May Harlow Pty Ltd v Winten (No 48) Pty Ltd

1. [1]

   By notice of motion filed on 12 February 2020, the defendant Winten (No 48) Pty Ltd (Winten 48) seeks the following prayers for relief:

2. [2]

   Winten 48 presses only prayers 3 to 6. The basis upon which a permanent stay of the proceeding is sought is pursuant to an expert determination clause in a Project Delivery Agreement entered into between Winten 48 and the plaintiffs (May Harlow Pty Ltd and Woodsinta Pty Ltd) on 30 May 2013 in relation to the development of certain land at Waitara in New South Wales. The parties refer to this agreement as the “PDA” and I will adopt the same terminology. It is convenient to refer to the development as the “Waitara project”.

3. [3]

   Winten 48 relies on the affidavits of Greg Alexander Smith affirmed on 12 February 2020 and 29 April 2020. The plaintiffs rely on the affidavit of John Arthur Tanner sworn on 15 April 2020.

Background to the dispute

1. [4]

   Winten 48 was incorporated on 17 April 2013. Its directors are Garry and David Rothwell. The company is a wholly-owned subsidiary of Winten Developments Pty Ltd (Winten Developments). According to Mr Smith, Winten Developments, including its subsidiaries, carries on the business of property development and trades collectively as the “Winten Property Group”.

2. [5]

   Rove Properties Pty Ltd (Rove) is another entity that belongs to the Winten Property Group. Rove was incorporated in June 1973. Its sole directors and secretaries are also Garry and David Rothwell.

3. [6]

   Winten 48 and the plaintiffs entered into the PDA on 30 May 2013. It was subsequently amended pursuant to a Deed of Amendment dated 1 July 2014, but nothing turns on those amendments for the purpose of determining the defendant’s notice of motion.

4. [7]

   The provisions of the PDA that are relevant to the defendant’s motion are summarised below. The plaintiffs are each defined as the “Owner” and Winten 48 is defined as the “Developer”. The term “Developer Group” is defined to mean the companies and trusts trading from time to time as the Winten Property Group.

5. [8]

   Clause 2.1 is entitled “Objectives” and provides:

6. [9]

   The term “Project” is defined in cl 1 to mean:

7. [10]

   The term “Services” is defined in cl 1 to mean “all services which the Developer determines are necessary or desirable for the carrying out of the Project”.

8. [11]

   Clause 1.1 and Schedule 1 define “Project Costs” as meaning:

9. [12]

   Schedule 1 continues to list many categories of costs that are included in this broad definition, including:

10. [13]

    Clause 6.7 is entitled “Subcontractors and consultants”. It relevantly provides:

11. [14]

    Clause 7 is entitled “Development Services Fees”. It provides:

12. [15]

    Clause 8.2 is entitled “Developer to fund Project”. It provides:

13. [16]

    The terms provided in the clauses above are defined in cl 1. Those definitions include:

14. [17]

    Under cl 10.1(a), Winten 48 was obliged within 21 days after the end of each calendar month to give to the plaintiffs a “Project Costs Statement”. Clause 10.1(b) required each Project Costs Statement to set out the amount, payee and nature of each Project Cost specified in that Project Costs Statement .

15. [18]

    It was common ground that, during the course of carrying out the Waitara project, Winten 48 did not provide Project Costs Statements pursuant to cl 10.1. Winten 48 did provide monthly spreadsheets entitled “Progress Claim” setting out the categories of costs incurred on the Waitara project in the previous month and over the life of the project up to the date of the “Progress Claim”. These spreadsheets did not specify the amount or payee of the costs incurred within each category. In July 2018, Winten 48 provided all the Project Costs Statements for the life of the Waitara project to the plaintiffs.

16. [19]

    Clause 10.2 is entitled “Owners’ Audit Rights”. It provides:

17. [20]

    Clause 10.3 is entitled “Adjustments after Audit”. It provides:

18. [21]

    Under the PDA, Winten 48 was obliged to establish a “Project Account” for the receipt and disbursements of the proceeds of sale (and other forms of revenue) of any of the Waitara lots (cl 11.1(a)). Under cl 11.1(c), Winten 48 was obliged to hold those proceeds in the Project Account on trust for the plaintiffs to be then distributed according to the order of priority set out in cl 11.2(a). For present purposes, it is sufficient to note that the amounts that Winten 48 was entitled to receive from the Project Account included an amount representing the “Developer Project Costs Reimbursement (plus GST)” and the “Developer Project Costs Amount”, after other payments with higher priority under cl 11.2(a) had been made.

19. [22]

    The cumulative effect of the aforementioned provisions is that Winten 48 was entitled on distribution of the sums retained in the Project Account to be paid certain amounts on account of the Project Costs which were properly incurred by Winten 48 (which were not funded by the Senior Debt) during the course of carrying out the Services in relation to the Project under the PDA.

