Tammle Pty Ltd v UPS Supply Chain Solutions Inc
[2008] VSC 171
•26 May 2008
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 6908 of 2006
| TAMMLE PTY LTD (ACN 005 742 398) and others | Plaintiffs |
| v | |
| UPS SUPPLY CHAIN SOLUTIONS, INC. and others | Defendants |
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JUDGE: | JUDD J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 17 March 2008 | |
DATE OF JUDGMENT: | 26 May 2008 | |
CASE MAY BE CITED AS: | Tammle Pty Ltd & Ors v UPS Supply Chain Solutions, Inc. & Ors | |
MEDIUM NEUTRAL CITATION: | [2008] VSC 171 | |
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CONTRACT – Dispute Resolution – Expert Determination – Conclusive and Binding – Right to commence a Proceeding – Interpretation – Time within which determination to be made – Notice of determination
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr G. Bigmore QC with Mr S. Rubenstein | Goldsmiths |
| For the Defendants | Mr C Caleo SC with Ms Renee Enbom | Corrs Chambers Westgarth |
HIS HONOUR:
This is the hearing of a preliminary question set down for trial pursuant to r 47.04 of the Rules of Court. The question was first set down for hearing by a master and later amended. A further amendment was made at the trial on application of the parties. The question as presently formulated is as follows:
Whether, by reason of the matters alleged in paragraphs 26A and 32-38 of the defence that a second further amended statement of claim dated 26 June 2007, and having regard to such relevant and admissible evidence as may be adduced, the plaintiffs are not entitled to maintain against the defendants the claims made in the second further amended statement of claim dated 2 May 2007 SAVE that the issue of any error on the part of the expert or any issue as to whether such error was manifest, shall not be determined as part of the preliminary question.
The formulation of the question is unhelpful in that it requires an analysis of the pleadings to give it meaning. The question raises for consideration the operation of a dispute resolution regime under an agreement for the sale of shares. The agreement provides for the appointment of an expert to determine disputes. The expert’s determination is to be conclusive and binding in the absence of manifest error. If the expert does not make a determination within 75 days of notification to the parties of his appointment, a party is permitted to commence a proceeding to litigate the dispute. A party may also commence such a proceeding, even though an expert determination has been made, by serving a notice of objection and commencing the proceeding within a prescribed period.
In the present case a dispute arose, an expert was appointed and made a determination before this proceeding was commenced. The plaintiffs contend that they are not bound by the determination or the period prescribed in the agreement within which to commence a proceeding. They argue that because the expert did not make his determination within 75 days they have an accrued and enduring right to commence this proceeding. Alternatively, they argue that the expert did not give notice of his determination in the manner prescribed in the agreement and for that reason they are not bound by the time limits.
Prior to 15 June 2006 the first plaintiff Tammle Pty Ltd (Tammle) and Breant Enterprises Pty Ltd (Breant) owned all of its shares in Computer Logistics Solutions Pty Ltd (CLS). On 15 June 2000 Tammle sold its shares in CLS to UPS Logistics Group Inc. By reason of a merger the first defendant, UPS Supply Chain Solutions Inc., now exercises the rights, privileges and powers of the purchaser from Tammle. On the same day John Anthony Joyce (Tony Joyce) and Brenda Maureen Joyce, the shareholders of Breant and the second and third plaintiffs respectively, sold all of their shares in Breant to UPS Logistics Group International Inc, the second defendant.
The sale of the shares was made pursuant to an agreement dated 15 June 2000 to which the plaintiffs, UPS Logistics Group Inc and the second defendant are parties (the sale agreement). Terence Anthony Mahony (Terry Mahony) is a director of Tammle. CLS is the third defendant, although its name has now changed to UPS Logistics Group Pty Ltd. In the sale agreement the reference to “Breant Vendors” is a reference to its former shareholders, Tony and Brenda Joyce. The “Purchasers” are UPS Logistics Group Inc and the second defendants.
The consideration for the sale was to be paid in a number of instalments, two of which are described in cl 6.1 of the sale agreement as the “First earn-out instalment” and the “Second earn-out instalment”. There is a complicated formula in cl 6.3 to calculate the First earn-out instalment; and in cl 6.4 and 6.5 to calculate the Second earn-out instalment. Clause 6.11 provides for a dispute resolution mechanism in the event of a dispute in relation to the calculation of an earn-out instalment.
