Aligned Services Group Pty Ltd v Citi-Con (Vic) Pty Ltd
[2022] VSC 286
•1 June 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
TECHNOLOGY, ENGINEERING AND CONSTRUCTION LIST
S ECI 2021 03348
| ALIGNED SERVICES GROUP PTY LTD (ACN 625 540 570) | Plaintiff |
| v | |
| CITI-CON (VIC) PTY LTD (ACN 143 889 678) | Defendant |
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JUDGE: | Stynes J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 5 April 2022 |
DATE OF JUDGMENT: | 1 June 2022 |
CASE MAY BE CITED AS: | Aligned Services Group Pty Ltd v Citi-Con (Vic) Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2022] VSC 286 |
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CONTRACT — Interpretation — Dispute resolution clause — Expert determination — Final and binding — Procedural non-compliance — Validity of late determination — RW Health Partnership Pty Ltd v Lendlease Building Contractors Pty Ltd [2019] VSC 353, applied — Illawarra Community Housing Trust Ltd v MP Park Lane Pty Ltd [2020] NSWSC 751, applied — Lipman Pty Ltd v Emergency Services Superannuation Board [2011] NSWCA 163, applied — Legal & General Life of Aust Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314, applied — Shoalhaven City Council v Firedam Civil Engineering Pty Ltd (2011) 244 CLR 305, applied — Cranbrook School v JA Bradshaw Civil Contracting [2013] NSWSC 430, considered — APM Group (Aust) Pty Ltd v Galwin Pty Ltd [2006] VSC 325, applied.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Joel Silver | SLF Lawyers |
| For the Defendant | Christie Jones Justin Tevelein | Eidelweisz Lawyers |
HER HONOUR:
A Issues for determination
By amended originating motion dated 15 April 2022, the plaintiff seeks various declarations supporting its position that the expert determination of Nicholas Longley (the Expert) dated 7 June 2021 (the Expert Determination) is final and binding.
The following issues arise for determination:
(a)does the dispute resolution clause (clause 16), which is in the same form in each of the subcontracts between the parties, provide for an expert determination that is final and binding?
(b)did the Expert comply with the requirements under clause 16? This issue raises two sub-issues for determination:
(i)did the Expert deliver the Expert Determination within 28 days of the referral of the dispute to the Expert?
(ii)if there has been a departure from that 28 day requirement, does that departure render the Expert Determination invalid?
(c)is the defendant liable to refund half of the Expert’s fee in the sum of $10,000 to the plaintiff?
B Background
The defendant (Head Contractor) is a commercial builder.
The plaintiff (Subcontractor) is a commercial plumbing contractor.
The Head Contractor engaged the Subcontractor to design, supply, install and commission hydraulic services and various associated works in several of their developments under separate subcontracts.
This proceeding, and the Expert Determination which is the subject of it, concerns four separate subcontracts for four different projects at the following addresses:
(a)771 Toorak Road, Hawthorn East;
(b)222 Buckley Street, Essendon;
(c)173-175 Whitehorse Road, Blackburn; and
(d)Waterfront Apartments, 2 The Crossing, Caroline Springs
(together, the Subcontracts).
Each of the Subcontracts contained identical dispute resolution provisions in clause 16:
16 DISPUTE RESOLUTION
16.1 Notification and procedure
A party claiming that a dispute or difference (a ‘dispute’) has arisen in connection with or the subject matter of the Contract shall notify the other party in writing. Such notice must state that it is a notice given pursuant to this clause 16.1 and must adequately describe the particulars of the alleged dispute
Unless agreed otherwise in writing by the other party, a party’s compliance with this clause 16 shall be a condition precedent to a party issuing legal proceedings (other than relief under clause 16.5) in relation to any dispute.
16.2 Negotiation
Within 10 Business Days of the notice referred to in clause 16.1, the dispute is to be referred to the Subcontractor’s Representative and Citi-Con’s Representative:
(a) who must meet and undertake genuine and good faith negotiations with a view to resolving the dispute; and
(b) if they cannot resolve the dispute within ten Business Days of meeting, either party shall submit the dispute to expert determination in accordance with clause 16.3.