20. [23]

    Clause 13 is critical to the present dispute. It is entitled “Dispute Resolution”. It is convenient to set out the provision in full:

21. [24]

    Clause 3 is entitled “Good faith” and provides:

22. [25]

    Prior to Winten 48 and the plaintiffs entering into the PDA, Rove allegedly entered into an agreement referred to as the “Introductory Fee Contract” with Mr Ilan (or Alan) Weihart on 11 April 2012. The terms of this agreement are allegedly set out in the following email between Mr Weihart and Mr Anthony Otto, who was at the relevant time the chief executive officer of the Winten Property Group:

23. [26]

    Following the entry into the PDA, payments in the sum of $167,289 were made to Mr Weihart between June 2013 and July 2015. Although there is a dispute as to whether the Introductory Fee Contract was entered into, there is no dispute that those payments were made either by Winten 48 or by Winten Developments on behalf of Winten 48.

24. [27]

    Winten 48 included the payments to Mr Weihart as part of the project costs set out in its “Progress Claims” issued in November 2014 and July 2015. The costs were described as “Acquisition Cost”. Mr Weihart was not identified as the recipient.

25. [28]

    On 30 September 2016, Rove issued an invoice to Winten 48 for the sum of $2,520,000 (the Rove Invoice). The invoice referred to professional services rendered by Rove from the period of 1 June 2013 to 30 November 2016 in accordance with the PDA, citing in particular “Schedule 1, Project Costs, Item (q)”. The invoice described the kinds of services provided in general terms.

26. [29]

    Winten 48 paid the amount the subject of the Rove Invoice on or around the same day and included it in the September 2016 “Progress Claim” as part of the “Professional Fees – Project Management” category of costs.

27. [30]

    Between November 2016 and January 2017, Winten 48 undertook reconciliation of the income and expenses in relation to the Waitara project which, at this time, was close to completion.

28. [31]

    In March 2017, Winten 48 provided a copy of the Rove Invoice to the plaintiffs.

29. [32]

    The Waitara project was completed on or about June 2017. It is apparent from the Briefing Papers (referred to below) that a final distribution was made from the Project Account in line with the reconciliation undertaken by Winten 48 between November 2016 and January 2017, although it is not clear whether the distribution was made before or after June 2017.

30. [33]

    By mid-2018, a dispute was developing in respect of Winten 48’s entitlement to include the amount in the Rove Invoice as a “Project Cost”. This affected the Developer Project Costs Reimbursement and Developer Project Costs Amount components of the fees payable to Winten 48 under cl 7.1 and cl 11.2(a) of the PDA and received by Winten 48 as part of the distribution referred to above. Emails were exchanged between the plaintiffs’ legal representatives and Winten 48 about the Rove Invoice. It is only necessary to note the following salient features of these exchanges:

31. [34]

    On 13 February 2019, a meeting took place between the plaintiffs and Winten 48 and their respective legal representatives. A number of items charged in some of the Project Costs Statements, including the Rove Invoice, were discussed.

32. [35]

    On 10 April 2019, the plaintiffs’ legal representatives served on Winten 48 a “Notice of Dispute” pursuant to cl 13.1 of the PDA. The particulars of the dispute were set out in the following terms:

33. [36]

    On the same day, the plaintiffs also served the Briefing Paper required by cl 13.2 in support of its Notice of Dispute.

34. [37]

    On 6 May 2019, Winten 48 served on the plaintiffs its Briefing Paper. In what it described as its “primary position” in relation to its entitlement to charge to the plaintiffs the value of the Rove Invoice, Winten 48 stated that it engaged Rove as a subcontractor or consultant pursuant to cl 6.7(a) of the PDA. In turn, Rove engaged the entity Forum Properties Pty Ltd (Forum) to provide services for Rove, for the purposes of Rove itself providing services to Winten 48 in connection with the services under the PDA. It was said that the cost of each of the services provided by Rove (including charges which Forum charged to Rove) constituted a Developer Project Cost and was therefore a Developer Project Cost Reimbursement under the PDA.

35. [38]

    Winten 48 also put forward in its Briefing Paper a “further position” which:

36. [39]

    At this point, it is appropriate to note that the Notice of Dispute served by the plaintiffs on 10 April 2019 is limited to the dispute in relation to the Rove Invoice. As such, the Notice of Dispute:

37. [40]

    I was informed by Mr Cowpe, who appeared for Winten 48 at the hearing, that no Notice of Dispute has been served by Winten 48 in relation to the “further position” described in its Briefing Paper. Mr Cowpe also acknowledged that the dispute, as defined in the plaintiffs’ Notice to Dispute, was limited to the Rove Invoice issue but that Winten 48 reserved its rights to serve another Notice of Dispute in relation to its “further position” if the proceeding were stayed by the Court so that the parties could pursue their rights pursuant to the expert determination procedure in cl 13 of the PDA.

