a term, the clear intention of the parties was to achieve some certainty and finality in nominating the nature and parameters of the dispute.
SC 12 void for uncertainty
The first limb of SC 12 relates to the commencement of the dispute resolution process, and it is this section where there is uncertainty because the clause refers to provisions of subclauses that do not exist. Without a commencement procedure to initiate the dispute resolution process, the latter part of SC 12 relating to expert determination cannot operate on its own. Therefore the whole of SC 12 is void for uncertainty. The commencement provision in the first limb of the clause cannot be severed from the latter expert determination section.
This case is distinguishable from Laing O’Rourke (BMC) Pty Ltd v Transport Infrastructure [2007] NSWSC 723 because in that case there was a clause relating to a negotiation procedure in the dispute resolution process that was void for uncertainty due to a good faith provision. The voidable clause lay between a valid clause relating to the commencement of the dispute resolution process via a notice of dispute, and a valid expert determination clause. The contract therefore provided for the dispute resolution process to be properly commenced, and then later for the dispute to be referred to expert determination. In this matter the dispute resolution process could not even be properly initiated. The voidable clause in Laing O’Rourke was severable from the commencement and expert determination clauses, because the dispute could be initiated and referred to expert determination without the need for the negotiation procedure.
In this matter, without a commencement procedure to initiate the dispute resolution process, the latter part of SC 12 relating to expert determination cannot operate on its own. Therefore the whole of SC 12 is void. The commencement provision in the first limb cannot be severed from the latter expert determination section.
If I am wrong regarding this and the expert determination procedure is severable in clause SC 12, then as I have indicated, it can only operate in the context of the whole contract by adopting the procedure set out in clause 8 for commencing and notifying the dispute. The first step of notifying the dispute is an essential step in the whole process of staged negotiation and ultimately the expert determination, should the negotiation process not succeed. It was not followed, as I have said earlier, and the matter was wrongly referred for expert determination.
Conclusion
When the mediation failed, it having replaced the first part of the procedure for resolving disputes, any further or new dispute had to follow the notification procedure in clause 8.
It was not contemplated by the parties that the dispute notification should come after the negotiation process. The negotiation process in this matter was the mediation.
The expert was presented with disputes which were contrived and quite different from those mediated. They were contrived to come under the limit of $500,000 to fit the terms of the contract. The expert was wrong in deciding that he had jurisdiction.
What occurred here was not in accordance with the terms of the contract designed to provide a quick and contemporaneous method of disposing of disputes as they occurred. Here, as I have indicated, the spread of claims was between October 2007 and February 2009 for work done in 2006. That is not what the parties intended as to dispute resolution when they entered into the contract.

The expert determinations are, in those circumstances, not enforceable.
I decline to make the orders sought by HHI.
I will hear the parties as to the exact orders that should be made.
I will also hear the parties on costs.