16.3 Expert determination
If the dispute has not been resolved, within the period specified in clause 16.2 then either party shall submit the dispute (or the relevant part of the dispute) to:
(a) an expert agreed between the parties, and the expert determination is to be conducted in accordance with the rules determined by that expert; or
(b) if the parties are unable to agree on the expert within 5 Business Days of the conclusion of the period under clause 16.2, then an expert appointed by the Chair for the time being of the Resolution Institute (or any replacement or successor organisation) at the request of either party and the expert determination is to be conducted in accordance with, and subject to, the Resolution Institute Expert Determination Rules.
The expert determination must be given within twenty-eight days of the referral of the dispute to the expert.
The Resolution Institute Expert Determination Rules (ED Rules) referred to in clause 16.3(b) include the following rules:
RULE 2 Appointment of the Expert
…
3. The Nominee shall, within seven (7) days of receiving advice of his or her nomination or agreed appointment, give written notice to the parties of the time and place of a Preliminary Conference to be held in accordance with Rule 8, which the parties or their duly authorised representatives shall attend.
4. Prior to that Preliminary Conference, the Nominee may advise any conditions he or she wishes to impose (including provision of security for the fees and expenses of the Nominee) and request the agreement of the parties to such conditions.
5. On the parties agreeing to any such conditions, the Nominee shall accept the appointment and shall then be deemed to have entered on the reference as expert.
RULE 3 Agreement to be Bound
1. The parties agree that the Expert is deemed to be an expert in the subject matter of the Dispute.
2. Unless otherwise agreed in writing by the parties, the determination of the Dispute by the Expert shall be final and binding between the parties.
Under each Subcontract, a dispute arose concerning the sum of liquidated damages payable by the Subcontractor to the Head Contractor.
On 15 December 2020, the Head Contractor issued notices to the Subcontractor claiming liquidated damages from it under the Subcontracts in the sum of $778,033 (LD Claim).0F[1]
[1]All figures are exclusive of GST unless otherwise stated.
On 23 December 2020, the Subcontractor issued five notices of dispute in relation to the LD Claim pursuant to clause 16.1 of each relevant Subcontract.
On 5 January 2021, the Subcontractor sent an email to the appointed superintendent under each of the Subcontracts requesting to commence negotiations pursuant to clause 16.2. The Head Contractor did not respond to these emails.
On 20 January 2021, the Subcontractor sent a follow-up email to the Head Contractor foreshadowing its intention to refer the dispute between the parties to expert determination under clause 16.3(b).
On 30 January 2021, the Head Contractor emailed the Subcontractor stating:
·In our view, should ASG wish to agitate the dispute the subject of your notice, it should do so by commencing legal proceedings with a view to avoiding wasting time and unnecessary costs given:
othe broader disputes between ASG and Citi-Con; and
othe non-binding nature of any expert determination issued pursuant to clause 16 of the subcontract (which is clear from, amongst other things, the wording of clause 16.1 which provides that expert determination is a condition precedent to issuing legal proceedings and the fact that clause 16 does not refer to any determination as being final or binding).
·Given the above, Citi-Con will consent to ASG commencing legal proceedings without first seeking expert determination.
·Alternatively, should ASG wish to submit the dispute to expert determination through the Resolution Institute despite the above, we put you on notice that should any expert appointed seek to adopt the rule of the Resolution Institute to the effect that any determination is final and binding, such a rule is inconsistent with clause 16 of the subcontract which provides that expert determination is a precursor to litigation and would ultimately be read down by the Courts as a consequence. Accordingly, Citi-Con seeks confirmation from ASG that it agrees that any decision rendered by an expert appointed by the Resolution Institute is not final and binding, failing which Citi-Con will raise these matters with any expert you seek to appoint should Citi-Con elect to participate in any expert determination.
On 1 February 2021, the Subcontractor applied to the Resolution Institute for it to appoint an expert.
On 8 February 2021, the Resolution Institute informed the parties that it had nominated the Expert to determine their dispute.
On 10 February 2021, the Subcontractor provided various documents relating to the LD Claim to the Expert.
On 11 February 2021, the Head Contractor, by email, sought confirmation from the Expert that the expert determination process is not final and binding.
On 12 February 2021, at a meeting between the Expert and the parties, the Expert expressed their view that by virtue of the operation of rule 3(2) of the ED Rules, the expert determination would be final and binding.1F[2]
[2]Expert Determination of Nicholas Longley dated 7 June 2021 [11]–[12] (‘Expert Determination’).