A dispute arose between the plaintiffs and defendants in relation to the plaintiffs’ claim to an earn-out instalment. Pursuant to the sale agreement, the solicitors for the plaintiffs requested an expert determination of the dispute.
Clause 6.11 of the sale agreement provides:
Dispute
(a)Any dispute in relation to the calculation of an Earn-out Instalment which cannot be resolved between the Breant Vendors and Tammle and the Purchasers within 21 days of the dispute first arising, will be referred to an independent chartered accountant agreed to by the parties or failing such agreement, nominated by the President for the time being of the Institute of Chartered Accountants (Victorian Division) from one of the so called “Big Five” firms of chartered accountants (“Expert”), with a request that the Expert make a decision in respect of the dispute within 75 days or earlier from the date of notification by the Expert of the Expert’s appointment.
(b)Subject to clause 23.14, the decision of the Expert shall, in the absence of manifest error, be conclusive and binding on all parties with the calculation determined by the Expert being deemed to have been accepted by the parties.
(c)The Breant Vendors and Tammle on the one part and the Purchasers on the other part shall each pay one half of the Expert’s costs and expenses in respect of any such reference. The Expert, in acting in respect of any such reference, shall act as an expert and not as an arbitrator.[1]
[1]Emphasis added.
Clause 23.14 of the sale agreement provides:
Where this document provides for an Expert to resolve a dispute or claim between the parties the following applies:
(a)The parties agree that the Expert will be required to follow the procedures and rules set out in Schedule 10. In the event of any conflict between Schedule 10 and clause 12.15(a), the procedures and rules set out in clause 12.15(a) shall prevail to the extent of such conflict.
(b)The Expert’s Determination shall be conclusive and binding (in the absence of manifest error) if the dispute or claim involves an amount under $650,000.
(c)In determining the amount in dispute or claimed for the purposes of paragraph (b), there shall be deducted from:
(i)the higher of the total amount that is proposed to be paid (pursuant to an entitlement arising from the provisions of this document specified in paragraph (b)) and the amount claimed (in a meritorious claim);
(ii)the amount offered or proposed to be paid pursuant to those entitlements. The intent of the parties in this regard is to genuinely establish the amount in dispute. If during the course of the determination the amount in dispute increases, that increased amount shall be the amount in dispute.
(d)If the dispute or claim involves an amount equal to or more than $650,000, the Expert’s Determination will be deemed to be conclusive and binding (in the absence of manifest error) if neither Terry Mahony and Tony Joyce on the one part and the Purchasers on the other part objects, by notice in writing to the other, to the Expert’s Determination within 60 Business Days of the date the Expert notifies Terry Mahony, Tony Joyce and the Purchasers in writing of the determination or if such notice of objection is given but the party giving such notice does not commence proceedings within the 12 month period specified in paragraph (e) below.
(e)If either Terry Mahony and Tony Joyce on the one part or the Purchasers on the other part object to the Expert’s Determination within the 60 Business Day period specified in paragraph (d), that party must commence proceedings in relation to the dispute or claim within 12 months of the date the Expert notifies Terry Mahony, Tony Joyce and the Purchasers in writing of the determination and in such circumstances the other party shall have the right to make a counterclaim (or other such proceedings) at any time after such proceeding has been commenced.
(f)If the Expert does not make a determination within 75 days from the date upon which Terry Mahony, Tony Joyce and the Purchasers are notified of the Expert’s appointment, a party may commence proceedings in relation to the dispute or claim provided that if:
(i)Terry Mahony, Marion Erbs and Tammle, in the case of proceedings commenced by one or more of them;
(ii)Tony Joyce and Brenda Joyce, in the case of proceedings commenced by either or both of them; or
(iii)the Breant Purchaser and the Tammle Purchaser, in the case of proceedings commenced by either of them,
have by their action or inaction obstructed or delayed the making of a determination by the Expert, they shall not commence proceedings in relation to the dispute or claim until after a period equal to the aggregate of 75 days and the period during which the obstruction or delay occurred.
(g)Subject to paragraph (h) below, any proceedings in relation to a claim or dispute will be heard de novo or anew of the Expert’s procedures, rules and determination.
(h)Regard is to be given to the determination of an Expert when the question of costs is considered in any litigation. The Expert may be called as a witness in any such litigation.[2]
[2]Emphasis added.