38. [41]

    As is apparent from the terms of cl 13 of the PDA above, the next step in the dispute resolution process following each party serving their respective Briefing Papers was for the chief executive officers of Winten 48 and the plaintiffs to meet in an attempt to resolve the dispute (see cl 13.3(b)). In an email sent by Winten 48’s solicitor to the plaintiffs’ solicitor on 6 May 2019, Winten 48 requested that the plaintiffs nominate some proposed times in the following two weeks for the meeting between the chief executive officers to take place. Winten 48 proposed that such meeting take place at their offices.

39. [42]

    No such meeting occurred prior to the plaintiffs filing the Statement of Claim in this proceeding on 5 December 2019.

Claims raised in the Statement of Claim

1. [43]

   In broad terms, the Statement of Claim pleads three discrete categories of claims for relief against Winten 48.

2. [44]

   The first category concerns Winten 48’s entitlement to claim the value of the Rove Invoice as part of the Project Costs of the Waitara project. The plaintiffs allege, and seek a declaration to the effect, that the tax invoice of $2,520,000 issued by Rove to Winten 48 (which was subsequently paid) was not referable to the costs of head office staff employed by Winten 48 incurred pursuant to subparagraph (q) in Schedule 1 of the PDA. The plaintiffs alternatively allege, and seek a declaration to the effect, that these costs, to the extent that they fell within the subparagraph (q) in Schedule 1, were not properly (and/or reasonably) incurred as required by the chapeau to Schedule 1 and that it followed that these costs fell outside the definition of “Project Costs” or “Development Project Costs” in the PDA.

3. [45]

   The plaintiffs alternative case in this first category of claims is that, on the proper construction of the PDA, the costs the subject of the Rove Invoice were costs for which Winten 48 were wholly responsible pursuant to cl 6.7(b)(ii) and therefore were not able to charge the value of the Rove Invoice as a “Development Project Cost”. The plaintiffs seek a declaration to this effect.

4. [46]

   The second category of claims concerns the $167,289 sum paid to Mr Weihart between June 2013 and July 2015. The plaintiffs allege that these payments were not properly incurred by Winten 48 in connection with the matters referred to in sub-paragraphs (a)–(d) in Schedule 1 of the PDA. It is alleged that these payments therefore fall outside the definition of “Project Costs” and cannot be taken into account when calculating the fees payable to Winten 48 under cl 7.1 of the PDA. The plaintiffs seek a declaration that the $167,289 is not a Project Cost within the meaning of the PDA.

5. [47]

   The plaintiffs plead that, as a result of Winten 48 claiming the value of the Rove Invoice and the payments made to Mr Weihart as Project Costs and including them in the calculation of the “Development Project Cost Reimbursement”, Winten 48 has received an amount of approximately $1,343,644.50 in excess of the fees to which it was entitled under the PDA. The plaintiffs seek an order that Winten 48 repay this sum to the plaintiffs as money had and received or on potentially wider restitutionary grounds. The plaintiffs also claim damages.

6. [48]

   Third, the plaintiffs claim to be entitled to an order for the taking of an account as a result of the plaintiffs and Winten 48 being in a relationship of debtor and creditor. The plaintiffs claim to be entitled to the taking of this account on a wilful default basis.

Parties’ submissions and applicable principles

1. [49]

   Senior counsel for the plaintiffs frankly conceded that the whole of the dispute that is the subject of this proceeding falls within the scope of cl 13 of the PDA. The plaintiffs did not dispute that the claims pleaded in their Statement of Claim were of a kind that were able to be determined by a suitable expert appointed by the parties pursuant to cl 13. As will become apparent below, the plaintiffs submitted that cl 13 does not provide suitable procedures for determination of those claims.

2. [50]

   No submission was made on behalf of the plaintiffs that cl 13 purported to oust the jurisdiction of the courts to resolve the dispute between the parties (see, for example, Lepcanfin Pty Ltd v Lepfin Pty Ltd [2020] NSWCA 155 at [5]).

3. [51]

   As noted above, Winten 48 only pressed prayers 3 to 6 of their notice of motion filed on 12 February 2020. Counsel for Winten 48 acknowledged (correctly, in my view) that, if the Court were persuaded to grant relief, the appropriate relief would be a permanent stay of the proceeding rather than summary dismissal or an order striking out the Statement of Claim.

4. [52]

   Accordingly, the contest between the parties was whether the proceeding should be permanently stayed pursuant to this Court’s inherent jurisdiction on the basis that the parties agreed to resolve their dispute via the expert determination mechanism provided for in cl 13 of the PDA.

