Elcom Collieries Pty Ltd v Comserv Pty Ltd

[2005] NSWSC 1083

CITATION:	Elcom Collieries Pty Ltd v Comserv Pty Ltd [2005] NSWSC 1083
HEARING DATE(S):	17/10/05
JUDGMENT DATE :	26 October 2005
JUDGMENT OF:	Gzell J
DECISION:	Declarations that deed not terminated and it and the determination are binding on the parties.

CATCHWORDS:	CONTRACTS - General Contractual Principles - Construction and Interpretation of Contracts - Whether Deed for Expert Determination by Neutral Expert, binding on the parties was terminated before the neutral expert's determination issued - No matters of principle
PARTIES:	Elcom Collieries Pty Ltd - Plaintiff Comserv Pty Ltd - Defendant
FILE NUMBER(S):	SC 4045/05
COUNSEL:	Mr I V Gyles - For the Plaintiff Mrs Axford - Defendant in Person
SOLICITORS:	Clayton Utz Lawyers

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

GZELL J

WEDNESDAY 26 OCTOBER 2005

4045/05 ELCOM COLLIERIES PTY LTD v COMSERV (NO 1727) PTY LTD

JUDGMENT

The issue

1 Comserve (No 1727) Pty Ltd is the owner of commercial premises containing three shops at Chain Valley Bay in New South Wales. Comserv brought proceedings in the District Court against Elcom Collieries Pty Ltd claiming damages for the effects of subsidence upon its building, allegedly caused by underground mining operations carried on by Elcom.

2 Consequent upon an order of the District Court that the parties participate in a process of alternative dispute resolution, a deed for expert determination by a neutral expert was executed by Comserve, Elcom and Geoffrey Andrew Markham, the neutral expert.

3 Mr Markham delivered his determination to the solicitors for Comserv on 15 March 2005. The issue is whether Comserv had, prior to that event, terminated the deed.

The deed

4 By cl 3.1 of the deed, Mr Markham was to determine the agreed issues. They were defined in Item 5 in Sch 1 as whether the subject property suffered from all or any of the damage identified in specified reports, whether that damage was caused by subsidence, what rectification or repair work was reasonably necessary or required to deal with the identified subsidence damage so as to restore the subject property to the condition it would have been in but for the identified subsidence damage, and what were the reasonable costs of that necessary rectification or repair work.

5 In determining these matters, Mr Markham was to act as an expert and not as an arbitrator. Clause 6.2(c) provided:

“The Neutral Expert must, in discharging his obligations under this Deed:
…
(c) act as an Expert and not as an Arbitrator;”

6 Clause 6.2(g) required Mr Markham to act with expedition with a view to making a written determination available to the parties within a specified time unless extended. It was in the following terms:

“The Neutral Expert must, in discharging his obligations under this Deed:
…
(g) act with expedition with a view to making a written determination available to the parties within the time period specified in Item 8 of Schedule 1, unless otherwise agreed between the parties in writing.”

On or before 14 February 2005 was specified in Item 8.

7 Clause 10.1 and Item 10 in Sch 1 provided that Mr Markham’s determination was final and binding on all parties for the purposes of the ADR process and the substantive District Court proceeding.

8 Clause 15.1 provided that the deed might be terminated by Comserv or Elcom in specified circumstances. Those circumstances included the following:

“This Deed may be terminated, by either the Plaintiff or the Defendant, if the Neutral Expert:
…
(c) commits any proven act of dishonesty or, by wilful act or omission or gross neglect, behaves in a manner contrary to the terms of this Deed;
…
(f) fails to observe and fulfil any of the substantive terms of this Deed;
….”

The Background

9 On 1 November 2004, Mr Markham wrote to the solicitors for Comserv and Elcom suggesting that the parties consider settling the matter to avoid further costs. He said:

“Following completion of the view, I suggested that the parties may wish to have some discussions to see if a resolution can be reached ahead of the determination in mid-February 2005. If a settlement is reached, it would save further costs of some of experts (attending a possible conference), the Neutral Expert’s costs as well as subsequent legal costs back in Court.
The parties should appreciate that the volumes of evidentiary material in this matter are considerable, and that this will reflect in the final cost of the expert determination.
For the parties’ information, the Neutral Expert’s costs and disbursements to close of business on 29 November 2004 ( sic ) amount to $7,980.54.”

10 On 19 November 2004 the solicitors for Comserv replied that they had received instructions to pursue settlement discussions.

11 Mr Markham wrote to the solicitors again on 22 December 2004 reiterating his concern with respect to costs. He said that it was unnecessary to demolish the subject property and that repair work was mainly cosmetic. The solicitors for Comserv informed Mr Markham on the next day that settlement discussions were continuing.

12 In January 2005, the solicitors for Elcom advised Mr Markham they had not heard anything further with respect to settlement from the solicitors for Comserv. They requested Mr Markham to proceed with his determination. The solicitors for Comserv asked Mr Markham before he prepared his final examination to receive some further information. The solicitors for Elcom then served upon Mr Markham an expert report from C R Hutchison & Co Pty Ltd. A few days later, the solicitors for Comserv served on Mr Markham two quotations for restoration work from Michael Ward and Buildwise Australia Pty Ltd. A report in response by Appleyard Forest, consulting engineers, was received by the solicitors for Elcom in early February 2005.

13 On 21 February 2005, the solicitors for Comserv consented in writing to an extension to 28 February 2005 for the publication of the determination by Mr Markham. On 24 February 2005, Mr Markham sought a further extension to enable him to deal with a problem that had arisen in another matter. The next day, the solicitors for Comserv agreed to the extension.

