Following a new emphasis placed on alternative dispute resolution by the Building Code 2016 introduced in December last year, as raised by HWL Ebsworth in a recent alert, the Queensland Supreme Court1 has also further recognised the importance and enforceability of alternative dispute resolution clauses in a recent case, as discussed by Michael Hollingdale and Ross Williams.
The background facts
Under a development management agreement (DMA) the defendants were to provide certain services to the plaintiff, principally to obtain development approval to construct a fast food or convenience on the plaintiff’s property, and to facilitate construction of that development. The plaintiffs’ solicitors gave formal notice of termination of the DMA and alleged breaches of it and certain misrepresentations. The defendants’ solicitors responded by denying the allegations and stated:
‘9. The subject matter of the dispute between our respective clients falls within the scope of clause 12 of the DMA, and our client intends to activate the ADR/expert determination process described in that clause by separate notice under clause 12.2.
This is appropriate, especially noting: (a) the nature of the DMA and the relationship of the parties thereunder; (b) that the clause is designed to survive the DMA; (c) that the clause can be activated by either party and be mandatory; and (d) that the ADR clause takes up 3 pages of the 10 page DMA. 10. In the interim, we are instructed to invite a meeting to discuss the current dispute in the immediate future. …’
At least one without prejudice meeting took place without success.
The plaintiff’s solicitors commenced proceedings but before serving the statement of claim they sent the claim and statement of claim to the defendant’s solicitors by email, stating that unless they heard otherwise, they would arrange service on the next day.
On the same date, the defendants’ solicitors replied and attached a letter that had been prepared before the first email was received. The letter was a notice of dispute calling for the parties’ dispute to be referred to expert determination in accordance with clause 12 of the DMA.
The plaintiff’s solicitors replied arguing that the letter was not a valid notice of dispute, and that the Supreme Court is the appropriate forum. They advanced reasons why the dispute was not amenable to determination by a single expert.
The defendants filed conditional appearances and applied for a stay of proceedings claiming that clause 12 of the DMA provides a procedure by which disputes arising out of or in connection with the DMA are to be determined by an independent expert.
The ADR/expert determination clause
The disputes clause provided that:
12.2 If a party asserts that a dispute exists between the parties arising out of or in connection with this Agreement, the party can give a Notice of Dispute to the other party specifying –
a. the nature of the dispute;
b. the areas of expertise it considers are required to resolve the dispute;
c. the major issues for determination; and
d. the relief or outcome being sought.
12.3 Within seven (7) days of receipt of the Notice of Dispute, the other party must provide a Notice of Response stating its position in relation to the dispute, including –
a. the areas of expertise it considers are required to resolve the dispute;
b. any additional issues that should be referred for determination; and
c. any comment on the relief or outcome referred to in the Notice of Dispute.
12.4 Within seven (7) days of receipt of the Notice of Response, the parties must take reasonable steps to resolve the dispute.
12.5 Either party may refer the dispute for expert determination pursuant to this clause if the dispute is not resolved in the period referred to in clause 11.4.
Clause 12.6 and following set out a final and binding expert determination process in comprehensive terms, including a requirement to comply with procedural fairness and natural justice.
Did the ADR caluse provide a mandatory procedure?
Clause 12 did not include a bar on commencing litigation without first complying with the agreed disputes procedure.
His Honour Justice Daubney summarised the effect of clause 12 as follows:
‘Clause 12 is couched in permissive language. A party who “asserts” the existence of a dispute “arising out of or in connection with” the DMA “can” give a notice of dispute, to which a notice of response “must” be provided by the other party within the given timeframe. The parties “must” then take reasonable steps to resolve the dispute within the given timeframe. If this is not successful, a party “may” then refer the dispute to expert determination.’ [18]
The plaintiff argued the proceeding should not be stayed because the dispute resolution procedure in clause 12 is not mandatory, in that it does not expressly bar a party from commencing legal proceedings while the procedure is engaged.[24]
The defendants argued that clause 12 should instead be read as mandatory, once a party embarks upon it. ‘Accordingly following notice being provided by one party, the other party is compelled to respond to the notice. The parties must then then take reasonable steps to resolve the dispute within a given timeframe, following which either party has the option to refer the dispute to an expert for determination. It was argued that this procedure is compulsory once the initial notice is given, regardless of whether or not proceedings are commenced in the meantime.’ [25]
In granting the stay, Daubney J held:
‘Here, a notice of dispute has been given and the procedure has been embarked upon. There is no doubt that a response to the notice of dispute is mandatory, as indicated by the word “must” in clause 12.3. It follows that the plaintiff is bound to respond and participate in the procedure, and its failure to do so is a breach of its agreement with the first defendant to decide the dispute in accordance with clause 12.’ [32]
Is the dispute not amenable to determination by an expert?
The Court found the dispute was amenable to expert determination.
The plaintiff’s first argument that ‘the process of expert determination operates without the supervision of the court, without safeguards and with no stipulation about the process to be followed’ was rejected by the Court.. [34] The Court held:
‘…clause 12.9 stipulates safeguards, including the requirement to act in accordance with natural justice. Clause 12.12 requires that the expert give written reasons for its determination and clause 12.6 provides that in the case of disagreement between the parties, that the expert is to be appointed by the President of the Queensland Law Society. There is in my view no justification for refusing a stay on this ground because there is no danger of the appointment of an unqualified expert and procedural rules are stipulated, including a requirement to comply with procedural fairness and natural justice. [36]
The plaintiff’s second argument why the procedure in clause 12 was inappropriate was that the dispute was unsuited to expert determination because the claim is for breach of contract and misleading and deceptive conduct, which raise mixed questions of fact and law. The Court dismissed this argument as it could see ‘no difficulty in the appointment of a suitably qualified individual, armed with the assistance of submissions and evidence from the parties, who would be able to determine the financial and legal questions posed by the pleadings.’ [38]
Result
Daubey J stayed the proceeding pending completion of the dispute resolution and expert determination procedure provided for in clause 12.
His Honour held that the plaintiff had not met the heavy onus necessary to ‘show why the justice of the case is against staying the proceeding.’2 [22].
What does this all mean?
Daubey J’s conclusion provides a useful message: The respondent had bargained for disputes to be resolved in the form outlined in clause 12 of the DMA and there is no good reason why it should not be held to that agreement.’
Or as Chesterman J (another Queensland Supreme Court justice) said ‘.. parties should be held to their bargain to resolve their dispute in the agreed manner.’3
This case is consistent with recent Australian case law upholding parties’ agreements by forcing them to fall back on the contractual procedure to engage in ADR procedures before resorting to courts4. This applies even where there is no express provision limiting the ability of a party to commence proceedings pending the outcome of the contemplated ADR procedure.
The changes to the Building Code 2016 introduced in December last year promote the use of binding alternative dispute resolution mechanisms. The approach taken by the Queensland Supreme Court to enforce an agreed regime and to not require a specific bar against commencing court proceedings, similarly, recognises the value to the construction industry in parties resolving their disputes through an agreed and final framework instead of resorting to costly litigation.
This article was written by Ross Williams and Michael Hollingdale, Partners.
1Hooks Enterprises Pty Ltd v Sonnenberg Pty Ltd & Ors [2017] QSC 69
2Zeke Services Pty Ltd v Traffic Technologies Ltd [2005] QSC 135; [2005] 2 Qd.R. 563, at 569.
3n2 above
4Straits Exploration & Anor v Murchison United NL & Anor, [2005] WASCA 241; (2005) 31 WAR 187. Wheeler JA at 193