Schedule 10 to the Contract sets out “EXPERT PROCEDURES AND RULES”. In their submissions each side placed reliance on various paragraphs of Schedule 10. Paragraph 17 provides:
As expeditiously as possible after the receipt of written submissions or after the conference and written submissions following it, the Expert shall determine the dispute and notify such determination in writing to Tony Joyce, Terry Mahony and the Purchasers. The Expert shall give to Tony Joyce, Terry Mahony and the Purchasers a brief summary of the reasons for the determination. The Expert may also make declarations or directions as to the Expert’s Determination.[3]
[3]Emphasis added.
Mr McGuiness, a partner of KPMG (the Expert), was engaged to determine the dispute. When confirming his engagement to the parties on about 11 February 2004 the Expert reminded them that his ability to meet a proposed timetable would depend upon their ability to meet their obligations under the timetable. He did not purport to bind himself to a date by which his determination would be made. The evidence does not indicate that he was ever required by any party nor did he agree to provide his determination by a particular date or within a particular number of days.
On 21 April 2004 the Expert wrote to the solicitors for the parties setting out, amongst other things, his proposed timetable. Thereafter evidence and submissions were provided by the parties to the Expert and timelines were adjusted and extended, all with the agreement of the parties. On 1 September 2004 the Expert wrote to the parties informing them that he was still considering information provided, noting that he was yet to receive reply submissions from the plaintiffs’ solicitor. That was more than six months after his engagement. The plaintiffs’ solicitor responded “No problem with letting [the Expert] determine his timetable and requirements as he sees fit”. On 29 April 2005 the Expert sent his determination by email to the plaintiffs’ solicitors, the defendants’ solicitors and others. On 15 June 2005 the plaintiffs’ solicitors gave a notice of objection to the defendants’ solicitors. This proceeding was commenced on 13 June 2006.
The pleadings, as at the date of this trial, are constituted by a second further amended statement of claim and a defence. By their statement of claim, the plaintiffs allege that the defendants breached the sale agreement by failing to include in the accounts of CLS an amount representing the ReTech global debt. The plaintiffs allege that had the debt been included they would have become entitled to an amount payable as an earned-out instalment which they have been denied because of that breach. In apparent anticipation of defences, the plaintiffs plead (para 21) the Notice of Dispute dated 11 September 2002; the appointment of the Expert (para 22); and manifest error (para 24). Importantly, the plaintiffs allege that the Expert failed to make his determination within 75 days from the notification date which is alleged to be 3 February 2004 (paras 22A, 22B). The plaintiffs further allege (para 23B) that:
The Expert at no time between making the determination as aforesaid and the commencement of this proceeding notified either Terry Mahony and Tony Joyce in writing of the determination consistently with the requirement of the [sale agreement] term referred to in paragraph 9(ca) (being cl 22.2 of the [sale agreement]).
In paragraph 26A the plaintiffs draw together some of the threads of their pleading, again in apparent anticipation of defences, and allege the following conclusions:
26A.Notwithstanding that this proceeding was commenced on 13 June 2006, Tammle and the Breant Vendors are entitled to maintain the proceeding:
(a)with respect to the breach of the [sale agreement] referred to in paragraph 18 hereof;
(b)alternatively, with respect to the breaches of the [sale agreement] referred to in paragraphs 15A, 18 and 18A hereof;
(c)alternatively, in its entirety;
By reason of:
(i)the Expert’s failure to make a determination within 75 days of the notification date; as referred to in paragraph 22B hereof; and/or
(ii)the manifest error in the determination referred to in paragraph 24 hereof; and/or
(iii)the Expert’s failure to notify either Terry Mahony or Tony Joyce in writing of the determination consistently with the requirement of the [sale agreement]; as referred to in paragraph 23B hereof.
There follows an allegation that CLS engaged in misleading and deceptive conduct when preparing the 2001 accounts; delivering those accounts to its auditor; and in procuring the finalisation of those accounts without recording the ReTech global debt. That conduct is alleged to have caused the plaintiffs’ loss and damage by denying them an earn-out instalment to which they were entitled.
The only declaration sought in the prayer for relief is to the effect that CLS was required to record the ReTech global debt in its accounts as income. No order is sought setting aside the expert determination or to the effect that the plaintiffs are not bound by the determination. This does not seem to have been an oversight. The plaintiffs’ primary case attempts to side step the expert determination, pleading matters in relation thereto only in anticipation of defences that might be raised by the defendants relying upon the final and binding nature of the determination.