On 15 February 2021:
(a)the Head Contractor informed the Expert and Subcontractor by letter that it was not prepared to participate in the expert determination process on the basis that the expert determination was not final and binding and, given the numerous disputes between the parties, the appropriate course was for the Subcontractor to commence legal proceedings without first seeking expert determination;
(b)the Expert informed the parties, amongst other things, that since he had been nominated as the expert, he would continue in that capacity unless the Subcontractor chose to accept the Head Contractor’s offer to proceed directly to litigation;2F[3] and
(c)the Subcontractor requested that the Expert proceed with the expert determination.
[3]Ibid [17]–[18]; Court Book 1961.
On 16 February 2021, the Expert provided to the parties his conditions of appointment and a proposed timetable for his determination with a view to issuing the Expert Determination within 28 days from the date the parties agreed to his conditions of appointment.
The Subcontractor signed and returned the conditions of appointment that day. However, the Head Contractor never signed them.
In Section B of the Expert Determination, the Expert set out a record of his interactions with the parties and the management of the expert determination process. Relevantly:
(a)documentation was provided to him by the Subcontractor;
(b)the Expert requested additional information from the parties in relation to each of the projects;
(c)the Subcontractor provided further information;
(d)the Expert suggested extending the timetable for his determination to allow the parties to provide further evidence regarding the LD Claim for him to consider. The Expert expressed a view that the Subcontractor had not provided sufficient material for him to properly understand the delays to the projects that were the subject of the LD Claim;
(e)the Subcontractor provided some further materials; and
(f)the Head Contractor maintained that it was not taking part in the expert determination process, although it did attend meetings that the Expert held.
On 7 June 2021, the Expert delivered his Expert Determination in which he found the Subcontractor liable to the Head Contractor for liquidated damages in the amount of $155,746.58.3F[4]
[4]It is unclear whether this amount is inclusive or exclusive of GST. See Expert Determination (n 2) [421]; Court Book 2041.
The Expert determined, amongst other things, that:
(a)the Expert Determination is final and binding;
(b)clause 16 of the Subcontracts requires the expert determination process to be completed within 28 days from the referral of the dispute to the expert;
(c)the 28 day period starts to run from the date on which the parties agree to the expert’s conditions of appointment, and if that is not the same date, the last date that one of the parties agrees to the conditions of appointment;
(d)as the Head Contractor never accepted or signed the Expert’s conditions of appointment, the 28 day period for the issue of the Expert Determination had not started to run;4F[5] and
(e)the Expert was still entitled to conduct the process and issue its Expert Determination before the parties had agreed to their conditions of appointment, as these matters only affected the timing of when the 28 day period would start to run.5F[6]
C Does clause 16 provide for an expert determination that is final and binding?
[5]Expert Determination (n 2) [93].
[6]Ibid [94]–[95].
C.1 Applicable legal principles
The principles of construction applicable to a dispute resolution clause have been conveniently set out by Riordan J in RW Health Partnership Pty Ltd v Lendlease Building Contractors Pty Ltd:6F[7]
[7][2019] VSC 353 [32]–[33].
Dispute resolution clauses are construed using the same principles that apply to other commercial contracts.7F[8] To determine the meaning of the terms of a commercial contract, the Court will ask the question: ‘What would a reasonable business person have understood those terms to mean?’8F[9] For the purpose of answering that question, ‘the reasonable business person [is] placed in the position of the parties’,9F[10] and the Court applies the following principles:
[8] ACD Tridon Inc v Tridon Australia Pty Ltd [2002] NSWSC 896, [112]-[136] (Austin J); Rinehart v Hancock Prospecting Pty Ltd (2019) 267 CLR 514, 534 [44] (Kiefel CJ, Gageler, Nettle and Gordon JJ).
[9]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 656-7 [35] (French CJ, Hayne, Crennan, and Kiefel JJ) (‘Electricity Generation’); Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116 [47] (French CJ, Nettle and Gordon JJ) (‘Mount Bruce’).
[10]Ecosse Property Holdings Pty td v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544, 551 [16] (Kiefel, Bell and Gordon JJ) (‘Ecosse’).