5. [53]

   Both parties referred to Zeke Services Pty Ltd v Traffic Technologies Ltd [2005] 2 Qd R 563; [2005] QSC 135. In that case, Chesterman J said (at [19]):

6. [54]

   The principles governing the Court’s discretionary power to stay proceedings in circumstances where the parties have agreed that their dispute shall be solved by a process of expert determination have been considered in many previous authorities.

7. [55]

   The discretion has been described as a wide one: Zeke Services Pty Ltd (supra) at [21]; Dance With Mr D Ltd v Dirty Dancing Investments Pty Ltd [2009] NSWSC 332 at [53].

8. [56]

   The starting point is that the parties should be held to their bargain to resolve their dispute using the agreed process unless the party opposing the stay can show a good reason for why the dispute should be determined judicially: see Zeke Services Pty Ltd (supra) at [21]; Dance With Mr D Ltd (supra) at [53]; Ipoh v TPS Property No 2 Pty Ltd [2004] NSWSC 289 at [30]; Onslow Salt Pty Ltd v Buurabalayji Thalanyji Aboriginal Corporation [2018] FCAFC 118 at [16]–[19]; Lepcanfin Pty Ltd (supra) at [112].

9. [57]

   As the Full Court of the Federal Court in Onslow Salt Pty Ltd (supra) said (at [19]):

10. [58]

    Examples of circumstances that may result in the Court refusing to grant a stay include:

11. [59]

    The submissions made by Winten 48 in support of its application for a stay may be summarised as follows.

12. [60]

    First, Winten 48 submitted that, as the dispute fell within the terms of cl 13 of the PDA, the parties should be held to their bargain and be required to follow the expert determination procedure set out in that clause.

13. [61]

    Second, it was submitted that the dispute between the parties is of relatively small compass, involving essentially factual questions about the disputed charges and a question of construction of the definition of Project Costs and associated provisions of the PDA. If it is found that, on the proper construction of the PDA, the value of the Rove Invoice or the payments made to Mr Weihart were not a “Project Cost”, then the amount of the “Developer Project Costs Reimbursement” payable to Winten 48 would be reduced accordingly. It was common ground that, in that scenario, Winten 48 will have been paid $1,343,644.50 more than it was entitled to receive under cl 7.1 and cl 11.2(a) of the PDA. Winten 48 submitted that there was therefore no need to conduct an accounting inquiry or to make an order for the taking of accounts.

14. [62]

    Third, Winten 48 submitted that there would be no multiplicity of proceedings if the stay were granted. Winten 48 acknowledged that the Notice of Dispute issued by the plaintiffs on 10 April 2019 was limited to the dispute concerning the Rove Invoice and did not extend to the dispute concerning the payments made to Mr Weihart. However, it was submitted that this dispute could easily and cheaply be referred to the expert appointed by the parties, and it would give rise to identical issues in relation to the construction of the PDA. Winten 48 submitted that the expert appointed by the parties pursuant to cl 13 could deal with the dispute concerning the payments to Mr Weihart by Winten 48 providing its consent for that part of the dispute being referred to the expert without the necessity of a further notice of dispute being issued. Alternatively, it was submitted that either party could issue a new notice of dispute under cl 13, and that dispute could be referred to the same expert for determination. Winten 48 made submissions to the same effect concerning the “further position” set out in its Briefing Paper, in respect of which it reserved its rights, as I have referred to above.

15. [63]

    Fourth, Winten 48 further submitted that there is no difficulty in identifying and nominating an expert who has the required skill and expertise to resolve the dispute. It was submitted that a senior solicitor, senior barrister, or retired judge, with some basic understanding of accounting, would be an appropriately qualified expert. Winten 48 also drew attention to cl 13.4(f)(iv) of the PDA which expressly provides that the expert appointed by the parties may commission or consult advisors (such as an accountant) to assist in their determination, if necessary.

16. [64]

    Finally, Winten 48 submitted that there is no absence or deficiency in cl 13 of the PDA of express procedural rules, mechanisms and safeguards necessary to make the expert determination workable (referring to The Illawarra Community Housing Trust Ltd v MP Park Lane Pty Ltd [2020] NSWSC 751 at [75]). In response to the plaintiffs’ contention that evidence from certain third parties may be relevant to the determination of the dispute and that the plaintiffs wish to use compulsive procedures to obtain such evidence, Winten 48 submitted that all contractual dispute resolution procedures carry with them an inability for the parties to compel third parties to the contract to provide documents evidence or give evidence. The dispute resolution procedure, being a creature of contract, does not carry with it any exercise of judicial, quasi-judicial, administrative or statutory power (see The Illawarra Community Housing Trust Ltd (supra) at [62], approved in Lepcanfin Pty Ltd (supra) at [94]).