The plaintiffs’ anticipation was not disappointed. The defendants pleaded, in paragraphs 31-38, as follows:
31.Further, in answer to the entirety of the allegations made by the plaintiffs in the statement of claim, the defendants rely upon the matters alleged in paragraph 32-38 below.
32.Pursuant to clause 23.14 of the [sale agreement], the Expert’s Determination is deemed to be conclusive and binding (in the absence of manifest error) if:
(a)neither Terry Mahony and Tony Joyce, on the one part, and the Tammle purchaser and the Breant purchaser, on the other part, objects by notice in writing to the other to the Expert’s Determination within 60 business days of the date the Expert notified Terry Mahony, Tony Joyce and the Tammle purchaser and the Breant purchaser in writing of the determination (“the Relevant Date”);
(b)or, if such notice of objection is given, the party giving such notice does not commence proceedings within 12 months of the Relevant Date.
33.Further, clause 6.11(b) of the [sale agreement] provided that, subject to clause 23.14, the decision of the Expert shall, in the absence of manifest error, be conclusive and binding on all parties with the calculation determined by the Expert being deemed to have been accepted by all parties.
34.By
a report dated 29 April 2005 (“the Determination”), notifiedthat dayin writing on 29 April 2005 to Terry Mahony, Tony Joyce, the Tammle purchaser and the Breant purchaser,Mr John McGuiness (“the Expert”) determined the dispute referred to him for the determination by the notice of dispute referred to in sub-paragraph 21(a) above.Particulars
A copy of the Determination is in the possession of the solicitors for the defendants and may be inspected by appointment.
35.The notice of objection to the Determination, alleged in paragraph 25 of the statement of claim, was given by Terry Mahony and Tony Joyce on 15 June 2005, within 60 Business Days of the Relevant Date.
36.This proceeding was instituted on 13 June 2006 and, accordingly, was not commenced by Terry Mahony and Tony Joyce within 12 months of the Relevant Date.
37.By reason of the matters referred to in paragraphs 32 to 36 above:
(a)the Determination is deemed to be conclusive and binding on the plaintiffs;
(b)the calculation determined by the Expert in the Determination is deemed to have been accepted by the plaintiffs.
38.Further, in the absence of an order setting aside or varying the Determination on the basis of manifest error:
(a)the plaintiffs are not entitled to maintain this proceeding; and
(b)the Determination is a bar to any cause of action alleged by the plaintiffs against the defendants in relation to a matter forming part of the dispute determined by the Expert in the Determination.
I was persuaded to embark upon a trial of the preliminary question only after I was assured by counsel that there was real utility in its resolution prior to a trial of all issues. My reservations, expressed to the parties, arose because counsel for the plaintiff foreshadowed an intention to amend or restructure the plaintiffs’ case should the question be answered in favour of the defendant. There is also the proviso, grafted on to the preliminary question, which excludes from this trial a resolution of whether or not there was “manifest error”.
In my opinion the efficient disposition of commercial litigation is not assisted by the trial of preliminary questions in circumstances where the outcome will not resolve the proceeding and may result in the reformulation of the issues. There are other matters which, in my view, militate against the trial of a preliminary question in a case such as this. They include the fragmentation of the proceeding, the possibility of an appeal, delay and additional costs.
However, as I have said, I was assured by counsel that there was utility in the trial of the preliminary question. The trial occupied a little less than one day, following an estimated duration of three days, due in large measure to the efficiency of counsel appearing before me.
The issues for determination, arising out of the matters alleged in paragraphs 26A and 32-38, may be summarised as follows:
(a)Were the plaintiffs excused from compliance with cl 23.14(d) and (e) because the Expert did not make his determination within 75 days from the date upon which Terry Mahony, Tony Joyce and the Purchasers were notified of his appointment?
(b)Having given a notice of objection under cl 23.14, were the plaintiffs required to commence their proceeding within 12 months of the date upon which the Expert emailed his determination to the plaintiffs’ solicitors, Goldsmiths, on 29 April 2005?
The plaintiffs’ case proceeds on the basis that they are not precluded from commencing this proceeding because there was manifest error in the expert determination; the Expert failed to make the determination within 75 days of the relevant date; and the Expert failed to notify Terry Mahony and Tony Joyce in writing of the determination as required by the sale agreement.