(a)The terms are construed objectively and the subjective intentions of the parties are irrelevant.10F[11] A court ‘cannot receive … evidence from one party as to its intentions and construe the contract by reference to those intentions’.11F[12]
(b)The Court will consider not only the text and the ordinary meaning but also:
(i)the context, being the entire text of the contract including matters referred to in the text of the contract; and
(ii) the commercial purpose and object of the contract.12F[13]
The identification of the commercial purpose and object of a contract ‘presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating’.13F[14] For this purpose, the Court may have regard to the surrounding circumstances known to the parties.14F[15] It is also entitled to assume ‘that the parties intended to produce a commercial result’;15F[16] and will avoid a construction that renders it ‘commercial nonsense or working commercial inconvenience’.16F[17]
[11]Ibid.
[12]DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423, 429 (Stephen, Mason and Jacobs JJ).
[13]Eureka Operations Pty Ltd v Viva Energy Australia Ltd [2016] VSCA 95, [45]–[47] (Santamaria, Ferguson and McLeish JJA).
[14]Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989, 995–6 (Lord Wilberforce) cited in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 350 (Mason J) (‘Codelfa’) which in turn was cited in Royal Botanical Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45, 52–3 (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ) and Electricity Generation (n 9) 656-7 [35] (French CJ, Hayne, Crennan, and Kiefel JJ).
[15]Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179 [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).
[16]Ecosse (n 10) 551 [17] (Keifel, Bell and Gordon JJ).
[17]Zhu v Treasurer of New South Wales (2004) 218 CLR 530, 559 [82] (Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ) cited in Electricity Generation (n 9) 656-657 [35] (French CJ, Hayne, Crennan and Kiefel JJ); Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85, 111 [78] (Gageler, Nettle and Gordon JJ).
A dispute resolution clause is to be construed so as to avoid making commercial nonsense or working commercial inconvenience.17F[18] Accordingly, preference is to be given to a construction supplying a congruent operation to the various components of the whole of the clause.18F[19]
[18]Illawarra Community Housing Trust Ltd v MP Park Lane Pty Ltd [2020] NSWSC 751, [44] (Hammerschlag J) (‘Illawarra’) citing Codelfa (n 14) 350-352 (Mason J) and Mount Bruce (n 9) 116 [46]-[47] (French CJ, Nettle and Gordon JJ).
[19]Ibid.
With this preference in mind, the construction of a dispute resolution clause is approached liberally and not narrowly.19F[20] This interpretation assumes that parties are unlikely to have intended multiple venues or occasions to resolve their disputes unless they say so.20F[21]
[20]Illawarra (n 18) [45] citing Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways (1996) 39 NSWLR 160; Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45; Inghams Enterprises Pty Ltd v Hannigan (2020) 379 ALR 196, 211 [59] (Bell P).
[21]Lipman Pty Ltd v Emergency Services Superannuation Board [2011] NSWCA 163, [8] (Allsop P).
Where expert determination is agreed upon and the result is specified to be final and binding, a court cannot review the determination other than to decide if the expert determination was in accordance with the terms of the contract.21F[22]
[22]See Legal & General Life of Aust Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314, 335-6 (McHugh JA) cited in Australian Vintage Ltd v Belvino Investments No 2 Pty Ltd (2015) 90 NSWLR 367, [74] (Bathurst CJ). See also Shoalhaven City Council v Firedam Civil Engineering Pty Ltd (2011) 244 CLR 305.
C.2 Submissions
The Subcontractor submitted that the Expert Determination was final and binding for the following reasons:
(a)clause 16 of the Subcontracts reflects the parties’ agreement that disputes would be resolved using the informal process in clause 16 and not by extensive and expensive litigation;
(b)there are two pathways through expert determination. Clause 16.3(b) is the default position. It applies where the parties are unable to agree on an expert, resulting in the appointment of an expert by the Chair of the Resolution Institute and the application of the ED Rules;
(c)an expert determination conducted under clause 16.3(b) is to be conducted in accordance with the ED Rules, which are expressly incorporated by reference. The Subcontracts should be interpreted consistently with the ED Rules. The Expert Determination is final and binding by operation of rule 3(2) of the ED Rules. The parties could have expressly excluded the operation of rule 3(2), but chose not to;
(d)if the parties agree on the expert and proceed to expert determination under clause 16.3(a), then whether or not the expert determination is to be final and binding depends upon the rules to be adopted by the expert;
(e)where an expert determination has been provided for, it may be assumed that the parties intended for disputes to be resolved quickly and informally. That assumption should inform the Court’s construction of clause 16;
(f)the phrase ‘condition precedent to a party issuing legal proceedings’, as it appears in clause 16.1, does not reserve a contractual right for a party to proceed to litigation. That phrase should be understood in the context of the parties’ agreement to apply the ED Rules, including rule 3(2), which provides for a final and binding expert determination; and
(g)a final and binding expert determination can be a condition precedent to litigation where the scope of the subsequent litigation is understood to be limited to a form of review to decide if the expert determination was properly undertaken in accordance with the terms of the contract.
