State of South Australia v Goldstein - [2016] SASC 202

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
STATE OF SOUTH AUSTRALIA v GOLDSTEIN
[2016] SASC 202
Judgment of The Honourable Justice Blue
22 December 2016
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - THE CONTRACT
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - PERFORMANCE OF WORK - REMEDIES FOR BREACH OF CONTRACT
ARBITRATION
Action seeking declarations of invalidity of expert determinations and that they are not binding on the plaintiff. Third party action seeking parallel relief against the third parties in the alternative to the defence.
The plaintiff entered into a head contract with the second defendant for, inter alia, the design and construction of the new Royal Adelaide Hospital. The second defendant entered into a back to back construction contract with the third parties for the design and construction of the Hospital.
Clause 40.3(b) of the head contract, and clause 40(g) of the construction contract, provided that any dispute as to whether:
i. something is a Defect or related to the rectification of a Defect; or
ii. damage to the Facility that has been caused by a Defect,
will be referred by either party for resolution by an Independent Expert in accordance with the Accelerated Dispute Resolution Procedures.
In February 2016, the plaintiff served amongst others defect notices alleging defects by undersized floor distribution rooms, an under-height loading dock, undersized ceiling exclusion zones and sewer pipes encroaching into the primary data room.
In July 2016, the third parties served on the second defendant and the second defendant served on the plaintiff dispute notices referring disputes to expert determination in respect of amongst others the alleged defects.
Disputes emerged concerning amongst other things:
1. whether there had been informal agreement by State officers or employees to reduce the specified size of floor distribution rooms;
2. whether defects involving the loading dock height, clinical areas ceiling exclusion zones and the primary data room pipes are reasonably capable of rectification;
3. whether the State intends to rectify the defect involving the loading dock height;
4. whether risk mitigation works carried out by the third parties are reasonable and sufficient to mitigate the defect involving the primary data room pipes.
In August 2016, the parties appointed the first defendant as independent expert to determine the disputes. It was agreed that the first defendant would determine whether the disputes fell within the scope of clause 40.3 and, if so, determine the substantive disputes (the expert agreement).
In September 2016, the first defendant issued expert determinations. He determined amongst other things that:
1. State officers or employees had informally agreed to a reduction in the size of floor distribution rooms and the alleged defect in this respect was not a defect;
2. the defects involving the loading dock height, clinical areas ceiling exclusion zones and the primary data room pipes are not reasonably capable of rectification;
3. the State does not intend to rectify the defect involving the loading dock height;
4. risk mitigation works carried out by the third parties are reasonable and sufficient to mitigate the defect involving the primary data room pipes.
The plaintiff contends that the expert lacked jurisdiction under clause 40.3(b) of the head contract to make those determinations. The second defendant denies this and in the alternative makes parallel claims against the third parties under the construction contract.
The State contends that in any event it is not bound by the determination or alternatively it is not bound in respect of its right to damages or the issue of achievement of Technical Completion.
In October 2016, the State purported to refer to arbitration the matters the subject of the expert determination. The validity of this referral is in issue.
The second defendant contends that, by the agreement appointing the first defendant, the parties agreed that he was to determine conclusively his own jurisdiction and it is not open to the plaintiff to challenge his determination of his jurisdiction in this action.
Held:
1. On the proper construction of the expert agreement, the parties did not agree that the expert was to determine conclusively his own jurisdiction (at [126]).
2. The expert did not have jurisdiction to determine whether there was a defect in respect of floor distribution room sizes by reference to matters other than the original contractual specification (at [227]).
3. The expert had jurisdiction to determine whether defects involving the loading dock height, clinical areas ceiling exclusion zones and primary data room pipes are capable of remedy and was entitled to take into account practical and economic considerations as well as theoretical and physical considerations (at [253], [281], [306]).
4. The expert did not have jurisdiction to determine whether the State intended to rectify the defect involving the loading dock height (at [257]).
5. The expert did not have jurisdiction to determine whether risk mitigation works carried out by the third parties are reasonable and sufficient to mitigate the defect involving primary data room pipes (at [311]).
6. The plaintiff is bound by the expert determination insofar as the expert determined that something is or is not a defect (at [319]). However, the parties are not bound by the determinations that defects are not capable of remedy for the purposes of claims for damages by reason of the defects or on the issue of achievement of Technical Completion (at [320]-[322]).
7. The State’s referral to arbitration was valid in respect of the determination by the expert concerning the extent of the defect involving clinical areas ceiling exclusion zones and concerning whether the defects involving the loading dock height and clinical areas ceiling exclusion zones are capable of remedy (at [351]).
8. No declarations should be granted concerning disputes originally the subject of the dispute notices but in respect of which referral to expert determination was abandoned by the second defendant and third parties (at [355]).
9. Declarations should be granted in favour of the State in accordance with the above conclusions (at [356]).
Australian Vintage Ltd v Belvino Investments No 2 Pty Ltd (2015) 90 NSWLR 367; Bellgrove v Eldridge (1954) 90 CLR 613; Byrnes v Kendle (2011) 243 CLR 253; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; Ruxley Electronics & Construction Ltd v Forsyth [1996] AC 344, discussed.
AGL Victoria Pty Ltd v SPI Networks (Gas) Pty Ltd [2006] VSCA 173; Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; Holt v Cox (1997) 23 ACSR 590; Miwa Pty Ltd v Siantan Properties Pty Ltd [2011] NSWCA 297; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 76 ALJR 436; Shoalhaven City Council v Firedam Civil Engineering Pty Ltd (2011) 244 CLR 305; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd & Ors (2004) 219 CLR 165; Victoria v Tatts Group Ltd (2016) 90 ALJR 392; Westfield Management Limited v AMP Capital Property Nominees Limited (2012) 247 CLR 129, considered.

STATE OF SOUTH AUSTRALIA v GOLDSTEIN
[2016] SASC 202
Civil:

BLUE J: This is an action seeking declarations of invalidity of an expert determination pursuant to a development contract or alternatively that it does not relevantly bind the plaintiff and a third party action seeking parallel declarations in respect of a parallel construction contract.
The plaintiff, the State of South Australia, entered into a contract with the second defendant, SA Health Partnership Nominees Pty Ltd (SAHP), for the design, construction, financing, maintenance and non-clinical operation of the new Royal Adelaide Hospital (the Hospital).
SAHP entered into a contract with the third parties, Hansen Yuncken Pty Ltd and CPB Pty Ltd who comprised the HYLC Joint Venture (collectively HYLC) for the construction of the Hospital in terms largely mirroring the construction aspects of the head contract.
HYLC and SAHP referred disputes relating to 12 alleged defects to the first defendant, Steven Goldstein, for expert determination under the respective contracts. In the course of proceedings before Mr Goldstein, the parties resolved the issues relating to five alleged defects and they were withdrawn from the referrals.
Mr Goldstein relevantly determined that he had jurisdiction to make determinations concerning the existence and extent of each alleged defect; in respect of found defects whether the State intended to rectify the defect and whether rectification of the defect was reasonable; and in respect of one found defect whether risk mitigation works carried out by HYLC were reasonable and sufficient to resolve the defect.
The State purported to refer to arbitration its disputes in respect of the expert’s substantive determinations.
The State seeks declarations that the expert had no jurisdiction to determine that:
1.there was no defect in the size of floor distribution rooms by reference to ex-contractual conduct of the State’s officers and employees rather than the contractual specification;
2.the rectification of defects involving the loading dock height, clinical areas ceiling exclusion zones and primary data room pipes is unreasonable;
3.the State does not intend to rectify the defect involving the loading dock height;
4.risk mitigation works carried out by HYLC were reasonable and sufficient to mitigate the defect involving primary data room pipes.
SAHP contends that, by the agreement appointing Mr Goldstein as independent expert, the parties agreed that he was to determine conclusively his own jurisdiction to determine the substantive disputes and it is not open to the State to challenge in this action his determination of his jurisdiction.
The State seeks declarations that, pursuant to the terms of the head contract, it is not in any event bound by Mr Goldstein’s determinations or alternatively in respect of its right to damages or on the issue of achievement of Technical Completion.
The State seeks declarations that Mr Goldstein did not have jurisdiction to determine that it should accept a Modification Change Notice at a nil sum or upon provision of a credit to the State determined by the expert or to be determined subsequently or that a defect be treated as a Technical Completion Outstanding Item.
SAHP and HYLC contend that the State’s purported referral to arbitration was ineffective because the State was not entitled to refer the matter to arbitration pursuant to clause 71(o) of the head contract because the value of the determination was not greater than $1 million. SAHP also contends that it was ineffective because it was expressed to be conditional.
The following issues arise in the action:
1.Did the parties agree, by their agreement appointing Mr Goldstein as the independent expert, that he was to determine conclusively his own jurisdiction to determine the substantive disputes?
2.Did Mr Goldstein have jurisdiction under the contracts to determine whether there was a defect in respect of floor distribution room sizes by reference to matters other than the original contractual specification?
3.Did Mr Goldstein have jurisdiction under the contracts to determine whether the rectification of defects involving the loading dock height, clinical areas ceiling exclusion zones and primary data room pipes is reasonable?
4.Did Mr Goldstein have jurisdiction under the contracts to determine whether the State intends to rectify defects involving the loading dock height?
5.Did Mr Goldstein have jurisdiction to determine whether risk mitigation works carried out by HYLC were reasonable and sufficient to mitigate the defect involving primary data room pipes?
6.Is the State bound by Mr Goldstein’s determinations and if so to what extent and for what purposes?
7.Was the State’s referral to arbitration of its disputes in respect of the expert’s substantive determinations ineffective because the value of the determination was not greater than $1 million or because the referral was expressed to be subject to the outcome of this action?
8.Should declarations be granted at the instance of the State that Mr Goldstein did not have jurisdiction to make determinations that he did not make?