While the plaintiffs plead manifest error, no relief is sought to give effect to the claim, if correct and the preliminary question is to be answered without addressing that issue. Putting to one side the allegations of manifest error, the plaintiffs submit that they are not bound by the determination or precluded from bringing and maintaining this proceeding for the following reasons:
(a)First, the Expert did not make a determination within 75 days as required by cl 23.14(f) of the sale agreement and therefore the plaintiffs have an accrued and enduring right to commence this proceeding.
(b)Alternatively, if they are bound by the procedure and limitation period for the commencement of proceedings under cl 23.14(e), the Expert did not notify Terry Mahony and Tony Joyce in the manner prescribed and time for the commencement of this proceeding did not start to run.
(c)Alternatively, if by giving a notice of dispute on 15 June 2005 Terry Mahony and Tony Joyce are taken to have received notice of the determination, the time in which a proceeding may be commenced is to be calculated from or immediately before the date of the notice, with the consequence that this proceeding was commenced within time.
By cl 6.11, the parties to the sale agreement have agreed to submit any dispute in relation to the calculation of an earn-out instalment, which cannot be resolved within 21 days, to an expert. By cl 23.14(a) and (b) the parties have agreed that the Expert will follow the procedures and rules set out in Schedule 10 and that the determination shall be conclusive and binding (in the absence of manifest error) if the dispute or claim involves an amount under $650,000. It is accepted by the parties that the amount in dispute or claimed by the plaintiffs is more than $650,000.
If the amount in dispute is more than $650,000 cl 23.14(d) deems the determination to be conclusive and binding in the absence of manifest error, if identified persons relevantly Terry Mahony and Tony Joyce, do not object in writing within 60 business days of the date the Expert notified them in writing of his determination or, if a notice of objection is given, the party giving such notice does not commence a proceeding within 12 months of that date. Clause 23.14 makes the commencement of the proceeding within 12 months of that date mandatory.[4] It is common ground that insofar as cl 23.14(d) and (e) have application, the time limits are to be strictly applied.
[4]See generally GR Mailman and Associates Pty Ltd v Wormald (Aust) Pty Ltd (1991) 24 NSWLR 80, 100-1.
I accept that the relevant date from which to calculate the 75 day period under cl 23.14(f) is 11 February 2004, as the date upon which Terry Mahony, Tony Joyce and the Purchasers were notified of the Expert’s appointment. The plaintiff does not suggest that Terry Mahony and Tony Joyce were not duly notified of that appointment. It is common ground that the determination was not made within 75 days of notification of appointment. The plaintiffs submit that, as a consequence, they need not concern themselves with the conclusive or binding nature of the determination or the need to establish manifest error, or the procedures for challenge found in cl 23.14(d) and (e) because they have an accrued and enduring right to bring this proceeding. They argue that the subsequent making of a determination, its notification to their solicitors, and their subsequent delivery of a notice of dispute in no way displaces their right.
The primary argument for the defendants on this issue is that, once a determination has been made, the only possible means by which the plaintiffs may bring a proceeding in relation to the dispute or claim is by the procedure set out in cl 23.14(d) and (e), requiring notice of dispute and the commencement of any proceeding within the prescribed time. They submit that, save for that limited opportunity to bring a proceeding in strict compliance with those procedures and time limits, the parties have agreed that the determination is binding and conclusive in the absence of manifest error.
The defendants concede, however, that the plaintiffs might have had the right (subject to their conduct) to commence a proceeding after 75 days following the date of notification of the Expert’s appointment but only until his determination was made. They argue that any such right did not survive the making of a determination because the plaintiffs did not commence their proceeding prior to the making of the determination. Instead, the plaintiffs participated in the process of determination by making submissions and accepting changes to the timetable which meant that the determination could not be completed until much later than 75 days from their notification of the appointment. They encouraged the Expert to determine his own timetable. After the Expert had made his determination and emailed the parties’ solicitors, the plaintiffs took the step of serving a notice of objection to the determination under cl 23.14(d). The defendants submit that once the Expert has made his determination the right which the plaintiffs might otherwise have had to commence a proceeding in respect of the dispute or claim evaporated or became irrelevant.
The defendants submit that the sale agreement does not provide, expressly or by implication, that it is a condition of a valid determination – one that is capable of being “binding and conclusive” in the circumstances specified in cl 23.14(b) – that it be made in 75 days of notification of appointment. The absence of such a condition, the defendants argue, is supported by the express reservation of manifest error as a singular ground going to challenge the validity of a determination.