The Head Contractor submitted that the Expert Determination was not final and binding for the following reasons:
(a)clause 16 provides for an informal and expeditious dispute resolution procedure which the parties must comply with as a condition precedent to exercising their right to commence legal proceedings;
(b)the text of clause 16 is clear and unambiguous. It expressly enshrines the right to issue any legal proceedings following the completion of the informal dispute resolution procedure;
(c)the object and context of the dispute resolution procedure prescribed by clause 16 and the commercial purpose of the Subcontracts further support the parties’ intention that the dispute resolution procedure was no more than a condition precedent to legal proceedings. Relevantly:
(i)the Subcontracts are sophisticated commercial building contracts with a combined value of many millions of dollars;
(ii)the nature of the Subcontracts and associated works is such that where disputes arise, they may be complex and of a highly technical or legal nature;
(iii)the dispute resolution procedure applies to all disputes arising under the Subcontracts; and
(iv)as construed by the Head Contractor, the dispute resolution procedure is informal, expeditious and insufficient to meaningfully address complex disputes, particularly in light of the tight timeframes imposed by clause 16. The strict, short timeframes imposed on the parties and the expert are imposed on every dispute, no matter how complex or technical;
(d)to the extent that the ED Rules are inconsistent with clause 16, they should be rejected;
(e)in any event, rule 3(2) of the ED Rules provides that expert determination is only final and binding where the parties have not ‘otherwise agreed in writing’. In this case, the parties have otherwise agreed in writing; and
(f)the construction advanced by the Subcontractor results in a commercial nonsense whereby an expert determination under clause 16.3(b) (where the parties cannot agree on an expert) would be final and binding as a consequence of the application of the ED Rules, whereas an expert determination under clause 16.3(a) (where the parties do agree on an expert) would not be final and binding but would form part of the condition precedent to the parties commencing legal proceedings.
C.3 Consideration
Clause 16.1 provides that each of the following steps is to be a precondition to either party commencing legal proceedings in relation to any dispute arising under the Subcontracts:
(a)notification, provided for in clause 16.1;
(b)negotiation, provided for in clause 16.2; and
(c)expert determination, provided for in clause 16.3.
There are two pathways through expert determination under clause 16.3:
(a)clause 16.3(a), where the parties agree on the appointment of an expert; or
(b)clause 16.3(b), where the parties are unable to agree on an expert.
It is common ground that the Expert Determination proceeded under clause 16.3(b).
On the Subcontractor’s construction of clause 16, it is only where the parties are unable to reach an agreement on the expert, and the expert determination proceeds under clause 16.3(b) and the ED Rules, specifically rule 3(2), that the expert determination will be final and binding.
That is, on the Subcontractor’s construction of clause 16, different dispute resolution procedures apply to different disputes not by reference to the quantum or subject matter of the dispute for example, but as a result of whether or not the parties could agree on an expert. As a result, one party could unilaterally force a dispute to go to a final and binding expert determination simply by withholding agreement in relation to the appointment of an expert.
Such a construction is not commercially sensible. I do not accept that a reasonable business person would have understood clause 16 to operate in such a way.
In my view, when properly construed, clause 16 provides for notification, negotiation and non-binding expert determination as preconditions to legal proceedings. Such a construction is consistent with the words of clause 16.1, makes commercial sense, and is supported by the following matters:
(a)it is consistent with the parties determining the status of the expert determination by agreement rather than a failure to agree;
(b)it results in all disputes arising under the Subcontracts being dealt with procedurally in the same way. It makes no sense to assume, absent express words, that the parties intended certain types of disputes to be dealt with procedurally in one way, and other types of disputes to be dealt with in another;22F[23]
(c)it accords with the tight timeframe imposed on the expert determination. While this factor is not determinative, it is consistent with a construction providing for a speedy, informal alternative dispute resolution process aimed at avoiding, or otherwise minimising, the time and costs involved in full-blown litigation;
(d)rule 3(2) of the ED Rules (which provides for a final and binding expert determination) is not expressed in absolute terms, but is expressed to be subject to any written agreement between the parties. Clause 16 is such a written agreement; and
(e)if the expert determination was intended to be final and binding, there is a lacuna in the Subcontracts about what happens if the tight timeframe for delivering the determination is not met by the expert.