Background
On 20 May 2011, the Minister for Health on behalf of the State entered into the New Royal Adelaide Hospital Project Project Agreement (the head contract) with SAHP (designated “Project Co”) for the design, construction and financing of the Hospital to be completed by 4 April 2016 and the maintenance, licensed non-clinical operation and financing of the Hospital from the Date of Commercial Acceptance until 35 years after satisfaction of the conditions precedent (the Operating Term). SAHP’s remuneration was payable by quarterly service payments in arrears between the Date of Commercial Acceptance and the conclusion of the Operating Term (clauses 50.1, 1.1 and Schedule 3).
On 20 May 2011, SAHP entered into the New Royal Adelaide Hospital Project Construction Agreement with HYLC (designated “the Builder”) for the design and construction of the Hospital for $1,849,834,546 exclusive of GST (the construction contract).
For ease of reference, I refer to the head and construction contracts indiscriminately as the contracts.
Clause 2.6(b) of the head contract summarises the principal responsibilities of SAHP in the following terms:
Project Co must, in accordance with this Agreement:
(i)    finance or procure the financing of the Project;
(ii)design the Works and in so doing manage the Design Development Process and procedure prepare the Design Documentation;
(iii)     construct the Facility;
(iv)     achieve Technical Completion and Commercial Acceptance;
(v)     provide the Services;
(vi)     deliver the Facility in accordance with the Handback Condition;
(vii)perform all other obligations under this Agreement (except those obligations expressly required to be performed by the State under this Agreement); and
(viii)pay the Licence Fee to the State under the Operating Term Licence to occupy and use the Site for the performance of the Services.
Clause 2.5 of the head contract provides that SAHP warrants that from the Date of Commercial Acceptance throughout the Operating Term the Facility will be Fit for the Intended Purposes by reference to the Law, technology and the intended use of the Facility as at the Date of Commercial Acceptance.
Clause 1.1 defines Fit for the Intended Purposes to mean that the Facility satisfies the Design Specifications and all other requirements of the head contract for the design and construction of the Facility; enables SAHP to provide the Services so as to meet the performance standards set out in the Services Specification; facilitates and does not adversely affect the provision of the Facility Functions by the State and State Associates, and satisfies the Quality Standards.
Clause 21.1 requires SAHP to design the Facility in accordance with, amongst other things, the Design Requirements. The Design Requirements are defined by clause 1.1 to include the Design Specifications and the Design Departures Schedule. The Design Specifications are defined to comprise the Functional Brief and Technical Specifications contained in Schedule 18 (Design Specifications). The Design Departures Schedule is defined to mean the schedule of departures to the Design Specifications set out in Annexure B (Design Departures Schedule).
Clause 41.1(b) of the head contract requires SAHP to achieve Technical Completion by the Date for Technical Completion being 4 April 2016. Clause 41.1(c) requires SAHP to achieve Commercial Acceptance by the Date for Commercial Acceptance being 3 July 2016. Technical Completion is achieved when SAHP has satisfied each of the Technical Completion Criteria set out in Schedule 10 (Completion Requirement Schedule), which include practical completion of the Works in accordance with the Technical Specifications (as modified by the Design Departures Schedule). Commercial Acceptance is achieved after a period of testing and commissioning when SAHP has satisfied each of the Commercial Acceptance Criteria set out in Schedule 10.
Clause 41A.4 of the head contract provides that SAHP agrees to pay liquidated damages to the State during the period between the original Date for Commercial Acceptance and the actual Date of Commercial Acceptance in an amount equal to each State Loan Payment calculated under Schedule 3 (Payment Schedule). The State’s recourse against SAHP is limited, amongst other things, to liquidated damages received by SAHP from HYLC under the construction contract. Under clause 42.1 of the construction contract, HYLC agrees to pay liquidated damages to SAHP during the same period at the rate of $827,000 per day (capped at ten per cent of the contract price).
Clause 69.1 provides that any dispute arising between the parties out of or in connection with the Project, the Facility, the Designated Commercial Area, the Works or the head contract is to be resolved in accordance with clauses 69 to 72. Clause 69.2 provides that, if there is a dispute, a party may deliver to the other party a Notice of Dispute.
Clause 70(a) provides that, if a Notice of Dispute is delivered, unless another provision of the head contract provides for referral for expert determination, the parties are within five business days to meet and attempt in good faith to resolve the dispute and otherwise to refer the dispute for expert determination under clause 71 or arbitration under clause 72.
Clause 70(b) operates in default of the parties resolving the dispute under clause 70(a)(i) or referring it under clause 70(a)(ii) within ten business days of delivery of a notice of dispute. It provides for referral to expert determination where the dispute is in respect of a claim for payment of an amount equal to or less than $1 million and otherwise to arbitration.
Clause 71 provides “Accelerated Dispute Resolution Procedures” for disputes referred for expert determination under either clause 70 or directly pursuant to another provision of the head contract. Clause 71(o) provides that, if the value of the expert determination is greater than $1 million, a party may by written notice refer the matter to arbitration under clause 72 within 15 business days of the expert determination.
Clause 72 provides for arbitration of disputes referred to arbitration under clause 70(b) or clause 71(o).
Clause 40.1 addresses all defects other than Defects in the ICT Network. Clause 1.1 defines a Defect to mean an aspect of the design of the Facility not in accordance with the requirements of the head contract or a defect, shrinkage, fault or omission in the Works or the Facility. For ease of reference, I refer to a Defect as defined in clause 1.1 as a defect.
Clause 40.1(b) requires SAHP to rectify all defects whether or not the subject of a Defect Notice.
Clause 40.1(c) and (d) empower but do not require the State Delegate to give a Defect Notice to SAHP if the State Delegate is of the reasonable opinion that there is a defect. The Defect Notice must contain details of the Defect and, to the extent that the defect is in the reasonable opinion of the State Delegate capable of remedy, a completion time by which SAHP must rectify the defect.

Clause 40.1(e) provides that, if the State Delegate gives a Defect Notice identifying a defect that in the reasonable opinion of the State Delegate is capable of remedy, SAHP must rectify the defect by the completion time specified.
Clause 40.1(e) provides that, if SAHP does not rectify the defect by the completion time specified in the Defect Notice, the State is entitled to rectify or have rectified the Defect and the cost of the rectification work and any damage to the Facility caused by or arising from the defect is to be Moneys Owing. Moneys Owing are defined by clause 1.1 to mean moneys which SAHP is actually liable to pay to or for the account of the State.
Clause 40.2 creates a similar regime in respect of Defects in the ICT Network to that created by clause 40.1 in respect of other defects and is not directly relevant.
Clause 40.3(a) provides that the State’s rights with respect to defects and SAHP’s Liability with respect to defects under the head contract and otherwise at Law are not affected or limited by the State’s rights under clause 40, by any failure by the State or State Delegate to exercise the State’s rights under clause 40, any direction given by the State Delegate or by any other provision of the head contract.
Clause 40.3(b) provides that:
Any dispute as to whether:
(i)something is a Defect (including a Defect in the ICT Network) or related to the rectification of a Defect; or
(ii) damage to the Facility that has been caused by a Defect,
will be referred by either party for resolution by an independent expert in accordance with the Accelerated Dispute Resolution Procedures.
Clause 40 of the construction contract contains parallel provisions conferring rights upon SAHP and imposing obligations on HYLC in largely identical terms to clause 40 of the head contract. The obligation of HYLC under clause 40(a) to rectify defects is confined to defects for which HYLC is responsible. SAHP’s reasonable opinion as to whether a Defect is capable of remedy is to be consistent, where relevant, with the opinion of the State Delegate under the head contract. Clause 40(f) is the equivalent of clause 42.3(a). Clause 40(g) is the equivalent of clause 42.3(b). Clause 40(i) provides that any dispute arising in relation to clause 40 shall be determined in accordance with the Accelerated Dispute Resolution Procedures.
Clause 79.5 of the head contract provides that, subject to two irrelevant exceptions, no amendment or variation of the contract is valid or binding on a party unless made in writing executed by both parties.
In general, the construction contract contains provisions which parallel the provisions in the head contract summarised above. The parties do not suggest that the differences in the relevant provisions are material to the issues in the action. For ease of reference, I generally refer only to the provisions of the head contract on the understanding that the equivalent provisions of the construction contact are not materially different.
The design of the Hospital incorporates a Primary Data Equipment Room to house central computer and communications equipment and cabling (the primary data room). The Technical Specification sections 22.4(b)(xv) and 22.5(c)(iv) provide that no other service is to be housed in the primary data room.
The design of the Hospital incorporates Floor Distribution Rooms to house local communications equipment and cabling (the floor distribution rooms). The Technical Specification, section 22.1 table 32 (as clarified by the Design Departures Schedule TS:178) requires floor distribution rooms to be a minimum of 40 square metres per room. Section 3.4 table 1 requires a 50 per cent contingency space and 100 per cent future flexibility space.
The design of the Hospital incorporates a loading dock to receive deliveries by truck of supplies for the Hospital (the loading dock). The Functional Brief section 97.2(s) states that the ceiling height of the loading dock must allow for the stacking of pallets and safe use of a forklift up to 3.5 metres.
The design of the Hospital incorporates the installation of various fittings and services in the cavity between the ceilings of a given floor and the slab of the floor above (ceiling cavity). The Technical Specification Part B section 3.3(a)(vii) (as qualified by the Design Departures Schedule TS:008 Table 2) requires a horizontal services zone of 200 mm minimum and left clear immediately above fittings in the ceilings in all Clinical Areas (exclusive of services that are required to serve ceiling mounted fixtures immediately below them) to allow for the installation of future services.