In the alternative, the defendants submit that the plaintiff waived its right to commence a proceeding in relation to the dispute on the ground that a determination was not made within 75 days, because of the plaintiffs’ conduct in agreeing to an extended timetable, failing to take steps to have the determination made within 75 days, instructing the Expert to determine his own timetable, permitting the Expert to make his determination beyond 75 days and by invoking the procedures under cl 23.14(d) and (e) when serving a notice of objection. The defendants submit that by this conduct, more particularly described in paragraph 26A(c)(i) of their defence, the plaintiffs chose to pursue one of two inconsistent courses and thereby renounced any right which they might have had to rely upon the late determination.
In my opinion cl 23.14(f) is designed to overcome a circumstance where, through no fault of their own, a party is unable to have a claim determined because of delay by the appointed expert. The sale agreement does not require that a determination be made within 75 days although cl 6.11(a) provides that the reference to the expert be coupled with a “request” that the expert make a determination within 75 days of notification of appointment. It is not a condition of a valid determination that it is made within any period of time. Schedule 10, which prescribes the “Expert Procedures and Rules”, requires that the determination be made “as expeditiously as possible”. Some time limits are prescribed in Schedule 10 but there is no time limit for the making of a determination. This is to be expected. The complexity of the issue for determination will vary depending on the nature of the claim or dispute. It is not possible to predict how long it will take the parties to assemble their material and prepare and deliver submissions. The Expert must then, of course, have time to consider the material, the submissions and make a determination.
Clause 23.14(f) recognises, in my view, the commercial reality, evident in this case, that a determination may well take very much longer than 75 days from notification of appointment. Putting to one side, for the moment, the defendant’s case of waiver, and any period by which the 75 day period mentioned in cl 23.14(f) might be extended due to obstruction or delay on the part of the plaintiffs, it is my view, that the plaintiffs were at liberty to commence a proceeding at any time after 75 days from notification of the appointment of the Expert but only until the Expert made his determination. If a proceeding had not been commenced and the Expert made his determination, cl 23.14(d) and (e) made that determination binding and conclusive, save for manifest error, and provided a singular procedure, involving the giving of a notice of objection, which may be invoked by a party disappointed with the determination. That procedure required a proceeding to be commenced within a limited period of time.
Once the determination had been made by the Expert the safety net created by cl 23.14(f) is no longer required. The plaintiffs had an alternative but limited opportunity to litigate the dispute or claim without regard to the determination. To construe paragraph (f) so as to provide an enduring right in the plaintiffs to commence a proceeding when a determination has been made but more than 75 days from the date of notification of appointment would, in my view, contradict the party’s intentions, evident from the terms of the sale agreement, to have their disputes finally resolved by an expert. The construction contended for by the plaintiffs may also have the effect of dissuading parties from cooperating in the expedient determination of a claim or dispute by an expert or induce tactics of delay which although not necessarily constituting “obstruction or delay” for the purpose of cl 23.14(f) may be employed to secure what the plaintiffs describe as an enduring right to ignore the determination and the limited scope for challenge under cl 23.14(d) and (e).
The plaintiffs, having waited until after the determination was made to commence this proceeding, may not, in my view, rely upon the delay of more than 75 days from notification of appointment to avoid the operation of cl 23.14(d) and (e) which make the determination binding and conclusive (in the absence of manifest error) and which permit only one limited pathway to litigate their dispute.
If I am wrong in my interpretation of cl 23.14(f), so that even after an expert has made a determination a claimant, such as the plaintiffs, may nevertheless commence a proceeding because more than 75 days have elapsed from notification of the appointment, the plaintiffs have waived any right they had to commence this proceeding. Their waiver falls more readily into the second category mentioned by Mason J, as he then was, in Sargent v ASL Developments Ltd[5] and adopted by Toohey J in Commonwealth of Australia v Verwayen[6] when discussing the inter-relationship between waiver, election and estoppel when he said:
In my view, waiver, by that name, has a role to play. And it is a role which involves no confusion with variation of contract or promissory estoppel. It may be seen as a form of election between inconsistent rights, in the former of the categories mentioned by Mason J in Sargent. Election implies that a choice must be made between two rights which are mutually exclusive. “Obviously there can be no election, choosing one course to the exclusion of the other, when in fact there is only one course to take, or where the two courses are such that the adoption of one of them does not necessarily indicate a final intention to abandon the other”: Spencer, Bower and Turner, p.342. But, in the second of those categories, “the legal grounds on which a person is precluded from raising a particular defence…”, an election is involved, only in the sense that a defendant may choose to take a jurisdictional point, rely upon an irregularity in the proceedings, plead a particular defence, or take some other step in the adjudicative process, or he may choose not to do so. But he may not take up “two inconsistent positions”, the language used in Craine. It may be, therefore, that “election” is best reserved for the former of Mason J’s categories and “waiver” for the latter.[7]
[5](1974) 131 CLR 634, 655.