17. [65]

    In support to this last submission, Winten 48 relied on two cases which it submitted were analogous to the present case. The first case was Lainson Holdings Pty Ltd v Duffy Kennedy Pty Ltd [2017] NSWSC 203, in which Stevenson J rejected (at [40]–[44]) a submission that the parties to a commercial contract, which contained an expert dispute resolution clause, did not intend to refer to an expert disputes that required the use of coercive powers such as a subpoena for their resolution. The second case was The Illawarra Community Housing Trust Ltd (supra) where Hammerschlag J rejected a submission that the expert determination procedures in that particular contract were inadequate because “there is no provision for swearing oaths, service of lay or expert evidence, cross-examination of lay or expert witnesses, document production by the opposite party or third parties, or reply submissions” (see [36(2)] and [58]–[67]).

18. [66]

    In opposing the stay application, the nub of the plaintiffs’ submissions was that the procedure in cl 13 of the PDA was inadequate to resolve the dispute between the parties. The plaintiffs developed this submission in three ways.

19. [67]

    First, the plaintiffs took issue with the absence of compulsive mechanisms under the PDA to compel the production of documents that may be relevant to resolve the present dispute. The need to deploy compulsive mechanisms was said to arise from what the plaintiffs described as the inadequate disclosure of the relevant facts and circumstances surrounding the Rove Invoice, and the fact that Rove is not a party to the PDA.

20. [68]

    The plaintiffs acknowledged that cl 13.4(f)(iii) obliged the parties to the PDA to produce to the expert any information and documents that the expert may require. However, it was submitted that this provision could not be used to compel third parties to give evidence or produce documents to the expert and that such evidence from third parties will be important to resolving the issues in dispute between the parties.

21. [69]

    In their written submissions, the plaintiffs identified several third parties who could provide relevant and important documentary evidence to the expert but could not be compelled to do so. It was submitted that the plaintiffs would likely require documentary evidence from:

22. [70]

    The plaintiffs acknowledged that cl 10.2 gave them a right to conduct an audit of any particular Project Costs Statement which may result in Winten 48 producing documents relied upon to support particular items in any Project Costs Statement. Neither party disputed that it was still open to the plaintiffs to seek an audit of those Project Costs Statements. However, the plaintiffs submitted that this was unlikely to be of any real utility given that the disclosure from Winten 48 to date has been inadequate (in the plaintiffs’ submission).

23. [71]

    The plaintiffs also submitted that they may require some or all of the above third parties to be summonsed to give evidence before the expert but contend that the absence of compulsive mechanisms may mean that those third parties refuse to give evidence. By way of example of the difficulties that the plaintiffs say that they face, the plaintiffs refer to a letter dated 11 March 2020 sent by their solicitor to the solicitor acting for Mr Otto (who, as noted above, was the chief executive officer of Winten 48 as well as the sole director and secretary of Forum) seeking to enquire as to whether Mr Otto would give evidence in this proceeding. Mr Otto’s solicitor responded by letter dated 23 March 2020 in which he stated that Mr Otto would comply with the requirements of any properly issued subpoena to attend court to give evidence.

24. [72]

    The plaintiffs sought to distinguish Lainson Holdings Pty Ltd (supra) and The Illawarra Community Housing Trust Ltd (supra) as decisions which concerned questions of construction of the respective dispute resolutions clauses. It was submitted that those decisions did not govern whether the Court should stay proceedings in circumstances where the procedures in an expert determination clause were plainly inadequate or unsuitable to resolve a particular dispute.

25. [73]

    Second, the plaintiffs referred to cl 13.4(f)(i)(F) of the PDA which states that the expert appointed by the parties must make their determination within 30 days of their appointment (subject to any agreement between the parties extending that timeframe). The plaintiffs submitted that even if some of the parties referred to above were willing to produce documents, it is unlikely that those documents could be made available to the expert in sufficient time for the expert to make their determination within the 30 day timeframe. Furthermore, it was submitted that there was no reason to think that Winten 48 would agree to any extension of that period of time.

26. [74]

    Third, the plaintiffs submitted that a detailed accounting process was necessary. They submitted that their claim for the taking of accounts as between the plaintiffs and Winten 48 is not merely ancillary to their claims concerning the Rove Invoice and the payments made to Mr Weihart. Rather, the plaintiffs seek an account of all of the parties’ dealings throughout the course of their contractual relationship. The plaintiffs submitted that Winten 48 was an accounting party “because…the complications attending the calculations of the amounts payable to it are such to justify equitable intervention” (referring to J D Heydon, M J Leeming and P Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (5th ed, LexisNexis Butterworths, 2015) at 26–070). It was submitted that the expert determination mechanism in cl 13 was inadequate or unsuitable for the determination of this aspect of the plaintiffs’ claim because the 30 day timeframe provided in cl 13.4(f)(i)(F) was inadequate for the taking of an account.