On 5 February 2016, the State Delegate gave to SAHP defect notice 580 entitled “Loading Dock Ceiling Height” (the loading dock defect notice). The Notice included:
Notice Details
I notify Project Co that I am of the opinion that the ceiling height of the loading dock is not in accordance with the requirements of the Agreement.
I am of the opinion the Defect is not capable of remedy and I require Project Co to submit a Change Notice.
On 8 February 2016, the State Delegate gave to SAHP defect notice 579 entitled “Floor distribution room size and spare capacity” (the FDR defect notice). The Notice included:
Notice Details
I notify Project Co that I am of the opinion that some of the floor distribution rooms are not in accordance with the requirements of the Agreement. The rooms do not meet the minimum size requirement of 40m² per room and spare capacity for racks (50% redundant capacity) as required by the Design Specifications (as departed by TS:178).
I am of the opinion that in certain floor distribution rooms, the Defect is not capable of remedy and I require Project Co to submit a Change Notice. Floor distribution rooms that are capable of remedy will require rectification.
Completion time to rectify the Defect
To be determined upon receipt of Project Co’s Change Notice
Conditions and Clarifications
Project Co’s Change Notice must include a detailed assessment of all floor distribution rooms and the extent to which they are capable of remedy.
On 10 February 2016, the State Delegate gave to SAHP defect notice 621 entitled “Horizontal services zone of 200 mm minimum in all Clinical Areas” (the clinical areas exclusion zone defect notice). The Notice included:
Notice Details
I notify Project Co that I am of the opinion that the horizontal services zone immediately above fittings in the ceiling in all Clinical Areas is not in accordance with the requirements of the Agreement, which are to provide a clear horizontal services zone of 200mm minimum immediately above fittings in the ceiling.
I am of the opinion the Defect is not capable of remedy and I require Project Co to submit a Change Notice.
On 16 February 2016, the State Delegate gave to SAHP defect notice 632 entitled “Primary Data Equipment Room Sewer Pipes” (the PDR defect notice). The Notice included:
Notice Details
I notify Project Co that I am of the opinion that the sewer pipes that have been installed in the Primary Data Equipment Room (01.DAC.008) are not in accordance with the requirements of the Agreement.
The sewer pipes running through the Data Equipment Room pose a risk of water infiltration to a sensitive, high risk area.
I am of the opinion the Defect is not capable of remedy and I require Project Co to submit a Change Notice.
In each case, SAHP gave to HYLC a defect notice in the same terms mutatis mutandis as the State’s notice.
On 8 July 2016, HYLC delivered to SAHP a notice of dispute in respect of 12 defect notices which included the four defect notices the subject of this action (the HYLC dispute notice). HYLC disputed that there was a defect in respect of the ceiling exclusion zone as alleged in the clinical areas exclusion zone defect notice but accepted that there was a defect in respect of the defects alleged in the other three defect notices although it made submission that the pipes were not prohibited in the primary data room. On 15 July 2016, SAHP delivered to the State a notice of dispute in respect of the same 12 defect notices (the SAHP dispute notice). The notice was in the same terms mutatis mutandis as the HYLC notice. For ease of reference, I refer to the dispute notices indiscriminately as the dispute notice.
On 17 August 2016, there was a meeting between representatives of the State, SAHP, HYLC and Mr Goldstein. At the meeting:
1.the State, SAHP and Mr Goldstein executed an Independent Expert Agreement (the SAHP expert agreement) whereby the parties appointed Mr Goldstein to act as an independent expert to determine disputes set out in the SAHP dispute notice; and
2.SAHP, HYLC and Mr Goldstein executed an Independent Expert Agreement in the same terms mutatis mutandis as the SAHP Expert Agreement (the HYLC expert agreement) whereby the parties appointed Mr Goldstein to act as an independent expert to determine disputes set out in HYLC dispute notice.
For ease of reference, I refer to the Expert Agreements indiscriminately as the expert agreement.
At the meeting, Mr Goldstein determined that submissions would be made about jurisdictional and substantive issues simultaneously and those issues would be determined simultaneously.
On 25 August 2016, the State instituted this action seeking declaratory and injunctive relief contending that the expert did not have jurisdiction to determine matters subject of the SAHP dispute notice. Ultimately, SAHP brought a third party action against HYLC making, in the alternative to its denials in its defence, parallel contentions against HYLC.
On 26 August 2016, the solicitors for HYLC wrote to the solicitors for the State and SAHP agreeing that three matters the subject of the dispute notice were outside Mr Goldstein’s jurisdiction, namely the terms of Modifications the State should accept to remove Defects; the Independent Expert should exercise the State’s discretion to accept a Modification; and certain Defects should be treated as Technical Completion Outstanding Items. On 30 August 2016, the solicitors for SAHP agreed that those three matters were outside Mr Goldstein’s jurisdiction and should not be determined by him.
On 31 August 2016, the State sent to the expert and the other parties written submissions in response to the dispute notice (the State’s primary submission). The State said that its submissions on substantive matters were without prejudice to its position that many of the determinations sought were outside the scope of clause 40.3. The State also said that, by reason of clause 40.3(a), its rights with respect to Defects were not affected by the referral or any determination. The State attached to its submission a defect notice assessment dated 27 May 2016 by its cost consultant Aquenta providing assessments of the cost of rectification or mitigation on various scenarios in respect of some of the defect notices including the FDR, loading dock and clinical areas exclusion zone defect notices (the Aquenta cost assessment).
On 7 September 2016, HYLC sent to the expert and the other parties written submissions in response to the State’s submissions (HYLC’s reply submission). SAHP adopted HYLC’s reply submission and made some additional submissions of its own.[1]
[1] SAHP on 7 and 16 September adopted HYLC's submissions.
On 12 September 2016, Mr Goldstein conducted a conference with the parties. Several issues were discussed.
On 14 September 2016, the State sent to the expert and the other parties written submissions in response to SAHP’s reply submission and in respect of matters arising out of the conference (the State’s rejoinder submission).
On 14 September 2016, HYLC sent to the expert and the other parties written submissions in respect of matters arising out of the conference (HYLC’s further submission). SAHP adopted HYLC’s further submission and made some additional submissions of its own.[2]
[2] SAHP on 16 September adopted HYLC's submissions and on 14 September made some additional submissions of its own.
On 16 September 2016, the State sent to the expert and the other parties written submissions in response to HYLC’s further submission (the State’s further reply submission).
On 16 September 2016, HYLC sent to the expert and the other parties written submissions in response to the State’s rejoinder submission (HYLC’s surrejoinder submission). SAHP adopted HYLC’s surrejoinder submission.
During the course of the submissions, the parties resolved the disputes that had been referred to the expert in relation to five of the defect notices the subject of the dispute notices and withdrew them from the expert determination.
On 26 September 2016, Mr Goldstein issued an Expert Determination between the State and SAHP determining the issues raised by the parties in respect of the seven defect notices still the subject of dispute (the head contract determination). On the same date, Mr Goldstein issued an Expert Determination between SAHP and HYLC determining the issues raised by the parties in respect of the seven defect notices in a parallel manner (the construction contract determination). For ease of reference, I refer to the determinations indiscriminately as the determination.
On 12 October 2016, the State served on SAHP a notice of referral to arbitration of the subject matter of the head contract determination (the notice of arbitration). The validity of the purported referral is in issue in this action.
During the course of the action, the parties resolved the disputes the subject of three of the defect notices the subject of the expert determination. This left four defect notices the subject of the action.
The trial
The State was dux litus. HYLC has a common interest in defending the State’s action against SAHP. Indeed, HYLC took the lead role in adducing evidence and in address.
SAHP’s primary position is in opposition to the State’s contentions. However, its alternative position in the third party action is to adopt the State’s contentions and seek parallel relief against HYLC as the State seeks against SAHP.
In a legal sense, there are two separate actions and no lis between the State and HYLC. In a commercial sense, the issues are primarily between the State and HYLC, with SAHP interposed. For ease of expression, I generally only describe SAHP’s position in opposition to the State but it should be understood that generally SAHP adopts the State’s position against HYLC in the third party action on the assumption (denied by SAHP) that the State will be successful in the action.
SAHP and HYLC generally adopted a uniform approach in opposition to the State in respect of the State’s claims against SAHP, subject to two or three exceptions.
The trial was documentary. Documents tendered included the head contract (including schedules 1, 3, 4 and 10); the construction contract (including schedules 3, 4, 7 and 8); deeds amending the contracts; the four defect notices and a selection of correspondence relating to the alleged defects; the dispute notices; correspondence leading up to the expert agreements; the expert agreements; the party’s submissions to the expert; the expert determinations; and subsequent correspondence.
Several documents were received subject to a relevance objection by the State. I now rule on the admission of those documents as follows:
1.Tab 11 comprises a defect notice not the subject of the action and associated correspondence. No substantive reference was made to these documents during addresses at trial. They are irrelevant and are not admitted.
2.Tabs 8 and 9 include correspondence associated with defect notices that were originally the subject of the action but are no longer. No substantive reference was made to these documents during addresses at trial. They are irrelevant and are not admitted.
3.Tabs 10 and 12 to 14 include correspondence associated with defect notices the subject of the action. Correspondence preceding the defect notices is relevant to provide the context for and better understand the defect notice. Correspondence succeeding the defect notices is relevant to provide the context for and better understand the dispute notices because it identifies disputes between the parties. I admit these documents.
4.Tabs 17, 19 to 21 and 24 comprise some of the correspondence leading up to the expert agreements. Other correspondence in this period was tendered and relied upon as evidence of surrounding circumstances for the purpose of better understanding the expert agreement. The documents to which the State objects are relevant for the same reason. I admit these documents so that there is a complete picture of the correspondence leading up to the expert agreement.
5.Tabs 60, 64, 65, and 67 to 72 comprise correspondence after the expert determination relating to the State’s arbitration notice. They are relevant to the issues in the action concerning the validity of that arbitration notice. I admit these documents. I note however that no substantive reference was made to them during addresses at trial.
