Lepcanfin Pty Ltd v Lepfin Pty Ltd

1. [1]

   BELL P: For the third time in a little over 12 months, this Court has been called upon to consider the terms of a dispute resolution clause in a commercial contract.

2. [2]

   In Australian Health & Nutrition Association Ltd v Hive Marketing Group Pty Ltd (2019) 99 NSWLR 419; [2019] NSWCA 61, this Court was engaged in the consideration of a foreign exclusive jurisdiction clause in a dispute where not all parties to the controversy were parties to the same dispute resolution clause.

3. [3]

   In Inghams Enterprises Pty Limited v Hannigan [2020] NSWCA 82 (Inghams), this Court had to consider whether a particular dispute fell within the terms of an arbitration clause. In that case, I considered at some length the wide variety of dispute resolution clauses that may be included in parties’ commercial contractual arrangements and the principles applicable to the construction and interpretation of such clauses.

4. [4]

   The matter currently before the Court concerns what is known as an expert determination clause contained in a multi-party deed (the Development Deed), and which led to the execution by counterparty of a separate expert determination agreement (the EDA) to which some (but not all) of the parties to the Development Deed and who were relevantly in dispute became a party, together with the expert as mutually agreed by the parties to the dispute.

5. [5]

   There are two essential issues. First, whether the expert determination which was delivered in 2018 exceeded the expert’s mandate (the Mandate Issue). This issue is an example of the fact that “[a]n expert determination clause does not oust the jurisdiction of the court, which always keeps ultimate supervision of the ambit of the expert’s authority under a contractual provision”: The Illawarra Community Housing Trust Limited v MP Park Lane Pty Ltd [2020] NSWSC 751 at [56] (Illawarra Community Housing). The second issue is whether an as yet unresolved dispute with regard to guarantees was required to be subjected to the expert determination process provided for in the Development Deed (the Guarantee Issue).

6. [6]

   In the proceedings at first instance, Lepcanfin Pty Ltd v Lepfin Pty Ltd [2019] NSWSC 1328, Rein J (the primary judge), sitting in the Commercial List of the Equity Division of this Court, held that the expert had not exceeded her mandate and dismissed, on a summary basis, this aspect of the Commercial List Summons. His Honour also held that the balance of the proceedings which sought various declarations in relation to the operation of certain guarantees should be stayed on the basis that the dispute to which the relevant prayers for relief related fell within the scope of the expert determination clause in the Development Deed, and that the parties should be held to their contractual bargain.

7. [7]

   Lepcanfin Pty Ltd (the Applicant) sought leave to appeal from this decision. The leave application was heard concurrently and was argued with considerable skill both by Ms Whittaker SC (with whom Ms Petch appeared) for the Applicant and by Mr Muddle SC (with whom Mr Davies appeared) for the First to Third and Sixth to Eighth Respondents. The Fourth and Fifth Respondents entered submitting appearances. They were parties to the Development Deed, but not parties to, nor associated with, parties to the EDA.

8. [8]

   I would grant leave to appeal in respect of the primary judge’s decision on the Mandate Issue, but dismiss the appeal insofar as it related to that issue.

9. [9]

   I would refuse to grant leave to appeal on the Guarantee Issue, on the basis that it involved a discretionary decision on a matter of practice and procedure and has not been shown to be infected with error of principle or involve any injustice: see, generally, PPK Willoughby Pty Ltd v Baird [2019] NSWCA 48. The Applicant remains able to agitate its claim with regard to the Guarantee Issue before a mutually agreed or appointed expert in accordance with the expert determination clause contained in the parties’ contractual arrangements.

Background to dispute

1. [10]

   The proceedings arise out of a project for the development of land into a home estate in Leppington, NSW. The Applicant was a financier of that project and agreed to lend $10 million for the venture.