[23]Illawarra (n 18) [63].
In my view, a reasonable business person with regard to those matters would understand clause 16 to provide a speedy, non-binding dispute resolution procedure that is well suited to facilitating settlement negotiations or otherwise narrowing issues in dispute ahead of litigation.
D Did the Expert comply with the requirements under clause 16?
The following issues are raised for determination:
(a)did the Expert deliver the Expert Determination within 28 days of the referral of the dispute to the Expert as required by clause 16.3?
(b)if there has been a departure from that 28 day requirement, does that departure render the Expert Determination invalid?
D.1 Submissions
The Subcontractor submitted that:
(a)the Expert Determination was not delivered late:
(i)under clause 16.3, it was required to be delivered within 28 days of the referral of the dispute to the expert;
(ii)‘referral of the dispute’ is not defined in the Subcontracts;
(iii)sub-rule A3(5) of the ED Rules provides that:
Where the parties agree on the conditions advised by the Nominee, then the Nominee shall notify the parties in writing within 2 days of his or her acceptance of the appointment as Expert. On acceptance of the appointment, the Nominee shall be deemed to have entered on the reference as Expert.
(iv)having regard to sub-rule A3(5), ‘referral of the dispute’ means the time when an agreement is formed between an expert and one or both of the parties that permits the expert determination to proceed; and
(v)the referral of the dispute occurred on 7 June 2021, the date the Expert Determination was delivered. On that date, the Expert waived his previous requirement for the Head Contractor to execute his conditions of appointment or pay his fees. His delivery of the Expert Determination without the Head Contractor’s agreement was an acceptance by him of the Subcontractor’s implied counter offer that the expert determination proceed without the Head Contractor’s agreement in exchange for the Subcontractor’s payment of the lesser fee of $20,000.
(b)In any event, as nothing is stated in the Subcontracts, the Court should conclude that the parties did not intend for late determination to be anything beyond an irregularity. Suggesting otherwise calls for the re-authoring of the parties’ bargain;
(c)The Court ought not assume that the parties intended to give up the benefits of the Expert Determination and be compelled to repeat that process, being a condition precedent to litigation under clause 16. There is value in the product whether it is delivered late or not, and that value ought not be lost absent express words;
(d)McDougall J’s observations concerning the Building and Construction Industry Security of Payment Act 1999 (NSW) are apposite where His Honour stated:23F[24]
To my mind, it would be quite extraordinary if the legislature intended that a builder or subcontractor who had got through the various hurdles that the [NSW] Act imposes, in the path of obtaining a successful determination, up until the point of receipt of the adjudicator’s reasons, should be disqualified from the benefit of a determination in its favour simply because the adjudicator did not comply with the statutory time limit.
[24]Cranbrook School v JA Bradshaw Civil Contracting [2013] NSWSC 430, [63] (McDougall J).
The Head Contractor submitted:
(a)the Expert Determination, having been delivered more than 28 days after the referral of the dispute to the Expert, was not binding; and
(b)the requirement that the Expert Determination be given within 28 days was an essential component of the parties’ agreement.
D.2 Consideration
D.2.1 Did the Expert deliver the Expert Determination within 28 days of the referral of the dispute to the Expert?
According to clause 16.3, the Expert Determination was required to be ‘given within twenty-eight days of the referral of the dispute to the expert’.
By 8 February 2021, the Expert had been nominated by the Resolution Institute and the parties had been informed of his nomination.
On 16 February 2021, the Expert issued his conditions of appointment and proposed a timetable providing for the delivery of the Expert Determination within 28 days. He identified Day 0 of the 28 day timetable as the date on which the parties agreed to his conditions of appointment. The Subcontractor signed and returned the conditions of appointment on that day. The Head Contractor never signed them.