[6](1990) 170 CLR 394, 421 at 471.
[7]Emphasis added.
The plaintiffs allowed the determination to be made without commencing a proceeding. They objected in writing to the determination and thus invoked the procedures and time limitations under cl 23.14(d) to challenge the determination. They agreed with the defendants and the Expert that he would continue to carry out his engagement in circumstances where he could not possibly make his determination within 75 days. They agreed to the Expert determining his own timetable. In my view, the conduct so described constituted an unequivocal renunciation of the right to rely upon the Expert’s delay in making the determination.
The plaintiffs next argue that, even if their 75 day argument fails, the determination was not notified in the manner required by the sale agreement and, as a consequence, they are not bound by the finality of the determination or the procedures and limitation periods imposed in cl 23.14(d) and (e). Alternatively, the plaintiffs contend that if notification of the expert determination is to be inferred from the service of the notice of objection, the court should infer that notification took place immediately prior to the date of the notice of objection with the consequence that this proceeding was commenced within 12 months of that date.
The plaintiffs submit that cl 23.14(e) falls into a category of clauses that seek to exclude or limit liability and as such must be construed strictly. They submit that the requirement for notification expressly requires notification to the individuals, Terry Mahony and Tony Joyce, in writing. They submit that email notification to the plaintiffs’ solicitors, Goldsmiths, was not in accordance with cl 22.2 of the agreement which relates to the provision of notices. The document was not sent to the named individuals and if it is to be regarded as having been sent to them by email, there was no confirmation as required under cl 22.2(e). Accordingly, so the plaintiffs submit, the defendants cannot contend that this proceeding was not commenced “within 12 months of the date the Expert notifies Terry Mahony, Tony Joyce and the Purchasers in writing of the determination”.
The defendants submit that notification by the Expert of his determination to the plaintiffs’ solicitors was notification to Terry Mahony and Tony Joyce. They submit that cl 22.2 of the sale agreement provides for methods of service as between parties only and does not address communications such as that between an appointed Expert and the parties. They submit that the requirement for notification is to be determined by reference to Schedule 10. Paragraph 17 of Schedule 10 requires notification in identical terms to that prescribed in cl 23.14(e). The defendants submit that the notification by e-mail to the plaintiffs’ solicitors satisfied the requirement for notification in writing.
The defendants submit, in the alternative, that even if the Expert was required to notify the parties of his determination in accordance with cl 22.2 of the contract the plaintiffs waived their right to contend that the determination was not notified to Terry Mahony and Tony Joyce because of the customary method of communication between the Expert and their solicitors and service of a notice of objection under cl 23.14(d) which, by its very nature, presupposed knowledge of the determination.
On 11 September 2002, Goldsmiths wrote to Corrs Chambers Westgarth, solicitors for the defendants, enclosing a Notice of Dispute requesting an expert determination. They represented themselves to be acting “for and on behalf of the claimants”. The claimants were defined as “the Breant Vendors” and “Tammle”. The Breant Vendors were Tony and Brenda Joyce. Thereafter, the communications were, almost without exception, tripartite communications passing between the Expert and his staff, Corrs Chambers Westgarth and Goldsmiths. They concerned such matters as the terms of engagement, preparation and delivery of written submissions, a preliminary conference with the Expert, revisions to the timetable for evidence and submissions and related matters.