2. [11]

   On 21 August 2014, the Applicant entered into the Development Deed with each of the eight Respondents, namely, Lepfin Pty Ltd (Lepfin), Lepcon Pty Ltd (Lepcon), Antegra Pty Ltd (Antegra), Mr Domenico Capitani and Ms Josephine Grace Carmel Capitani (the Capitanis), Antegra Management Leppington Pty Ltd (AML), Lepdev Pty Ltd (Lepdev) and Berlyn Holdings Pty Ltd (Berlyn). The Capitanis entered a submitting appearance, other than as to costs, both at first instance and on appeal. They were also not party to the EDA. For convenience, I shall collectively refer in the balance of these reasons to the other parties to the Development Deed, other than the Applicant and the Capitanis, as the Respondents.

3. [12]

   Clause 3.2 of the Development Deed outlined that the Applicant would provide funding of $10 million to pay out an existing NAB debt, and use reasonable endeavours to procure senior debt funding to enable the completion of the residential estate.

4. [13]

   Clause 3.3 of the Development Deed provided that Lepcon (described as the Builder/Vendor) would advance to Lepfin (described as the Financier) an interest-free loan of $3.9 million, as follows:

5. [14]

   Clauses 8.1 and 8.3(b) of the Development Deed provided that, after the repayment of all monies provided by the Applicant and Lepcon, and to the extent of available funds thereafter and payment not preventing continuation of the residential estate, Lepfin would pay a “Facilitation Fee” to the Applicant. Schedule Two of the Development Deed provided a method of calculating that fee.

6. [15]

   Clause 12.4 of the Development Deed provided that if Lepcon failed for a period of 30 days to advance the Lepcon Loan, then the Facilitation Fee payable to the Applicant was increased to the extent of the failure and, should the failure continue for 90 days, the Applicant could terminate the Development Deed. Clause 12.4 is relevantly extracted below:

7. [16]

   Lepcon did not advance the full amount of the loan required to be made by cl 3.3 of the Development Deed, with $2,756,667.44 still to be advanced. Accordingly, the Applicant claimed that it was entitled to the increased facilitation fee, described as the “Facilitation Fee Top-Up” (the Top-Up).

8. [17]

   Clause 9 of the Development Deed dealt with dispute resolution and included a mechanism for negotiated resolution and, failing that, the appointment of an expert. Clause 9 has been extracted in its entirety below:

9. [18]

   The Development Deed also made provision for various parties to it to enter into guarantees with the form of the guarantees contained in a proforma guarantee which was a schedule to the Development Deed. Clause 3.1(b) of the Development Deed made execution of the guarantees a pre-condition to the Development Deed coming into effect.

Amendment deeds

1. [19]

   The Applicant and the Respondents entered into two amendment deeds, styled “Amendment and Restatement Deed” dated 18 May 2015 (the first amendment deed) and “Second Amendment and Restatement Deed” dated 8 July 2015 (the second amendment deed).

2. [20]

   The recitals to the first amendment deed explained the purpose of the amendment as follows:

3. [21]

   The first amendment deed included the following acknowledgements, in cll 2(c) and 2(d), namely that:

4. [22]

   The second amendment deed included an acknowledgement in cl 2(c) that “Lepcanfin waives the Existing Defaults on and from the Effective Date”, the effective date being the date of the second amendment deed, namely 8 July 2015. Under cl 1.1 of the second amendment deed, “Existing Defaults” was defined to include the following events:

5. [23]

   A dispute emerged between the Applicant and the Respondents as to whether, by agreeing to waive the existing defaults under the second amendment deed, the Applicant had also waived its entitlement to receive the Top-Up.

6. [24]

   On 10 August 2017, Dentons (acting for the Respondents) issued a dispute notice to Colin Biggers & Paisley (CBP), acting for the Applicant, as follows:

7. [25]

   On 19 February 2018, Dentons sent an email to CBP which contained a draft email of instruction to the proposed expert, including a suggested description of the dispute in respect of which the expert was to be appointed. Professor Elisabeth Peden, a practising barrister and expert in, inter alia, contract law, was agreed by the parties to be a suitable expert. The draft email to be sent was outlined by Dentons as follows (other than the matters either struck through or added in bold, which were amendments subsequently proposed by CBP and accepted by Dentons):