6.Tab 73 comprises Mr Goldstein’s curriculum vitae. SAHP relies upon it as evidence of surrounding circumstances known to the parties in aid of the construction of the expert agreement. I admit the document as relevant for that purpose.
The State tendered an affidavit by one of its solicitors Scott Foreman sworn on 28 November 2016 and HYLC tended an affidavit by one of its solicitors Peter Pether sworn on 14 November 2016. The affidavits both relate to what was said at the preliminary conference on 17 August 2016 and the further conference on 12 September 2016. Neither deponent was cross-examined on his affidavit although there are differences between their accounts. The parties in closing address made extremely limited reference to the discussions during those conferences and determination of the issues in the action does not turn on those discussions.
The expert’s determination
Mr Goldstein summarised the proceedings before him, his findings, and relevant provisions of the head contract. He then summarised his approach to jurisdictional issues.
Mr Goldstein addressed each alleged defect sequentially. In relation to each defect, he first set out matters of background, followed by a summary of the submissions. He then generally made determinations on the jurisdictional issues (where applicable), followed by determinations on substantive issues when he had concluded that he had jurisdiction to deal with them.
In relation to the floor distribution room size defect, Mr Goldstein noted that the State contended that, to the extent that HYLC may be submitting that conduct falling short of that required to amend the design requirements under the head contract gave rise to an estoppel, the expert determination process was inappropriate for a determination of that sort. Mr Goldstein considered that, in circumstances in which State officers or employees had informally agreed to a change in floor distribution room sizes, it was unreasonable for the State to insist on its strict legal rights under the head contract. Mr Goldstein concluded that the necessary preconditions that would give rise to an estoppel had been satisfied, but refrained from finding estoppel because he had not been specifically asked to do so. Mr Goldstein concluded that, by virtue of informal agreement by State officers or employees, the fact that floor distribution rooms had been designed and constructed to comprise less than 40 square metres did not comprise a defect. I address Mr Goldstein's reasoning in more detail at [221] below.
In relation to loading dock height, Mr Goldstein first addressed his jurisdiction to determine whether the State intended to rectify the defect. Mr Goldstein noted that the State had moved from a position expressed in the defect notice that the defect was not capable of remedy and implicitly that the State did not intend to rectify the defect, to the position expressed in its primary submission that the defect was capable of physical remedy and it did not seek rectification at that stage but sought damages so that it could carry out the rectification works in future. Mr Goldstein considered that the State thereby put in issue the question whether it intended to rectify the defect and he therefore had jurisdiction to determine that question. Mr Goldstein considered that he had jurisdiction to determine whether rectification was reasonable for the same reasons. In addition, he considered that the issue whether rectification was reasonable was “related to rectification of a Defect” within the meaning of clause 40.3(b)(i) of the head contract.

Mr Goldstein then addressed the substantive issues. He determined that the State did not intend to rectify the defect and rectification was not reasonable. I address Mr Goldstein's reasoning on these two substantive issues in more detail at [244] to [245] below.
In relation to the clinical areas ceiling exclusion zone, Mr Goldstein resolved the first construction issue whether the lower boundary of the exclusion zone of 200 mm is to be measured from the top of the ceiling tiles or the top of fittings affixed to the ceiling in favour of HYLC; the second construction issue whether 200 mm was required where vertical services descended towards the ceiling in favour of HYLC; and the third construction issue whether Blue Space, Green Space and Circulation Space form part of the clinical areas for which the exclusion zone is required in favour of HYLC. Mr Goldstein determined that there was a defect but that it involved less than one per cent of the relevant area.
Mr Goldstein considered that he had jurisdiction to determine whether rectification was reasonable for the same reasons as in respect of the loading dock height. Mr Goldstein determined that rectification was not reasonable. I address Mr Goldstein's reasoning on this substantive issues in more detail at [276] to [278] below.
In relation to the primary data room pipes, Mr Goldstein said that the State accepted that he had jurisdiction to determine the adequacy of the rectification/risk mitigation works undertaken by HYLC but that he did not have jurisdiction to determine whether redirection and/or removal of the offending pipes was reasonable. Mr Goldstein considered that the State’s position in this respect was inconsistent and that he had jurisdiction to determine both matters.
Mr Goldstein determined that rectification by redirection and/or removal of the offending pipes was not reasonable and that the risk mitigation works carried out by HYLC were reasonable and sufficient to resolve the defect. I address Mr Goldstein's reasoning on these two substantive issues in more detail at [301] to [303] below.
The parties’ contentions
SAHP makes an in limine contention that, by the expert agreement, the parties agreed that Mr Goldstein was to determine conclusively his own jurisdiction to determine the substantive disputes and it is not open to the State to challenge Mr Goldstein’s determination of his jurisdiction in this action. It is necessary to address that contention first because, if it is accepted, many of the remaining issues in the action do not arise. On the other hand, if that contention is rejected, it is a matter for me to determine the scope of Mr Goldstein’s jurisdiction independently of his own consideration of that question.
The State accepts, as it accepted before Mr Goldstein, that Mr Goldstein had jurisdiction to determine a dispute as to whether an alleged defect comprised a defect within the meaning of the contracts. However, the State contends that, in determining that there was no defect as defined in the contract in respect of the size of the floor distribution rooms, Mr Goldstein acted outside jurisdiction because he made his determination by reference to ex-contractual conduct by the State’s officers and employees which he found to be unreasonable and by which he held the State was bound independently of the terms of the contract. The State contends that his determination that there was no defect by reason of the size of the floor distribution rooms is a nullity.
The State contends that Mr Goldstein had no jurisdiction to determine a dispute about whether rectification of a defect is reasonable and that his determination that it was not in respect of the loading dock height, clinical areas ceiling exclusion zone and primary data room pipes was a nullity.
The State contends that Mr Goldstein had no jurisdiction to determine a dispute about whether the State intended to rectify a defect and that his determinations that the State did not so intend in respect of the loading dock height was a nullity.
The State contends that Mr Goldstein had no jurisdiction to determine a dispute about whether risk mitigation works undertaken by HYLC were reasonable and sufficient to resolve the defect in respect of the primary data room pipes and that his determination that they were reasonable and sufficient was a nullity.
The State contends that, by reason of clause 40.3(a) of the contract, it is not bound by any adverse determination by an expert under clause 40.3(b) or alternatively it is not adversely affected in respect of any claims for damages or issue whether Technical Completion has been achieved.
SAHP and HYLC take issue with each of the above contentions by the State. In the alternative, SAHP advances the same contentions as against HYLC.
The State contends that its 12 October 2016 notice of arbitration was valid and effective to refer its disputes the subject of adverse determination by Mr Goldstein to arbitration. SAHP and HYLC contend that the notice was not effective because the value of the determination was not greater than $1 million and in addition SAHP contends that it was not effective because it was conditional.
The State seeks a declaration that six proposed determinations originally sought in July 2016 in the dispute notices but abandoned in August 2016 and not addressed by Mr Goldstein were beyond the scope of the submission of a dispute for expert determination pursuant to clause 40.3(b) of the contract. SAHP and HYLC oppose such a declaration on the ground that it does not relate to a matter in dispute and is hypothetical.
Construction principles
The issues in the action turn essentially on the proper construction of the contract and the expert agreement.
There is no dispute concerning the legal principles that apply to the construction of contracts.
In the law of contract, the terms of a contract are determined by reference to the intention of the parties. The reference to intention is not to the subjective unexpressed intentions of the parties but to the intention objectively manifested to a reasonable observer observing from a neutral position or, where applicable, from the perspective of the other party.[3]
[3] Pacific Carriers Ltd v BNP Paribas [2004] HCA 35, (2004) 218 CLR 451 at [22] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd & Ors[2004] HCA 52, (2004) 219 CLR 165 at [38], [40] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ. This is subject to the doctrines of sham, non est factum, duress, illegality, unconscionable dealing or fraud in equity, estoppel, rectification, mistake, misrepresentation and undue influence (Byrnes v Kendle[2011] HCA 26, (2011) 243 CLR 253 at [115] per Heydon and Crennan JJ), none of which are applicable in the present case.
The construction of a contractual provision involves consideration of the text, context, evident purpose and fairness of the provision.[4]
[4] Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5, (2002) 76 ALJR 436 at [10] per Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ and [68]-[70] per Kirby J; Westfield Management Limited v AMP Capital Property Nominees Limited [2012] HCA 54, (2012) 247 CLR 129 at [27] per French CJ, Crennan, Kiefel and Bell JJ; Victoria v Tatts Group Ltd [2016] HCA 5, (2016) 90 ALJR 392 at [51] per French CJ, Kiefel, Bell, Keane and Gordon JJ.
A contractual provision is not construed in a vacuum but against the background and in the context of the surrounding circumstances known to both parties at the time of the contract.[5]
[5] DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 429 per Stephen, Mason and Jacobs JJ; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 348-352 per Mason J (with whom Stephen J agreed) and 401 per Brennan J; Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7, (2014) 251 CLR 640 at [35], [48] per French CJ, Hayne, Crennan and Kiefel JJ; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37, (2015) 256 CLR 104 at [47]-[51] per French CJ, Nettle and Gordon JJ; Victoria v Tatts Group Ltd (2016) 90 ALJR 392 at [51] per French CJ, Kiefel, Bell, Keane and Gordon JJ.