27. [75]

    Fourth, the plaintiffs also submitted that there is likely to be a multiplicity of proceedings if this proceeding is stayed. The plaintiffs referred to the scope of the dispute, as defined in the Notice of Dispute served on 10 April 2019, as extending only to the facts and circumstances surrounding the Rove Invoice. The plaintiffs contend that Winten 48’s “further position” represents a new dispute that would be enlivened only upon a separate notice of dispute being issued by Winten 48. It followed, in the plaintiffs’ submission, that any expert determination of the matters set out in the Notice of Dispute served on 10 April 2019 would not resolve the entirety of the dispute between the parties. By contrast, the plaintiffs submitted that, if this proceeding is not stayed, the parties will need to ensure that all of their disputes are determined in this proceeding in order to avoid the risk of being precluded from having any other disputes resolved in subsequent proceedings by operation of the principles in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589.

28. [76]

    The plaintiffs’ submissions concerning the risk of multiplicity of proceedings went further. It was submitted that there may be a multiplicity of proceedings because a party aggrieved by an expert determination under cl 13 of the PDA may challenge it as lacking a final and binding character.

29. [77]

    It is convenient to repeat the terms of cl 13.4(g) of the PDA, which provides:

30. [78]

    The plaintiffs submitted that, on its proper construction, cl 13.4(g)(ii) and (iii), leave it open to the parties to apply to the Court to change the expert determination.

31. [79]

    The plaintiffs sought to distinguish cl 13.4(g)(ii) and (iii) from the types of clauses referred to by the Court of Appeal in Holt v Cox (1997) 23 ACSR 590 at 564–567. In that case, Mason P (with whom Priestley JA agreed) referred to the seminal judgment of McHugh JA in Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314 in which his Honour observed that contractual provisions which state that a valuer’s (or other expert’s) determination is “final and binding” will bind the parties to the contract unless it can be shown that such determination was not made in accordance with the terms of the contract. The plaintiffs submitted that the words “otherwise changed” in cl 13.4(g)(iii) of the PDA mean an expert determination pursuant to cl 13.4 is not in fact “final and binding” because it may be modified or changed by the Court on the application of a party, even if it has been made in accordance with cl 13. The plaintiffs submitted that the possibility of an application to the Court to “change” the expert determination was a matter that favoured the dismissal of Winten 48’s application to stay the proceeding.

32. [80]

    Finally, the plaintiffs submitted that as a stay is a discretionary remedy, the question of whether Winten 48 will suffer any prejudice if the stay is not granted is a relevant consideration (referring to Civil Procedure Act 2005 (NSW), s 58(2)(b)(vi)). It was submitted that Winten 48 has not identified any prejudice which would arise if the proceeding were to be continued.

33. [81]

    In reply, Winten 48 rejected the plaintiffs’ construction of the words “otherwise changed” in cl 13.4(g)(iii). It was submitted that, to conclude that an expert determination made pursuant to cl 13 was not final and binding by reason of the insertion of those words and could thus be challenged for any reason, was wholly inconsistent with the dispute resolution mechanism provided for in that clause and left no work for cl 13.4(g)(ii) to do. It was submitted that to construe cl 13.4(g)(iii) in the manner contended for by the plaintifs would be to “effectively vitiate the whole of cl 13.”

34. [82]

    Further, Winten 48 submitted that neither:

    1. (1)

       the possibility of a challenge to a determination under cl 13 on the basis that it is not made in accordance with the terms of the contract; nor

    2. (2)

       the fact that there may be more than one dispute notice served by the parties to the PDA,

35. [83]

    In response to the plaintiffs’ submission concerning the lack of compulsive mechanisms in cl 13, Winten 48 drew attention to cl 13.4(f)(iii) which states that the parties undertake to provide to the expert any documents that the expert may from time to time direct. Winten 48 submitted that, if the expert required information or documents from a sub-contractor such as Rove, and Winten 48 failed to procure the documents or information and provide them to the expert, then this would be “disabling the expert from performing his or her function, which would be a breach of contract and the expert determination can take that into account”. It followed, in Winten 48’s submission, that the “underlying documents and information which are truly germane to this dispute can be ordered to be provided and the defendant is obliged to comply”.

36. [84]

    Finally, in response to the submissions by the plaintiffs in relation to the claim for the taking of an account, Winten 48 submitted that this claim was well within the scope of the expert determination clause and was able to be undertaken by a suitably qualified expert, being either a lawyer who commissions an accountant or an accountant who commissions a lawyer. There was no reason why the claim for an account must be undertaken by a judicial officer of the Court.

Consideration and determination

1. [85]

   As noted above at [49], the plaintiffs concede that the dispute that is the subject of this proceeding falls within the scope of the dispute resolution mechanism provided in cl 13 of the PDA. It follows that the onus is on the plaintiffs to demonstrate a good reason as to why the Court should not exercise its discretion to stay the proceeding.

