Getting the right dispute resolution clause is a matter of binding your own business

Monday’s experts (according to the Weddings Parties Anything song of the same name) “always know what’s cooking, how the game was lost, and how it could have been won”.  What this song doesn’t tell us, however (in an unfortunate lyrical oversight) is whether Monday’s experts would be of much assistance in resolving disputes about commercial contracts.

Although expert determination clauses are a common alternative dispute resolution mechanism in commercial contracts, they are often inserted without much consideration of how they will operate if a dispute arises, or whether expert determination is suitable for resolving the sorts of disputes which might arise under the contract.  Expert determination is a very good mode of dispute resolution for confined disputes, especially about financial questions (for example, the valuation of shares in a buy-out situation) or technical questions.  However, it is often a poor mode of dispute resolution for wide-ranging disputes, especially those which may involve the consideration of extensive evidence.

One way of testing the effectiveness of a dispute resolution clause is to ask whether, if the other side commences court proceedings in defiance of the clause, the party seeking alternative dispute resolution can obtain a stay of the court proceedings until the agreed alternative dispute resolution process has been complied with.  This question arose in a recent case before the Full Federal Court, which demonstrated the difficulties in obtaining a stay to enforce an expert determination clause which provided for the expert to issue a non-binding opinion rather than a binding determination.

The expert determination clause considered in this case was in a Development Deed between Buurabalayji Thalanyji Aboriginal Corporation (BTAC) which represented native title claimants, and a company called Onslow Salt Pty Ltd.  A dispute arose concerning the activities which Onslow Salt was entitled to pursue on certain land over which it was said that native title subsisted.  BTAC commenced proceedings against Onslow Salt, and the State of Western Australia, in the Federal Court of Australia.  Onslow Salt sought to stay those proceedings on the basis that BTAC had not complied with the dispute resolution clause in the Development Deed.

That clause provided for the appointment of an expert who would:

“within a reasonable period from the date of reference express in writing an opinion on the matter in dispute and furnish the Parties each with a copy thereof by hand or registered post”.

However, the clause did not provide for any consequence to flow from the expression of the opinion.  The parties were at liberty to follow the opinion, follow parts of the opinion, or, (presumably) to use the opinion for no other purpose than to prop up a rickety piano.  The consequence of this, said the trial judge, was that the clause:

“does not, in fact, provide an alternative method for the binding determination of any dispute between the parties, but simply spells out a private step that needs to be undertaken before the parties may refer a relevant matter to the Court.”

On appeal, Onslow Salt argued that the non-binding nature of the clause was irrelevant to the question of whether the Federal Court proceedings ought to be stayed until after the clause had been complied with.  The Full Federal Court accepted that “in most cases the existence of an enforceable agreement to submit to a dispute resolution process will be a weighty consideration against the refusal of a stay“.  The Full Federal Court also accepted that there will be many non-binding processes (for example, negotiation, conciliation, or mediation) which will result in the grant of a stay if a party commences court proceedings without having complied with the agreed process.  However, the Full Federal Court said:

“where, as here, the agreed mechanism will result in nothing more than an advisory opinion with no express obligation to meet or confer after it has been provided then the weight to be afforded the commitment to such a clause when deciding whether to exercise the discretion to refuse a stay is properly regarded as being less than where there is an agreement to binding arbitration or expert determination”.

The non-binding nature of the clause was not, however, the only problem with the issue of a stay. The Full Federal Court also noted that the expert opinion mechanism was “entirely inapposite” to the resolution of a dispute which was likely to involve complex factual disputes, the production of documents, and the examination of witnesses. In addition, the State of Western Australia (which was a party in the Federal Court proceedings) was not a party to the dispute resolution clause.  As the claims against the State and the claims against Onslow Salt were “interwoven”, it would not be possible to stay only the part of the proceedings between BTAC and Onlsow Salt while the expert opinion process was going on.  Accordingly, the Full Federal Court dismissed the appeal by Onslow Salt.

If one of the key aims of a dispute resolution clause is to speed the resolution of disputes, the dispute resolution clause considered by this case plainly failed to achieve that aim.  Returning to Weddings Parties Anything, one of the lyrical complaints about Monday’s experts is that, “by the time they’re finished talking, well, my beers are getting flat”.  If that’s the consequence of a dispute resolution clause which delays, rather than delivers, the resolution of a dispute, we would call that being left in quite a bind.

For more on our commercial law capabilities, contact Philip Stevens or Leonard Lozina or William Han

For more on our litigation and dispute resolution capabilities, contact Dennis Vuaran or Angus Macinnis or Grace Hur

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August 11
Commercial Law Litigation and dispute resolution