The steps taken to terminate the deed

14 On 9 March 2005, Lynette Joan Axford, a director of Comserv, instructed its solicitors to inform Mr Markham that it was terminating the deed. In urging the parties to resolve the matter, Comserv asserted that Mr Markham was acting as a mediator and not as an expert and he had failed to deliver his determination on the agreed issues in the time specified under the deed. In so doing, Comserv alleged that Mr Markham had behaved in a manner contrary to the terms of the deed and had failed to observe and fulfil substantive terms of it. The letter concluded:

“I feel that Mr Markham under Clause 6(c) and (g), and Schedule 1 Item 5, and Schedule 1 Item 8 has broken the “Deed of Expert Determination by Neutral Expert”. Therefore under Clause 15.1(c) and (f) I am terminating the Deed. I instruct you to inform Mr Markham and confirm it in writing.”

15 After the close of business on 14 March 2005, Mr Markham received an unsigned facsimile from Mrs Axford informing him that she had given instructions to terminate the deed and requesting him not to incur further expense. She said:

“I have instructed Ben Slade of Maurice Blackburn Cashman by letter dated 9 March, 2005 to inform you that I have terminated the deed under Clauses 6.2(c) (by omission behaves in a manner contrary to the deed) and (g), Schedule 1 Items 5 and 8 and Clause 15.1(c) and (f).
I am aware that you are currently working on the matter and I do not want you to incur further expense.”

16 On 15 March 2005, Mr Markham sent a facsimile to the solicitors for both sides advising them that he had received the attached unsigned facsimile from Comserv after the close of business on the previous day.

17 Also on 15 March 2005, the solicitors for Comserv sent a letter to their client stating that while considering the first draft of a reply to Mrs Axford’s facsimile of 14 March 2005, they received the determination.

18 Mrs Axford conducted the proceedings in this court on behalf of Comserv. She submitted that there was no evidence that the company’s former solicitors had not given Mr Markham notice of termination before 14 March 2005 consequent upon her letter of 9 March 2005.

19 Quite apart from issues of onus of proof, the irresistible inference is that no such notice was given. The solicitors did not say they had and no copy of any such notice was in evidence. Whenever Mr Markham received a communication from either party he was careful to notify both solicitors of the receipt of it and there was no acknowledgment by him of any notice of termination from Comserv. Had Mr Markham received a notice of termination from the solicitors for Comserv prior to 14 March 2005, one would have expected that to have been recorded in a separate facsimile to each of the solicitors and one would have expected the terms of Mr Markham’s facsimile to the solicitors of 15 March 2005 to have been different and one would have expected the letter to Comserv from its solicitors of 15 March 2005 to have been different.

Was the deed terminated?

20 In my view Comserv did not terminate the deed by Mrs Axford’s facsimile to Mr Markham of 14 March 2005. The instructions to the solicitors of 9 March 2005 were for the solicitors to issue a notice of termination. While cl 15.1 of the deed provides that Comserv or Elcom might terminate the deed if the neutral expert did or failed to do specified things, termination could not, in my view, be effected until notice was given to the neutral expert. Clause 16.1 specified the manner in which all notices to be given to the neutral expert under the deed would be deemed to be given properly.

21 The facsimile of 14 March 2005 was not couched in terms of a notice of termination. It informed Mr Markham that instructions had been given to the solicitors to inform him that the deed had been terminated coupled with a request to stay his hand. That did not constitute, in my view, notice of termination. It was a forewarning that a notice of termination was to issue.

22 In my judgment, therefore, Comserv did not terminate the deed before Mr Markham’s determination issued to its solicitors.

23 Mrs Axford conceded that if I formed the view that the deed had not been terminated, there was no reason why Comserv should not be held bound by the determination.

Basis for termination

24 In light of my finding that notice of termination was not given to Mr Markham before his determination issued, it is unnecessary to consider whether there was a proper basis for terminating the deed.

25 Had it been necessary for me to determine this issue, I would have found that no ground for termination existed.

26 Clause 6.2(c) of the deed required Mr Markham to act as an expert and not as an arbitrator. He was not in breach of that requirement. Nor did he act as a mediator. He encouraged the parties to consider settlement. He neither arbitrated on their claims nor did he act as a meditator in any settlement discussion. He was not a party to the settlement process. Furthermore, cl 15.1(c) is enlivened by wilful act or omission or gross neglect. In my view, cl 15.1(c) would not necessarily be enlivened by mere failure to comply with a term of the deed. In this case there was no evidence that Mr Markham was guilty of any willful act or omission or any gross neglect.

27 Mrs Axford was not aware that the solicitors for Comserv had consented to an extension of time for the publication of the determination. But whether she was aware of it or not, the extension meant that cl 6.2(g) was not breached. The extension had been agreed between the parties in writing.

28 Furthermore, cl 6.2(g) did not require Mr Markham to publish his determination on or before 14 February 2005 or at the expiration of any extended period. The provision required him to act with expedition with a view to producing the determination within time. He had to use his best endeavours to meet a deadline. In the absence of evidence that best endeavours were not made, a mere failure to meet the deadline would not constitute a breach of cl 6.2(g).

29 It follows that in my view Mr Markham was neither in breach of cl 15.1(c) nor cl 15.1(f) of the deed.

Conclusion

30 Since no notice of termination of the deed was given to Mr Markham prior to the publication of his determination, Elcom is entitled to a declaration that the deed has not been terminated and remains on foot. It is also entitled to a declaration that the determination of Mr Markham is binding and enforceable as between Elcom and Comserv. I will hear the parties on the appropriate terms of the declarations and any consequent orders and I will hear the parties on costs. I direct the parties to bring in short minutes of orders reflecting these reasons.

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