2. [86]

   The plaintiffs’ principal complaint was that the dispute resolution mechanism in cl 13 was unsuitable for the resolution of the dispute between the parties because it lacks procedures to compel third parties to produce documents or to give evidence before the appointed expert.

3. [87]

   The lack of such procedures is a feature of all contractual dispute resolution processes (see The Illawarra Community Housing Trust Ltd (supra) at [62]). The parties would have been well aware of this when they agreed to resolve their disputes in accordance with cl 13 of the PDA. Equally, they would have been well aware from cl 6.7 that Winten 48 would engage developers and subcontractors on the Waitara project and that documents and information in the possession of such third parties may be relevant to the resolution of any disputes arising under the PDA. The parties nevertheless agreed to resolve those disputes by the process set out in cl 13, without the benefit of the procedures that are available in judicial proceedings but with the benefit of the Project Costs Statements that Winten 48 was obliged to provide under cl 10.1, the ability for the plaintiffs to undertaken audits of those Project Costs Statements under cl 10.2 and the contractual obligation on both parties under cl 13.4(f)(iii) to provide documents and information required by any expert appointed to determine any dispute between the parties.

4. [88]

   The fact that the expert is able to request information and documents under cl 13.4(f)(iii) only from the parties to the PDA, and not from third party sub-contractors or consultants, does give rise to the possibility that the expert may not be able to obtain all information relevant to the resolution of a dispute concerning fees charged by sub-contractors or consultants to Winten 48, which Winten 48 has passed on to the plaintiffs as Project Costs.

5. [89]

   However, in my opinion, that possibility is more theoretical than real. Winten 48 is in a position to use its relationships with the sub-contractors and consultants to obtain information and documents from them relevant to the question whether the fees are Project Costs, and to put those documents and information before the expert. Any failure by Winten 48 to put before the expert the kind of documents that one would expect to be created recording the nature of the services provided and the basis on which fees have been charged, and to address any issues raised by the plaintiffs, will prejudice Winten 48’s prospects of having the dispute determined in its favour. One would expect the plaintiffs to exploit any such failure by strenuously submitting that the expert should take the failure into account in resolving the dispute, including by drawing inferences adverse to Winten 48.

6. [90]

   I accept the plaintiffs’ submission that Lainson Holdings Pty Ltd (supra) and The Illawarra Community Housing Trust Ltd (supra) are not directly applicable to the determination of the application for a stay of this proceeding. Those cases concerned the construction of specific dispute resolution clauses in commercial contracts as opposed to the question of whether the Court should exercise its discretion to refuse to grant a stay of proceedings. However, those cases do recognise that commercial disputes may be resolved in accordance with contractual expert determination processes that do not include the powers that a Court has to compel production of documents and the giving of evidence. Consistently with that recognition, and for the reasons that I have outlined above, the fact that the plaintiffs now wish to take advantage of such forensic tools is not a good reason to allow them to depart from the bargain that they struck in cl 13.

7. [91]

   I reject the plaintiffs’ submission that an expert determination made in accordance with cl 13.4 would not be final and binding on the parties. The well-known principles of construction of commercial contracts were recently summarised in Lawrence v Ciantar [2020] NSWCA 89 at [98]–[99] (per Bathurst CJ, Meagher and Gleeson JJA agreeing):

8. [92]

   Applying those principles, cl 13.4(g)(iii) must be read in the context of the PDA as a whole, including cl 13.4(g)(iv) and cl 13.4(g(ii). The words emphasised by the plaintiffs – “otherwise changed” – are part of a composite expression: “reversed, overturned or otherwise changed”. That composite expression describes the range of possible outcomes from a group of procedures referred to as “any validly applied process or by judgment or order of any Court or under clause 13.4(g)(iv)”.

9. [93]

   In my opinion, a reasonable businessperson would not read the composite expression in cl 13.4(g)(iv) as meaning that any of the outcomes within the composite expression could be achieved by any one of the group of procedures. Such an interpretation would render cl 13.4(g)(ii) redundant. The Court should not attribute to the parties an intention to include a redundant cl 13.4(g)(ii): Strike Australia Pty Ltd v Data Base Corporate Pty Ltd (2019) 19 BPR 39,621; [2019] NSWCA 205 at [23(ii)] (Bell P).