It is significant that cl 23.14 and Schedule 10 make specific and frequent reference to Terry Mahony or Tony Joyce. For example, paragraph 1 of Schedule 10 provides that “a dispute will exist if any one or more of Tony Joyce, Terry Mahony or the Purchaser gives a written notice to the others within the prescribed period to the effect that a dispute exists …” Paragraph 4 requires the Expert to make his determination “on the basis of information received from one or more of CLS, Tony Joyce, Terry Mahony and the Purchaser …” By paragraph 5, the Expert is required to disclose to each of Tony Joyce, Terry Mahony and the Purchasers all the information and the documents received by the Expert. By paragraph 6, the Expert is not to consult with a party other than in the presence of Tony Joyce, Terry Mahony and representatives of the Purchasers except in limited circumstances. Paragraph 7 provides that if the Expert becomes aware of any circumstance which might reasonably be considered to adversely affect his capacity to act independently or impartially, he is required to inform Tony Joyce, Terry Mahony and the Purchasers immediately. Paragraph 9 provides that Tony Joyce, Terry Mahony and representatives of the Purchasers may be required to attend a preliminary conference. Paragraphs 13, 14 and 15 require or permit Tony Joyce, Terry Mahony and the Purchasers to provide written submissions to the Expert in support of their contentions. There are other instances where Tony Joyce and Terry Mahony are specifically invested with rights, roles and responsibilities on behalf of the vendors in connection with the resolution of a claim or dispute.
In my view the designation of Terry Mahony and Tony Joyce in cl 23.14 and Schedule 10, as specified participants in the dispute resolution process, was to ensure that an individual director of Tammle and one of the individual vendor shareholders in Breant would be informed about and responsible for dealing with the rights and obligations of the vendors in the case of a dispute. The important role given to these individuals is also reflected in cll 1.4, 1.5 and 1.6 of the sale agreement. Terry Mahony and Tony Joyce were given the status of vendors when rights were to be exercised, things were to be done or persons notified in the event of a dispute and in the process leading towards an expert determination.
There is an air of unreality about the plaintiffs’ argument that because these two individuals were not personally notified of the determination, the plaintiffs may ignore the 12 month limitation period specified in cl 23.14(e) as the time within which they may commence a proceeding following a notice of objection. I do not accept the plaintiffs’ submissions that cl 22.2 governs service of the determination. That clause is designed to regulate service of documents between the parties. The conduct of the Expert is regulated by Schedule 10 which gives to the Expert significant scope to determine his or her own timetable and procedures. It is unrealistic to regard the timetable in Schedule 10 as inflexible. It was always open to the parties to agree on a different timetable. They did this on a number of occasions in consultation with the Expert. They also agreed on a mode of communication which would accommodate the Expert’s obligations to Tony Joyce and Terry Mahony under Schedule 10. In my opinion, by their conduct the plaintiffs have agreed with the Expert that he will communicate with Tony Joyce and Terry Mahony through the plaintiffs’ solicitors.
Further, in conformity with their important individual and initiating roles under cl 23.14 and Schedule 10, the plaintiffs’ solicitors must be taken to have acted on instructions from Tony Joyce and Terry Mahony when giving the Notice of Dispute and thereafter dealing with the Expert. I refer again to paragraph 1 of Schedule 10 which provides that “a dispute will exist if any one or more of Tony Joyce, Terry Mahony or the Purchaser gives a written notice to the others within the prescribed period…”. The communications to and from Goldsmiths were made and received on behalf of Tony Joyce and Terry Mahony as the representatives of the vendors. They were the individuals authorised to initiate the dispute resolution process for the vendors. In my opinion, when the Expert notified Goldsmiths of his determination he notified Tony Joyce and Terry Mahony. The notification was in writing, albeit in electronic form. In the circumstances it is unnecessary to deal with the further alternative argument advanced by the plaintiff which was contingent upon the giving of a notice of objection as a basis to infer notification of the Expert’s determination.
The defendants rely upon waiver as an alternative response to the plaintiffs’ case that the determination was not notified in accordance with the terms of cl 23.14(d) and (e). Insofar as cl 23.14(d) and (e) and Schedule 10 require personal service upon Tony Joyce and Terry Mahony, the plaintiffs agreed with the Expert and the defendants to communicate with those individuals through their solicitors, Goldsmiths. They did not insist upon personal communications. By their conduct, the plaintiffs unequivocally renounced any right they may have had to insist upon personal notification of the determination to Tony Joyce and Terry Mahony and cannot now rely upon the Expert’s failure to so communicate with them.
Having regard to my conclusion in relation to each of the grounds advanced by the plaintiffs to validate the commencement of this proceeding, the preliminary question must be answered, Yes. That is to say, the plaintiffs are not entitled to litigate their claim to an earn-out instalment without first setting aside the Expert determination for manifest error. No such relief is sought. This proceeding was not commenced within the limitation period specified in cl 23.14(d) and (e) of the sale agreement which deems the expert determination to be conclusive and binding.
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