Evidence of the surrounding circumstances is admissible to give an understanding of the background and context against which a contractual provision is to be construed.[6] However, evidence of pre-contractual negotiations is not admissible as such and is only admissible if and to the extent that it is evidence of surrounding circumstances for the purpose of background and context.[7]
[6] DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 429 per Stephen, Mason and Jacobs JJ; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 348-352 per Mason J (with whom Stephen J agreed) and 401 per Brennan J; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at [35], [48] per French CJ, Hayne, Crennan and Kiefel JJ; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at [47]-[51] per French CJ, Nettle and Gordon JJ; Victoria v Tatts Group Ltd (2016) 90 ALJR 392 at [51] per French CJ, Kiefel, Bell, Keane and Gordon JJ.
[7] Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 348-352 per Mason J (with whom Stephen J agreed) and 401 per Brennan J; Byrnes v Kendle (2011) 243 CLR 253 at [98] per Hayne and Brennan JJ.
Unless a contractual provision manifests a contrary intention, it should be construed to give a businesslike interpretation and produce a commercial result.[8] If the language of a contractual provision is ambiguous, and one construction giving rise to capricious, unreasonable, inconvenient or unjust consequences and the other does not, the latter is to be preferred.[9] However, a court is not entitled to rewrite a contractual position so as to depart from unambiguous language used by the parties.[10]
[8] Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at [35] per French CJ, Hayne, Crennan and Kiefel JJ; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at [51] per French CJ, Nettle and Gordon JJ.
[9] Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109 per Gibbs J.
[10] Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109 per Gibbs J; Miwa Pty Ltd v Siantan Properties Pty Ltd [2011] NSWCA 297 at [18] per Basten JA (with whom McColl and Campbell JA agreed).
In Byrnes v Kendle,[11] Heydon and Crennan said:
The approach taken to statutory construction is matched by that which is taken to contractual construction. Contractual construction depends on finding the meaning of the language of the contract – the intention which the parties expressed, not the subjective intentions which they may have had, but did not express. A contract means what a reasonable person having all the background knowledge of the "surrounding circumstances" available to the parties would have understood them to be using the language in the contract to mean. But evidence of pre-contractual negotiations between the parties is inadmissible for the purpose of drawing inferences about what the contract meant unless it demonstrates knowledge of "surrounding circumstances". And in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd this Court said:
"It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe."[12]
[11] (2011) 243 CLR 253.
[12] At [98]. (Citations omitted)
In Electricity Generation Corporation v Woodside Energy Ltd,[13] French CJ, Hayne, Crennan and Kiefel JJ said:
The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties ... intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience".[14]
[13] (2014) 251 CLR 640.
[14] At [35]. (Citations omitted)
Expert’s determination of own jurisdiction
SAHP contends that, by the expert agreement, the parties agreed that the expert was empowered to determine conclusively the extent of his own jurisdiction under the contract to determine substantive disputes between the parties. The State takes issue with this contention and HYLC makes no submissions on this issue. If this contention is successful, most of the substantive issues in this action will not arise because they will have been determined conclusively by Mr Goldstein.
It is common ground that, absent specific agreement between the parties, under the head contract itself an expert appointed under clause 40.3 (or clause 70(b)) to determine a substantive dispute does not have jurisdiction to determine conclusively the extent of his or her substantive jurisdiction and such jurisdiction is to be exercised by a court of competent jurisdiction.
It is common ground that, if the parties specifically agreed that an expert was empowered to determine conclusively the extent of his or her substantive jurisdiction, such an agreement would be effective to empower the expert to so determine.
The issue raised by SAHP’s contention turns on the proper construction of the expert agreement.
The SAHP expert agreement provides:
By clause 40.3 of a contract dated 20 May 2011 between State of South Australia and SA Health Partnership Nominees Pty Ltd (the Contract), the parties agreed to submit certain disputes that they might that might arise between them to an Independent Expert (hereinafter referred to as the Expert), for determination through an Accelerated Dispute Resolution Procedure.
A number of disputes have arisen between the parties which Project Co seeks to have determined by the Accelerated Dispute Resolution Procedure (the Disputes). The Disputes are set out in a Dispute Notice dated 15 July 2016.
The parties have agreed to appoint STEVEN GOLDSTEIN … to act as the Expert to (i) determine whether the Disputes fall within the scope of clause 40.3; and (ii) insofar as the Disputes fall within the scope of clause 40.3, determine the Disputes in accordance with, and subject to, the Accelerated Dispute Resolution Procedure.
… The determination of the dispute must be completed by 30 September 2016 unless the time is extended by agreement of the parties.
The parties and Mr Goldstein were required by clause 71(e) to execute an Independent Expert Agreement within ten business days of nomination of Mr Goldstein as the expert.
SAHP contends that, by placitum (i) of the third paragraph of the expert agreement, the parties empowered Mr Goldstein to determine conclusively his own jurisdiction under clause 40.3 with respect to determining substantive disputes. The State contends that the purpose of inserting placitum (i) was to ensure that Mr Goldstein first considered his own jurisdiction (on a non-conclusive basis) before proceeding to determine the dispute set out in that notice and to avoid the possibility that the agreement might be construed as a concession by the State that Mr Goldstein had jurisdiction under clause 40.3 to determine all of the disputes set out in the dispute notice and.
SAHP relies on communications between the parties leading up to the execution of the expert agreement as extrinsic evidence of surrounding circumstances admissible in aid of construction of the agreement in the manner articulated by the High Court in Codelfa Construction Pty Ltd v State Rail Authority (NSW).[15]
[15] (1982) 149 CLR 337.
The State contends that extrinsic evidence of surrounding circumstances is only admissible in aid of construction of a contract if it has first been determined that the relevant provision is ambiguous on its face. I reject that contention. As a matter of principle, it would be artificial to attempt to construe a contractual provision in a vacuum without any reference to the background context.
As a matter of authority, in DTR Nominees Pty Ltd v Mona Homes Pty Ltd,[16] Stephen, Mason and Jacobs JJ expressed admissibility in unconditional terms:
A court may admit evidence of surrounding circumstances in the form of "mutually known facts" "to identify the meaning of a descriptive term" and it may admit evidence of the "genesis" and objectively the "aim" of a transaction to show that the attribution of a strict legal meaning would "make the transaction futile".[17]
[16] (1978) 138 CLR 423.
[17] At 429. (Citations omitted)
In Codelfa Construction Pty Ltd v State Rail Authority (NSW),[18] Mason J (with whom Stephen and Wilson JJ agreed) said:
[18] (1982) 149 CLR 337.
… it has frequently been acknowledged that there is more to the construction of the words of written instruments than merely assigning to them their plain and ordinary meaning … This has led to a recognition that evidence of surrounding circumstances is admissible in aid of the construction of a contract…
… in Prenn … It was held that, although evidence of prior negotiations and of the parties' intentions, and a fortiori the intentions of one of the parties, ought not to be received, evidence restricted to the factual background known to the parties at or before the date of the contract, including evidence of the "genesis" and objectively of the "aim" of the transaction, was admissible.
…
Lord Wilberforce said:
"The time has long passed when agreements, even those under seal, were isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations. There is no need to appeal here to any modern, antiliteral, tendencies, for Lord Blackburn's well-known judgment in River Wear Commissioners v. Adamson provides ample warrant for a liberal approach. We must, as he said, inquire beyond the language and see what the circumstances were with reference to which the words were used, and the object, appearing from those circumstances, which the person using them had in view. Moreover, at any rate since 1859 it has been clear enough that evidence of mutually known facts may be admitted to identify the meaning of a descriptive term."
…
Lord Wilberforce returned to the same theme in Reardon Smith. In a speech concurred in by a majority of the members of the House of Lords he acknowledged that it is legitimate "to have regard to … 'the surrounding circumstances'". He went on to say
"In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating."
…
"…what the court must do must be to place itself in thought in the same factual matrix as that in which the parties were. All of these opinions seem to me implicitly to recognise that, in the search for the relevant background, there may be facts which form part of the circumstances in which the parties contract in which one, or both, may take no particular interest, their minds being addressed to or concentrated on other facts so that if asked they would assert that they did not have these facts in the forefront of their mind, but that will not prevent those facts from forming part of an objective setting in which the contract is to be construed."[19]
Mason J quoted the above passage from DTR Nominees and added:
The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning.[20]
Brennan J said:
The meaning of a written contract may be illuminated by evidence of facts to which the writing refers, for the symbols of language convey meaning according to the circumstances in which they are used.[21]
[19] At 348-350. (Citations omitted)
[20] At 352.
[21] At 401.

The passage referring to ambiguity, properly understood in the context of the earlier passages and the reference to DTR Nominees, means that reference to the surrounding circumstances cannot change the meaning of a provision which is plain on its face and evidence of the surrounding does not assist in such a case. It does not mean that a finding of ambiguity must be made first before the context is considered.[22]
[22] See also the formulation of the rule by Stephen, Mason and Jacobs JJ in DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 429 which describes admissibility in unqualified terms and to which Mason J referred in Codelfa Construction.
In Electricity Generation Corporation v Woodside Energy Ltd,[23] French CJ, Hayne, Crennan and Kiefel JJ said:
Both Verve and the Sellers recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating".[24]
[23] (2014) 251 CLR 640.
[24] At [35]. (Citations omitted)
In Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd,[25] French CJ, Nettle and Gordon JJ said:
[25] (2015) 256 CLR 104.
In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.
However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.
…
These observations are not intended to state any departure from the law as set out in Codelfa Construction Pty Ltd v State Rail Authority (NSW) and Electricity Generation Corporation v Woodside Energy Ltd. We agree with the observations of Kiefel and Keane JJ with respect to Western Export Services Inc v Jireh International Pty Ltd.[26]
[26] At [47]-[49], [52]. (Citations omitted)
Kiefel and Keane JJ said:
That regard may be had to the mutual knowledge of the parties to an agreement in the process of construing it is evident from Codelfa Construction Pty Ltd v State Rail Authority (NSW). Mason J, with whom Stephen and Wilson JJ agreed, accepted that there may be a need to have regard to the circumstances surrounding a commercial contract in order to construe its terms or to imply a further term. In the passages preceding what his Honour described as the "true rule" of construction, his Honour identified "mutually known facts" which may assist in understanding the meaning of a descriptive term or the "genesis" or "aim" of the transaction. His Honour had earlier referred to the judgment of Lord Wilberforce in Prenn v Simmonds, where it was said that “[t]he time has long passed when agreements … were isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations”.