10. [94]

    In addition, a reasonable businessperson reading cl 13.4 in the context of the PDA as a whole would have regard to the fact that the parties had put in place mechanisms for the provision of information and audits concerning Project Costs in cl 10.1 and 10.2, and had provided for a 30 day expert determination process to resolve any disputes, including any disputes concerning fees that arose despite (or, perhaps, because of) information provided under cl 10.1 and 10.2. A reasonable businessperson would not consider that the parties had intended to embark on this dispute resolution process as a mere warm up to court proceedings in which any party could apply to change the expert determination on any basis whatsoever. Having regard to this context, it is my opinion that the reasonable businessperson would understand the reference to the words “reversed” and “otherwise changed” within the composite expression in cl 13.4(g)(iii) as referring to potential outcomes of the process set out in cl 13.4(g)(iv), rather than a potential outcome of any judgment or order of the Court. The word “overturned” in the composite expression is apt to refer to the relief that a court might grant applying the principles most recently referred to in Australian Vintage Ltd v Belvino Investments No 2 Pty Ltd (2015) 90 NSWLR 367; [2015] NSWCA 275 at [74]–[78] (Bathurst CJ, Beazley P and McColl JA agreeing) and Strike Australia Pty Ltd (supra) at [106]–[108] (Ward JA, Basten JA agreeing). That is the meaning of cl 13.4(g), in my opinion.

11. [95]

    I do not accept the plaintiffs’ submission that the expert determination process in cl 13 is an unsuitable procedure to pursue the plaintiffs’ pleaded claim for an account. That submission was premised on the plaintiffs’ assertion that the conduct of an account would be too complex for the expert to be able to perform within the 30 day timeframe. There are two answers to this, in my opinion.

12. [96]

    First, it is not self-evident that this exercise would be complex. The plaintiffs have acknowledged (at [18]) that they have received all of the Project Costs Statements. Each of the Project Costs Statements must contain the amount, payee and nature of that cost pursuant to cl 10.1(b). No submission was made that the Project Costs Statements provided did not contain these particulars. It appears to me that the parties are in a position to make any submissions that they see fit before the expert about which item or items they contend are not properly incurred by Winten 48 in connection with the PDA. As Winten 48 acknowledged, it is open to the plaintiffs to undertaken an audit of the Project Costs Statements pursuant to cl 10.2 before challenging specific Project Costs in an exercise conducted through the expert akin to the taking of an account.

13. [97]

    Second, it is also not self-evident that the expert would not be able to complete this exercise within the 30 day timeframe. The time required will depend on the expert’s experience, time available to commit to the determination process and whether or not the expert retains other professionals to assist pursuant to cl 13.4(f)(iv). Taking into account these matters, there is simply no reason to think that the 30 day time period would be inadequate.

14. [98]

    For completeness, I note that the plaintiffs suggested that Winten 48 would be unlikely to agree to an extension of the 30 day time frame in the event that the 30 day period proves to be inadequate. The plaintiffs did not identify any evidence to support that suggestion. If the expert determination process were unable to be concluded, this would have the practical result that either party would be able to commence proceedings in respect of the dispute at very low risk of those proceedings being stayed on account of the expert determination clause. I am not prepared to assume that Winten 48, having invested the time and effort in an expert process that had lasted 30 days, would wish to abort that process rather than extend the time.

15. [99]

    Further, to infer that Winten 48 would not agree to an extension under any circumstances seems to me to be akin to inferring that Winten 48 would act contrary to the terms of cl 3, under which the parties agreed to perform their respective obligations to each other under the PDA in good faith. There is no basis for any such inference. That is not to say that the express obligation of good faith would necessarily require Winten 48 to consent to an extension of time for the expert determination process. That would depend on all of the circumstances in which the need for an extension had arisen.

16. [100]

    Finally, I accept Winten 48’s submission that the possibility of multiple expert determination processes under cl 13 to resolve the disputes concerning the Rove Invoice, the payments to Mr Weihart and Winten 48’s “further position” does not warrant an exercise of the Court’s discretion to refuse to stay the proceeding. The parties clearly contemplated that cl 13 of the PDA would apply to disputes as and when they arose. Their bargain to resolve disputes by expert determination was not conditional upon all disputes being put before one expert at the same time. Nevertheless, it is open to the parties to achieve that in the circumstances of this case, as Winten 48’s submissions identified and as one would expect the parties, acting commercially and sensibly in their best interests, to do. Even if there were multiple expert determination processes, each of which resulted in an application to the Court to set aside the expert’s determination on the grounds that it had not been made in accordance with the contract, there would be no risk of those separate proceedings resulting in inconsistent findings.

Orders

1. [101]

   For all of the above reasons, I make the following orders:

   1. (1)

      Order pursuant to the Court’s inherent jurisdiction that proceeding 2019/383461 is permanently stayed.

   2. (2)

      Order that the notice of motion filed on 12 February 2020 is otherwise dismissed.

   3. (3)

      Subject to (4) below, order that the plaintiffs/respondents pay the defendant’s/applicant’s costs of the notice of motion filed on 12 February 2020.

   4. (4)

      Grant liberty to the parties to seek an alternative costs order to order 3 above to file and serve written submissions of no more than three pages by 10 August 2020 in support of the alternative costs order. Grant liberty to the other party to file and serve written submissions in reply of no more than three pages by 17 August 2020. All such submissions are to be provided by email to the Associate to Williams J at the time of filing. Any such application for an alternative costs order is to be determined on the papers.