8. [26]

   On 21 February 2018, CBP responded with amendments to the proposed instruction email, as indicated at [25] above, with the relevant additions included in bold font, and the deletions being struck through. CBP further requested a Points of Claim to provide sufficient detail as to the nature of the dispute, as follows:

9. [27]

   On 23 February 2018, Dentons agreed to provide a Points of Claim in accordance with CBP’s proposal on condition that CBP provide a Points of Defence in response, as outlined in an email to CBP as follows:

10. [28]

    On 28 February 2018, CBP responded to this email, outlining that “[o]ur client will serve a points of defence by 9 March 2018. We look forward to receiving your client’s points of claim by 2 March 2018.”

11. [29]

    Professor Peden’s appointment as the expert was ultimately formalised in the EDA but, for reasons that will emerge, it is necessary to set out the background to its ultimate execution by counterparty.

Expert Determination Agreement and its background

1. [30]

   On 23 February 2018, Dentons sent the email of instruction to Professor Peden in the form agreed between the parties, as outlined at [25] above.

2. [31]

   On 28 February 2018, Professor Peden provided to the parties’ solicitors a draft expert determination agreement for their consideration and their clients’ execution. The draft agreement paraphrased in a Schedule what was described as a “brief description of subject matter of dispute”. This description was essentially taken from the third paragraph of the email of instruction to Professor Peden, referred to at [25] above. The Schedule was in these terms:

3. [32]

   On 12 March 2018, the Respondents served a Points of Claim, styled as “Points of Claim and Document Index for Antegra, Lepcon and Lepfin”. Relevantly, para 13 claimed that “[c]lause 12.4(a)(i) was void and unenforceable as a penalty”, this being a reference to cl 12.4 of the Development Deed, set out at [15] above.

4. [33]

   On 9 April 2018, the Applicant served a Points of Defence. At para 13, the Applicant denied the allegation that cl 12.4(a)(i) of the Development Deed was a penalty, as follows:

5. [34]

   In the email of 9 April 2018 under cover of which the Points of Defence were served, CBP said:

6. [35]

   The Joint Bundle, including the Points of Claim and Points of Defence, was delivered to Professor Peden on 11 April 2018. She acknowledged this in a timetabling email to the parties on 13 April 2018.

7. [36]

   Further, in an email of 12 April 2018 from Dentons, confirmation was given of delivery of the Joint Bundle to Professor Peden the previous day. That email was sent with the consent of the Applicant’s solicitors. The Applicant’s position was stated in it as follows:

8. [37]

   The Applicant signed the EDA on 9 April 2018 and it was executed on 10 April 2018 by Antegra. The evidence did not disclose when Professor Peden signed the EDA.

9. [38]

   Whilst the EDA noted that the dispute was “between Antegra Pty Ltd and Lepcanfin Pty Ltd”, it is clear that Antegra was seen as the protagonist for the group of Respondents of which Antegra was a member, and no point was made at the time or at the hearing before Professor Peden about the fact that the EDA was signed by Antegra alone. All of the companies described in these reasons as the Respondents (see [11] above) were referred to in the expert determination process as “McCool” or “McCool entities”, by reason of the fact that Mr Bernie McCool was the sole director and secretary of each of these companies.

10. [39]

    The following clauses from the EDA should be noted:

Submissions to expert

1. [40]

   In the course of the expert determination process, the Respondents made detailed submissions in relation to the issue of penalty. In response, notwithstanding its denial in its Points of Defence of 9 April that cl 12.4(a)(i) of the Development Deed was a penalty and its positive contention that, “in equity or otherwise”, it was incapable of being a penalty (see [33] above), the Applicant contended that only the “dispute as defined” in the EDA should be considered by Professor Peden, and that this did not include the penalty issue.