In a passage from DTR Nominees Pty Ltd v Mona Homes Pty Ltd, to which Mason J referred, it was said that the object of the exercise was to show that "the attribution of a strict legal meaning would 'make the transaction futile'". In Electricity Generation Corporation v Woodside Energy Ltd, French CJ, Hayne, Crennan and Kiefel JJ explained that a commercial contract should be construed by reference to the surrounding circumstances known to the parties and the commercial purpose or objects to be secured by the contract in order to avoid a result that could not have been intended.
The "ambiguity" which Mason J said may need to be resolved arises when the words are "susceptible of more than one meaning." His Honour did not say how such an ambiguity might be identified. His Honour's reasons in Codelfa are directed to how an ambiguity might be resolved.
In reasons for the refusal of special leave to appeal given in Western Export Services Inc v Jireh International Pty Ltd, reference was made to a requirement that it is essential to identify ambiguity in the language of the contract before the court may have regard to the surrounding circumstances and the object of the transaction. There may be differences of views about whether this requirement arises from what was said in Codelfa. This is not the occasion to resolve that question.
It should, however, be observed that statements made in the course of reasons for refusing an application for special leave create no precedent and are binding on no one.[27]
Bell and Gageler JJ said:
These appeals do not raise an important question on which intermediate courts of appeal are currently divided. That question is whether ambiguity must be shown before a court interpreting a written contract can have regard to background circumstances.
Until that question is squarely raised in and determined by this Court, the question remains for other Australian courts to determine on the basis that Codelfa Construction Pty Ltd v State Rail Authority (NSW) remains binding authority. That point, which of itself says nothing about the scope of the holding in Codelfa, was made in the joint reasons for judgment in Royal Botanic Gardens and Domain Trust v South Sydney City Council. The point was reiterated, but taken no further, in the joint reasons for refusing special leave to appeal in Western Export Services Inc v Jireh International Pty Ltd. It should go without saying that reasons for refusing special leave to appeal in a civil proceeding are not themselves binding authority.
The question whether ambiguity must be shown before a court interpreting a written contract may have regard to background circumstances does not arise for determination in these appeals.[28]
[27] At [108]-[112]. (Citations omitted)
[28] At [118]-[120]. (Citations omitted)
I address first the proper construction of the third paragraph of the expert agreement without regard to the extrinsic evidence and then address its proper construction having regard to that extrinsic evidence. As will be seen, the same construction applies whether or not regard is had to the extrinsic evidence.
It is evident from the face of the expert agreement that there was a dispute whether the disputes the subject of the dispute notice fell within the scope of clause 40.3: otherwise there would have been no motivation for inclusion of placitum (i) of the third paragraph of the expert agreement. As it was SAHP who issued the SAHP dispute notice and sought to enliven the jurisdiction of the expert to determine the disputes the subject of a notice, it must have been the State who disputed the jurisdiction of the expert to determine at least some of the disputes the subject of the notice.
If placitum (i) of the third paragraph had not been included in the expert agreement, it is possible that it might have been contended that, in appointing the expert, the parties were accepting that the expert had jurisdiction to determine all of the disputes the subject of the dispute notice at one or two different levels. At the higher level, it might have been contended that the parties could not institute proceedings in a court of competent jurisdiction seeking a declaration that the expert did not have such jurisdiction (albeit such a contention would not in fact have been successful). At the lower level, it might have been contended that the expert was not to consider his or her own jurisdiction but merely to proceed to make the substantive determination (albeit the expert would not in fact have been thereby precluded from considering his or her own jurisdiction). The inclusion of placitum (i) of the third paragraph is readily explicable by the State, out of an abundance of caution, wishing to avoid these theoretical risks and there is no reason to look for a more profound explanation for inclusion of the clause.
It is an unlikely construction of the placitum that, the State being concerned that the expert did not have jurisdiction to determine some of the substantive disputes the subject of the notice, the State agreed to be bound by the expert’s determination of his own jurisdiction. It is an unlikely construction of the placitum that either party was relinquishing its right to have recourse to the courts to determine the expert’s jurisdiction.
The source of the expert’s jurisdiction to determine the substantive disputes the subject of the dispute notice was not the expert agreement but rather clause 40.3 of the head contract. The referral for expert determination was achieved by the unilateral act of SAHP pursuant to clause 40.3(b) of the head contract and did not require the concurrence of the State. Under clause 71(a), the parties were required to agree on the identity of the expert but not on the anterior referral of the dispute to an expert.
The first paragraph of the expert agreement makes it plain that the juristic basis for the referral for expert determination was clause 40.3 of the head contract. This is reinforced by the reference in placitum (ii) of the third paragraph which confines the substantive disputes the expert is to determine to those that fall within the scope of clause 40.3 of the head contract. If the expert agreement confers jurisdiction on the expert to determine conclusively his own jurisdiction under clause 40.3 to determine substantive disputes, that jurisdiction was conferred outside clause 40.3 and outside the head contract: it must have been conferred by an agreement between the parties manifested in the expert agreement extraneous to the head contract. If the parties had intended to take such a profound step, it may be expected that they would have expressed this in the expert agreement. However, the structure and content of the expert agreement suggest that it was merely made in prosaic implementation of the provisions of the head contract.
Clause 71(o) of the contract gives to each party the equivalent of a right of review or appeal to an arbitrator against a determination of an independent expert under the contract when the value of the determination is greater than $1 million. If the parties had by the expert agreement given to the expert an independent jurisdiction to determine his own substantive jurisdiction to determine the substantive disputes, that independent jurisdiction would not have been subject to clause 71(o) and the parties would have had no right of appeal or review of the experts jurisdiction decision. This is an unlikely intention to attribute to the parties.
On the proper construction of the expert agreement on its face, it is plain that the expert was not given jurisdiction to determine conclusively his own substantive jurisdiction.
I turn to the evidence of surrounding circumstances. On 27 July 2016, the State wrote to the President of the Resolution Institute requesting on behalf of the parties that the President nominate an independent expert to determine the dispute the subject of the dispute notice. The letter concluded with the following passages:
The Dispute Notice gives rise to a variety of complex technical, engineering and legal issues, including issues of contractual interpretation under the Agreement. The dispute will require the determination of: (i) scope of the submission to Expert Determination under clause 40.3(b) of the Agreement; (ii) whether the Category 2 Defects set out in the Dispute Notice comprise Defects; and (iii) the quantification of the damage to the Facility caused by each of the Category 1 and Category 2 Defects (as determined), including the legal and/or contractual basis for those calculations.
The State considers that the scope of the Independent Expert’s jurisdiction under clause 40.3 will need to be determined as a preliminary issue.
On 28 July 2016, the State wrote to SAHP expressing disagreement with the proposition set out in the dispute notice regarding the scope of the matters available for determination by the independent expert. The State contended that several of the determinations sought in the dispute notice fell outside the scope of clause 40.3(b) of the contract.
On 15 August 2016, the State’s solicitors wrote to SAHP’s solicitors contending that several of the determinations sought in the dispute notice fell outside the scope of clause 40.3(b) of the contract. The State’s solicitors observed that, if SAHP did not withdraw those matters, it would be necessary for Mr Goldstein to determine the scope of the submission as a preliminary matter. The State’s solicitors enclosed a marked up version of the expert agreement to reflect the State’s position regarding the scope of the procedure. That version included placitum (i) and the qualification and limitation in placitum (ii) (each of which had not been previously included).
Evidence of the negotiations over the wording of the expert agreement is not admissible as such to aid in the construction of the expert agreement. However, this correspondence is admissible as evidence of the surrounding circumstances known to both parties in aid of its construction.
These three items of correspondence from the State confirm what is evident from the expert agreement itself that the State contended that several of the determinations sought in the dispute notice fell outside the scope of clause 40.3(b) of the contract. It shows the genesis and purpose of the inclusion of placitum (i). It shows that, before placitum (i) was included, the State had said that the scope of the independent expert’s jurisdiction under clause 40.3 would need to be determined as a preliminary issue and the State took this position in the absence of any suggestion of the inclusion of placitum (i) in the expert agreement.
This evidence of the genesis of the matter confirms that the purpose of inserting placitum (i) was to ensure that Mr Goldstein first considered his own jurisdiction (on a non-conclusive basis) before proceeding to determine the disputes set out in that notice.
On the proper construction of the expert agreement having regard to the surrounding circumstances, it is plain that the expert was not given jurisdiction to determine conclusively his own substantive jurisdiction.
Judicial determination of expert jurisdiction principles
There is no dispute concerning the legal principles that apply to the judicial determination of an independent expert’s determination.
If the expert has determined an issue that he or she is not authorised by the contract to determine, not carried out the task he or she is required to undertake, carried it out in a manner that he or she is not authorised to undertake or acted otherwise than in accordance with the contractual requirements for an expert determination, the determination will be ineffective.[29]
[29] Holt v Cox (1997) 23 ACSR 590 at 596-597 per Mason P (with whom Priestley JA agreed); AGL Victoria Pty Ltd v SPI Networks (Gas) Pty Ltd [2006] VSCA 173 at [51] per Nettle JA (with whom Maxwell P and Bongiorno AJA agreed); Shoalhaven City Council v Firedam Civil Engineering Pty Ltd [2011] HCA 38, (2011) 244 CLR 305 at [26]-[27] per French CJ, Brennan and Kiefel JJ; Australian Vintage Ltd v Belvino Investments No 2 Pty Ltd [2015] NSWCA 275, (2015) 90 NSWLR 367 at [74] per Bathurst CJ (with whom Beazley P and McColl JA agreed).