Notwithstanding that he had no response from the Head Contractor, the Expert continued to embark on the steps required to determine the issues in dispute. Significantly, on 6 March 2021, the Expert emailed the parties noting the deadline he had identified in his timetable for the Head Contractor to provide documents. He stated that he had not received any submissions or documents from the Head Contractor but informed the parties that he would, nonetheless, review the documents provided by the Subcontractor and then:24F[25]
(a)provide a list of issues to be determined;
(b)make any requests for further documents; and
(c)ask any further questions requiring clarification from the parties.
[25]Expert Determination (n 2) [24].
Notwithstanding that the Head Contractor did not accept the Expert’s conditions of appointment, it is plain that the Expert entered on the reference from around 6 March 2021, if not earlier. The fact that one party might choose to stand out from the process in this way does not mean that the Expert was unable to proceed.25F[26]
[26]APM Group (Aust) Pty Ltd v Galwin Pty Ltd [2006] VSC 325, [53], [56] (Hansen J).
I disagree with the Expert’s position as recorded in the Expert Determination that, absent the Head Contractor’s acceptance of the conditions of appointment, time under clause 16.3 did not start to run. Such a construction would result in the Expert having an unlimited amount of time to deliver the Expert Determination so long as one party refrained from accepting their conditions. Such a construction is contrary to the express terms of clause 16 and its objective purpose of facilitating a speedy, informal alternative dispute resolution process. In my view, the more harmonious and commercially sensible construction of clause 16 is that the 28 day limit was intended to commence from when the Expert first entered on the reference as the expert, determined in fact or by reference to the deeming provision in sub-rule A3(5) of the ED Rules. As stated above, I have determined that the Expert entered on the reference from around 6 March 2021, if not earlier.
There was no contractual mechanism in any of the Subcontracts for an extension of time for the provision of the Expert Determination. Of course, the parties were free to agree to an extension, but did not do so.
The Expert Determination was handed down on 7 June 2021, well after the 28 day time limit imposed by clause 16.3. Accordingly, I find that the Expert Determination was not delivered within 28 days of the referral of the dispute to the Expert.
D.2.2 If there has been a departure from the 28 day requirement, does that departure render the Expert Determination invalid?
I am not required to consider whether or not the delay in the delivery of the Expert Determination prevented either party from proceeding to litigation.
I am also not required to consider whether or not the delay in the delivery of the Expert Determination rendered it non-binding. I have already determined that it is non-binding.
Instead, I must consider whether the non-binding Expert Determination, which the parties now have in hand, is valid. It is an important issue because if I were to find that the Expert Determination is invalid, unless the dispute has resolved, the parties would be compelled to repeat the expert determination process prescribed by clause 16.
The Subcontract is silent in relation to the consequences of the Expert Determination being delivered late.
Whether or not the late delivery of the Expert Determination renders it invalid requires me to determine the parties’ objective intentions.
Having regard to:
(a)the purpose of clause 16; and
(b)the consequences for the parties if the Expert Determination were rendered invalid by late delivery,
I have concluded that the late delivery of the Expert Determination does not render it invalid.
Clause 16 provides for a speedy, informal alternative dispute resolution process as a precondition to litigation with the aim of facilitating a negotiated settlement or otherwise narrowing issues in dispute. There is no suggestion that the Expert Determination was defective in any way other than the fact it was late. It seems highly unlikely the parties intended that, having expended time and money going through this process to the point of receiving an expert determination, they would be deprived of the benefit of its contents and its standing as the final step in the mandated dispute resolution process.
E Is the Head Contractor liable to refund the Subcontractor for half of the Expert’s fee in the sum of $10,000?
Rule 13(2) of the ED Rules states that subject to contrary agreement, the parties to an expert determination ‘shall be jointly and severally liable for the costs of the Process, and shall pay those costs in equal shares’. Rule 1 of the ED Rules defines the ‘costs of the Process’ to include, among other things, the fees of the expert.
It is the Head Contractor’s position that if the Expert Determination is valid, it does not dispute its obligation to pay for half of the Expert’s fee in the sum of $10,000. Having regard to the terms of rule 13(2), this is a sensible concession.
F Orders
I propose to dismiss the Subcontractor’s application and order the Head Contractor to refund half of the Expert’s fee in the sum of $10,000 to the Subcontractor. I will hear from the parties in relation to the form of order and costs.
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