2. [41]

   CBP sent an email to Professor Peden on 5 June 2018 on behalf of the Applicant, noting that:

3. [42]

   Interpolating here, the passage in this email that has been emphasised contains a complete non-sequitur and Ms Whittaker candidly accepted that she was unable to offer any rational explanation for it. On the one hand, it clearly identifies and accepts that the ambit of the parties’ dispute was reflected in the Points of Claim and Defence. This plainly involved the penalty issue. The email then, however, goes on to assert that that issue did not form part of the dispute.

4. [43]

   Returning to the chronology of events, on 6 June 2018, Professor Peden received an email on behalf of the Respondents, contending that the Applicant should not be permitted an opportunity to deal with the penalty issue, since that had been on the table from the time of the Points of Claim served on 12 March 2018.

5. [44]

   On 12 June 2018, Professor Peden wrote to the parties by email as follows:

6. [45]

   The Applicant duly filed detailed submissions on, inter alia, the penalty issue on 19 June 2018. In those submissions, Mr Leopold SC, then appearing for the Applicant, contended that the penalty argument was “baseless” and “simply unsustainable”. His submissions were developed over a number of pages.

7. [46]

   Short written submissions in reply on the issue of penalty were filed on behalf of the Respondents on 22 June 2018.

Expert determination

1. [47]

   Professor Peden provided her expert determination (the Determination) on 30 June 2018.

2. [48]

   At para 4 of the Determination, Professor Peden noted that the scope of the Determination included whether:

3. [49]

   It may be noted that the word “entitlement” was placed in inverted commas by Professor Peden in para 4(a) of the Determination, no doubt because the word was used in the description of the Dispute contained in the Schedule to the EDA:

4. [50]

   On the waiver issue, Professor Peden determined at paras 28-29:

5. [51]

   As to whether the increased Facilitation Fee was a “penalty”, Professor Peden determined at paras 53 and 58 that:

6. [52]

   Professor Peden noted that the Applicant was entitled to the base Facilitation Fee in accordance with the Development Deed, but held that whether it was payable had not yet arisen for determination: at paras 59-61.

Proceedings at first instance

1. [53]

   By its Commercial List Summons filed 14 June 2019, the Applicant sought the following relief, in addition to costs:

2. [54]

   By Notice of Motion filed 24 July 2019, the Respondents sought the following orders:

3. [55]

   Paragraph 1-55 of the Commercial List Statement culminated in the plea that “the Expert’s decision on the Penalty Issue is not a binding determination pursuant to the Development Deed”: at para 55. Paragraph 56 was a plea that:

4. [56]

   The balance of the claim contained in paras 57-59 of the Commercial List Statement was as follows:

The primary judgment

1. [57]

   The primary judge noted that there were two aspects to the Applicant’s claims:

   1. (1)

      whether Professor Peden exceeded her mandate;

   2. (2)

      whether, in respect of the Guarantees, the Applicant was free to litigate the question whether the guarantors were liable for the Top-Up, even assuming it was a penalty.

2. [58]

   In relation to the Mandate Issue, the primary judge dismissed prayer 1 of the Applicant’s Summons, on the basis that the case that the Expert’s mandate had been exceeded in relation to the penalty issue was “untenable”: at [33]. At [32]-[33], the primary judge concluded that:

3. [59]

   In relation to the Guarantee Issue, the primary judge concluded (at [52]) that:

4. [60]

   The primary judge dismissed prayer 1 of the Applicant’s Commercial List Summons and otherwise permanently stayed the proceedings: at [58]. This had the consequence that the issues sought to be raised in paras 57-59 of the Commercial List Statement (see [56] above) would need to be resolved by the dispute resolution process contemplated by cl 9 of the Development Deed, extracted at [17] above.

Grounds of appeal

1. [61]

   The Applicant sought leave to appeal on 9 December 2019, pursuant to the Supreme Court Act 1970 (NSW) s 101(2)(e). By its draft notice of appeal, the following grounds of appeal were raised:

Notice of Contention

1. [62]

   The Respondents filed a Notice of Contention on 20 December 2019 in these terms:

Submissions on appeal

1. [63]

   In written submissions, the Applicant summarised the question arising on appeal in relation to the Mandate Issue as:

2. [64]

   In oral submissions on the appeal, Ms Whittaker candidly accepted that this was essentially a question of construction, with the only evidence that was potentially relevant but not before the Court being evidence as to when Professor Peden received the Points of Claim and Defence, and when she signed the EDA. (As to the former topic, there was in fact evidence before the Court to the effect that Professor Peden was sent the Points of Claim and Defence on 11 April 2018: see [35] – [36] above).