On the other hand, the mere fact that an expert makes an error or mistake does not render the determination ineffective.[30]
[30] AGL Victoria Pty Ltd v SPI Networks (Gas) Pty Ltd [2006] VSCA 173 at [51] per Nettle JA (with whom Maxwell P and Bongiorno AJA agreed); Australian Vintage Ltd v Belvino Investments No 2 Pty Ltd (2015) 90 NSWLR 367 at [74] per Bathurst CJ (with whom Beazley P and McColl JA agreed).
In Australian Vintage Ltd v Belvino Investments No 2 Pty Ltd,[31] Bathurst CJ (with whom Beazley P and McColl JA agreed) said:
The parties accepted that the question depended upon whether the determination was made in accordance with the contract. As Nettle JA pointed out in AGL Victoria, in one sense, this test is conclusionary. The question of whether the determination is open to review rather depends on whether or not the expert has carried out the task which he or she was contractually required to undertake. If the expert in fact carried out that task, the fact that he made errors or took irrelevant matters into account would not render the determination challengeable.
On the other hand, if the expert had not performed the task contractually conferred on him or her, but rather performed some different task, or carried out his or her task in a way not within the contractual contemplation of the parties, objectively ascertained, then the determination will be liable to be set aside.[32]
[31] (2015) 90 NSWLR 367.
[32] At [74]-[75]. (Citations omitted)
Context of clause 40
Before turning to clause 40 itself, it is useful to consider other provisions of the contract that form part of the context in which clause 40 is to be considered.
Clause 58 Default Notices
Clause 40 operates in conjunction with clause 58 which addresses defaults, major defaults and default termination events.
Clause 58.1 empowers the State Delegate, if a Default occurs, to give to SAHP a Default Notice. The Default Notice is to state that a Default has occurred and, if capable of remedy, to require SAHP to cure the Default within a specified period being not more than 20 business days (the Default Cure Period).
A Default is defined by clause 1.1 to mean:
the occurrence of any event of default or breach of any obligation by Project Co under any State Agreement, but excludes any Major Default, Default Termination Event or Service Failure.
Constructing the Hospital in a manner giving rise to a Defect falls within the definition of Default.
If SAHP acting diligently is unable to cure the Default within the specified Default Cure Period and has provided to the State a cure plan setting out its actions and timetable to cure the default, clauses 58.1(d) and 58.1A(a) to (c) provide mechanisms for the State, acting reasonably, to extend the Default Cure Period twice by periods determined by the State.
If SAHP fails to cure the Default within the Default Cure Period (as extended when applicable), the Default becomes a Major Default (clauses 58.1(e) and 58.1A(d) and (e)).
Clause 58.3 empowers the State Delegate, if a Major Default occurs, to give to SAHP a Major Default Notice. The Major Default Notice is to state that a Major Default has occurred and that SAHP has 20 business days (the Initial Cure Period) to cure the Default, failing which a Default Termination Event will prima facie occur.
Upon receipt of a Major Default Notice, SAHP is required to submit promptly to the State a detailed cure plan and diligently pursue cure of the Major Default (clause 58.4).

HYLC and SAHP contend that, in contrast to the provisions of clause 70(b) which refer to the amount of the claim as set out in the disputes notice, clause 71(o)(i) refers to the value of the determination being the actual outcome. As the expert determined that the defects involving the loading dock height, clinical areas ceiling exclusion zones and primary data room pipes are not capable of remedy, the value of the determination is zero.
The State makes three alternative contentions. First, by reason of the provisions of clause 40(3)(a), the State’s right under clauses 69(1) and 72 to proceed to arbitration on the same issues the subject of the expert determination is not affected or limited by the State’s rights under clause 40 and in particular by the expert determination. I reject that contention for the reasons given at [315] to [319] above.
The State’s second contention is that, where a dispute does not involve a monetary claim, such as where the dispute is merely about the existence of a defect and no question of value arises, clause 71(o) is inapposite and clause 71(o) is to be read down so as to ignore placitum (i). The State’s third contention is that “the value of the determination” for the purpose of placitum (i) is to be assessed objectively by reference to the difference between the value to the “appellant” (the party “appealing” under clause 71(o)) if it had been successful at expert determination and the value under that expert determination.
Clause 71(o)(i) provides:
(Final and binding): To the extent permitted by Law, the determination of the Independent Expert will be final and binding on the parties, unless:
(i) the value of the determination is greater than $1 million
By contrast, clause 70(b) provides:
If the meeting required by paragraph (a):
(i) does not occur; or
(ii)having occurred fails to resolve the Dispute or to agree that the Dispute be referred to an Independent Expert under Clause 71 or to arbitration under Clause 72,
within 10 Business Days of the delivery of the Notice of Dispute, the Dispute shall be referred to arbitration under Clause 72 save where the dispute is in respect of a claim for payment of an amount which is equal to or less than $1 million (as set out in the Notice of Dispute) in which case, within 10 Business Days of the delivery of the Notice of Dispute, the Dispute shall be referred for a resolution by an Independent Expert under Clause 71. (Emphasis added)
Several observations can be made about the drafting of these two provisions. First, the clause 70(b) provision applies on its face to all generic disputes proceeding via the generic path to expert determination or arbitration other than those agreed under clause 70(b)(ii) to proceed to expert determination. Generic disputes may involve disparate types of claim by either the State or SAHP and may involve a monetary claim where the amount is identified in the notice of dispute, a monetary claim where the amount is not so identified, a non-monetary claim which can nevertheless be measured in monetary terms, or a claim which has no monetary dimension whatsoever. Clause 70(b) is drafted to accommodate what appears to have been contemplated as the paradigm case involving a monetary claim by SAHP against the State in which the amount of the claim is set out in the notice of dispute (and in the case of the construction contract such claim by HYLC against SAHP). It is apt, at least in some cases, to apply to a case involving a monetary claim by the State against SAHP in which the amount of the claim is set out in the notice of dispute (or such a claim by SAHP against HYLC under the construction contract). It is not apt to apply to a monetary claim when no amount is set out in the notice of dispute or to a non-monetary claim.
The clause 71(o)(i) provision applies on its face to all generic and specified disputes proceeding via either the generic or the specific path. Specified disputes, like generic disputes, might involve monetary or non-monetary claims. A specified dispute arrives at expert determination under clause 71 directly without having passed through the gate of clause 70(b) and hence might involve a monetary claim in which the amount is not set out in the notice of dispute or a non-monetary claim that, if it had passed through the gate, would have proceeded to arbitration.
Secondly, the clause 70(b) provision is expressed as a primary rule for referral to arbitration subject to a secondary exception, namely that where the dispute is in respect of a claim for payment of an amount which is equal to or less than $1 million as set out in the notice of dispute, it proceeds to expert determination. By contrast, the clause 71(o)(i) provision is expressed as a rule for referral to arbitration subject to a precondition, namely that the value of the determination is greater than $1 million.
Thirdly, the two provisions must be intended to work in conjunction with each other and harmoniously. The same threshold of $1 million applies to each provision. It must be the intention that, if a generic dispute proceeds to expert determination via clause 70(b) because the amount of the claim is equal to or less than $1 million, clause 71(o) will operate so as to give to the disappointed party a right of “appeal” to arbitration after the expert determination.
Fourthly, clause 70(b) is expressed in terms of the amount of the claim set out in the notice of dispute; whereas clause 71(o)(i) is expressed in terms of the value of the determination.
Fifthly, a broader construction of clause 71(o)(i) will advantage the party dissatisfied with an expert determination, which as a matter of construction is as likely to be SAHP as it is to be the State. Conversely, a narrower construction will advantage the party who was successful on the expert determination, which again is as likely to be the State as SAHP.
Sixthly, clause 71(o)(i) is to be construed having regard to its text, context and evident purpose. Unless a contrary intention is manifested, it should be construed to give a businesslike interpretation and produce a commercial result. If its language is ambiguous, a construction giving rise to capricious, unreasonable, inconvenient or unjust consequences is to be avoided. This consideration favours a broader construction of the clause rather than a narrower construction.
As a matter of construction, when clause 71(o)(i) uses the word “value” in the phrase “ the value of the determination”, that word has been deliberately chosen to have a broader connotation than the “amount” of the claim (referred to in clause 71(b)). Similarly, the reference to “the determination” as the object of the value has been chosen to have a broader connotation than “the claim” (referred to in clause 71(b)). First, it is not confined to a claim expressed in monetary terms but is capable of applying to a non-monetary claim the value of which can be reasonably ascertained. Secondly, it is not confined to the “amount of the claim” but refers to the “value” of the subject matter of the dispute. Thirdly, the reference to “the determination” as the object of the value is not one-sided (as is the reference in clause 71(b) to the amount of “the claim” set out in the notice of dispute) but invites a comparison between the appellant’s case and the outcome of the determination.
It follows that I accept the State’s third contention. The “value of the determination” for the purpose of placitum (i) is to be assessed objectively by reference to the difference between the value to the “appellant” if it had been successful at expert determination and the value under that expert determination. For the purpose of the assessment, the two values to be compared are to be ascertained objectively rather than being limited to the materials adduced before the expert or necessarily being limited (depending on the circumstances) by an amount the subject of the determination.
It appears to be common ground that there is only a single determination within the meaning of clause 71(o) even if the determination encompasses multiple disputes, ie the “value of the determination” is to be determined by reference to the expert’s determination and not by reference to the value of each dispute in respect of different aspects of the Hospital. If I am wrong in that understanding, I will give the parties liberty to make submissions on this question.
In respect of the loading dock, the expert determined in substance that the defect was not capable of remedy. Aquenta assessed the cost of rectification (if undertaken) at $4.224 million and the State’s case is that the cost of rectification is $3.2 million. The other parties’ case is that these costs involved under-estimates if rectification were actually undertaken but in reality the State has suffered no loss as a result of the defect. To assess the “value of the determination”, it is neither necessary nor appropriate to make any finding whether the State would be entitled to damages for breach of contract measured by reference to rectification costs. $3.2 million is the relevant value for the purpose of clause 71(o) insofar as this matter formed part of the determination.
In respect of clinical areas ceiling exclusion zones, the expert determined that there was a defect, but decided the construction issues in favour of HYLC which had a dramatic effect upon the extent of the defect (effectively limiting it, on the finding by the expert – albeit contested by the State – to less than one per cent of the relevant areas). The expert also determined in substance that the defect was not capable of remedy. Aquenta assessed the cost of rectification at $201 million on the assumption that the rectification work was undertaken without having to relocate operations to the old Royal Adelaide Hospital during the works and the State’s case is that the cost of rectification is $201 million. To assess the “value of the determination”, it is neither necessary nor appropriate to make any finding whether the State would be entitled to damages for breach of contract measured by reference to rectification costs. $201 million is the relevant value for the purpose of clause 71(o) insofar as this matter formed part of the determination.
In respect of the dispute about the primary data room pipes, the expert determined in substance that the defect was not capable of remedy. No assessment was undertaken by Aquenta of the cost of re-routing the pipes to avoid encroachment into the primary data room. While HYLC offered a commercial credit to the State of $23,021.88, the expert found and I agree that this did not represent an estimate of the cost of re-routing the pipes to avoid encroachment into the primary data room. No evidence was adduced at trial about the cost of re-routing the pipes to avoid encroachment into the primary data room. I am unable to determine whether that cost, or the State’s claim in respect of the defect, exceeds or does not exceed $1 million.
The value of the determination is well over $1 million and it satisfies the criterion contained in clause 71(o)(i).
If I had not accepted the State’s third contention, I would have been disposed to accept its second contention because clause 71(o) should be construed harmoniously with clause 70(2) so that, if the “value of the determination” has no meaning in respect of a particular determination, a dissatisfied party has a right of “appeal” to arbitration. However, in light of my acceptance of the State’s third contention, it is unnecessary to form a final view on this question.
Conditionality of referral
SAHP alone contends that the precondition reflected in placitum (ii) of clause 71(o) is not satisfied because the State’s 12 October 2016 notice of arbitration was expressed to be conditional.
The notice of arbitration included the following provisions:
1.By this Notice of Arbitration, the Claimant, the State of South Australia … require that its dispute with the Respondent, namely SA Health Partnership Nominees Pty Ltd be referred to arbitration.
…
12.On 26 September 2016, the Independent Expert published a determination in relation to the Notice of Dispute (Determination). The Determination included a determination in relation to Defect Notice 0621: Clinical Areas Ceiling Space that [the determination addressing the existence and extent of the defect is then set out].
13.The Claimant disputes these determinations and seeks to have them reviewed by the arbitration tribunal pursuant to clause 72.1(b) of the Project Agreement and substituted by a determination that the extent of the Defect is as set out in Defect Notice 0621.
14The Determination also included the following purported determinations (Purported Determinations):
…
14.2 in respect of Defect Notice 0580: Loading Dock Ceiling Height, that: … (ii) rectification of the Defect would not be reasonable;
14.3 in respect of Defect Notice 0632: Primary Data Equipment Room Sewer Pipes that: … (ii) rectification of the Defect would not be reasonable;
…
14.5in respect of Defect Notice 0621: Clinical Areas Ceiling Space – 200 mm Services Exclusion Zone, that … (ii) rectification of the defect would not be reasonable;
…
15.The Claimant contends that the Purported Determinations are beyond the contractual remit of the Independent Expert, as provided for in clause 40.3 of the Project Agreement, and are a nullity. On 25 August 2016, the Claimant commenced proceedings in the Supreme Court of South Australia… seeking declaratory relief that the Purported Determinations are a nullity.
16.The Claimant disputes the Purported Determinations and to the extent that the Purported Determinations are found to be valid and binding on the Claimant, seeks to have the Purported Determinations reviewed by the arbitration tribunal and:
…
16.2in relation to the other Purported Determinations, setting aside those determinations,
pursuant to clause 72.1(b) of the Project Agreement.
17.The value of the Determination, including the Purported Determinations, is in excess of $500 million and exceeds the amount stipulated in clause 71(o) of the Project Agreement as enabling recourse to arbitration.
…
20.This reference to arbitration is subject to the outcome of the Proceedings.
On its proper construction, the notice of arbitration is not conditional. First, the notice of arbitration accepts the validity of the expert determination in respect of the clinical areas ceiling exclusion zones and it cannot be contended that the referral to arbitration in respect of that dispute is conditional.
Secondly and more fundamentally, in respect of the other disputes, it was no doubt considered necessary by the State to include paragraph 15 lest it be contended by SAHP that, by the referral to arbitration, the State was precluded from continuing to contend in this action that those determinations were a nullity. The operative paragraphs in respect of these disputes are paragraphs 1 and 16 which in conjunction referred the dispute to arbitration unconditionally. The mere fact that paragraph 20 was included to express that the reference to arbitration was subject to the outcome of the proceedings does not connote that the reference was conditional. It connotes that the State was preserving its rights to contend in the action that the expert determination was a nullity and expressing the obvious logical point that, to the extent that it succeeded in that action, there would be no subject-matter to refer.
I reject SAHP’s contention that the notice of arbitration is invalid because it was conditional.
Conclusion
The State was entitled pursuant to clause 71(o) to refer to arbitration the disputes the subject of the determination and it did so by its notice of arbitration dated 12 October 2016.
Declarations concerning determinations sought but abandoned
When the State instituted the action, HYLC and SAHP by the dispute notices were seeking determinations in respect of one or more of the four defects that ultimately became the subject of the trial including the following determinations:
1.the defect complained of presents no loss of functionality or amenity and the nil sum modification change notice should be accepted by [Project Co/the State] as it will have no effect on the matters particularised in the change notice … and will not result in any Costs or Savings to be apportioned;
2.alternatively, if the Independent Expert determines that there will be any savings associated with the modification, the modification change notice should be accepted for the reasons above subject to the payment to [Project Co/the State] of an amount determined by the Independent Expert as being [Project Co/the State]’s share of the net cost savings calculated in accordance with cl 52.13(c) and the change in compensation principles in schedule 4;
3.further to 2 or in the alternative, if [the State/Project Co] contends and the Independent Expert agrees, that [the State/Project Co] has suffered loss as a consequence of the defect, the Independent Expert should approve the modification to remove the roadblock to technical completion and determine the fact and extent of any loss. Compensation for such loss should be agreed by the parties within seven days of the Independent Expert determination or, failing that, be determined by the Independent Expert in accordance with orthodox legal principle;
4.If the Independent Expert finds that there is a defect, the defect complained of presents a minor loss of functionality or amenity and [HYLC/SAHP]’s rectification works, together with the modification change notice, providing a credit of [amount] should be accepted by [Project Co/the State].
HYLC and SAHP by the dispute notices were also seeking determinations in respect of one or more of the other eight defects the subject of the dispute notices that ultimately did not become the subject of the trial including the following determinations:
1.if … the defect can be remedied, a determination … whether the defect could be treated as a technical completion outstanding item in order to mitigate any further loss or damage that would be suffered by [the State/Project Co] as a result of delays flowing from that rectification;
2.If the … Defect cannot be rectified, the terms of a modification that would be required in order to remove the Defect …;
The State seeks a declaration that these six proposed determinations were beyond the scope of the submission of a dispute for independent expert determination pursuant to clause 40.3(b) of the contract. SAHP and in turn HYLC resist the making of a declaration on the ground that they withdrew their requests for these six determinations at the end of August 2016 when they acknowledged that they were outside the expert’s jurisdiction, and a declaration should not be granted on matters not in dispute or matters that are hypothetical.
I accept the submissions of SAHP and HYLC. It is plain on the proper construction of clause 40.3(b) that an expert does not have jurisdiction to determine that a Modification Change Notice should be accepted or to approve a Modification; to determine the amount that should be paid to the State/SAHP in the absence of rectification of a defect under clause 40.1(e); or to assign a defect to the Technical Completion Outstanding Items list. There is no extant dispute about this and no reason to grant declarations concerning this.
Conclusion
Declarations should be made in the action and the third party action that:
1.the expert did not have jurisdiction to determine whether the size of the floor distribution rooms comprised a defect other than by reference to the Functional Brief, Technical Specifications and Design Departures Schedule and his determination that it did not comprise a defect is null and void;
2.the expert did not have jurisdiction to determine whether the State intended to rectify the defect in respect of the loading dock height and his determination that it did not so intend is null and void;
3.the expert did not have jurisdiction to determine whether the risk mitigation works carried out by HYLC were reasonable and sufficient to resolve the defect in respect of the primary data room pipes and his determination that they were reasonable and sufficient is null and void;
4.while the parties are bound by the determinations by the expert that the defects in respect of the loading dock height, clinical areas ceiling exclusion zones and primary data room pipes are not capable of remedy for the purposes of clause 40(1)(d)(ii), they are not bound by those determinations for the purposes of claims for damages or on the question whether Technical Completion has not been achieved by reason of the existence of those defects;
5.the State was entitled pursuant to clause 71(o) to refer to arbitration the disputes the subject of the determination insofar as it is valid and it did so by its notice of arbitration dated 12 October 2016.[38]
[38] This is subject to the liberty to apply referred to at [340] above.

I will hear the parties as to the form and wording of the declarations to be made.
I will hear the parties as to costs and any other orders sought in the action and third party action.