3. [65]

   The Applicant submitted that the primary judge erred in exercising the Court’s power of summary dismissal for the following reasons:

   1. (1)

      First, the text of the EDA strongly supported the Applicant’s position that Professor Peden was empowered to determine only the waiver issue. The Applicant submitted that the definition of the “dispute” made no reference whatsoever to any issue as to whether or not the Facilitation Fee Top-Up was a penalty. Although the primary judge found that the words used to define the dispute were wide enough to encompass the penalty issue, the Applicant contended that the “primary judge ought to have found either that the Penalty Issue was outside of the terms of the agreed dispute or that there was an extant controversy about the proper construction which was sufficient to render the dispute inappropriate for summary dismissal”.

   2. (2)

      Secondly, the primary judge’s conclusion that the Applicant’s claim ought to be dismissed was largely based upon the findings that the Points of Claim and Points of Defence constituted a legally binding agreement which brought the Penalty Issue within the Expert’s remit, and that this conclusion was “erroneous”, as the primary judge’s reasoning did not explain how the parties could be said to have evinced any intention to enter into legal relations, and any purported “offer” would have been only to “narrow the issues and also the scope of evidence”, as opposed to an offer to expand the scope of the dispute (the Pleading Argument).

   3. (3)

      The Applicant also submitted that the fact that the Points of Claim and Points of Defence joined issue as to whether or not cl 12.4(a)(i) of the Development Deed was a penalty could not be taken into account as background matrix evidence in construing the definition of dispute in the EDA, because that agreement was tripartite and it was not established that the joinder of issue in the Points of Claim and Points of Defence on the penalty issue was a matter known to Professor Peden at the time she executed the EDA. (Ms Whittaker fairly conceded that this argument was not advanced at first instance, which no doubt explains why there was no direct evidence as to when Professor Peden in fact executed the EDA).

4. [66]

   In response, the Respondents submitted that the primary judge’s conclusion that the Applicant’s argument was “obviously untenable” was correct, both as a matter of construction of the EDA and because the Applicant had, by its email of 28 February 2018 (see [28] above), agreed to delineate the dispute before the Expert by reference to Points of Claim and Points of Defence, and exchanged such documents expressly addressing the penalty issue. The Respondents submitted that, by the time the EDA came into force, the parties had expressly agreed that the penalty issue was within the scope of the dispute for determination. The Respondents submitted that this outcome followed either by way of construction of the EDA, or because the exchanged Points of Claim and Points of Defence formed part of the context in which the terms of the EDA were to be understood, by way of a collateral pleadings agreement or as a result of an estoppel. (The estoppel argument was that raised by the Notice of Contention, see at [62] above).

5. [67]

   In relation to the “Pleading Argument”, the Respondents submitted that:

6. [68]

   With respect to the Notice of Contention (see [62] above), the Respondents submitted that the Applicant was estopped from denying that the penalty issue was within the Expert’s mandate. The Respondents contended that the estoppel was one by representation, which was relied on by the Respondents in incurring the costs of contesting the penalty issue through multiple rounds of submissions before the Expert, and refraining from issuing a further dispute notice, and that there was an injustice to the Respondents in the Applicant being permitted to depart from that representation. Alternatively, the Respondents claimed that there was an estoppel in pais, due to the assumed position that the penalty issue was to be determined by the Expert, and the resulting injustice to the Respondents if the Applicant were permitted to depart from that assumption and convention.

7. [69]

   The Applicant submitted that it did not accept that it made any such representation as contended by the Respondents, namely, that by the exchange of Points of Claim and Points of Defence with the Respondents, the Applicant had represented or created an assumption that it agreed to the issues before the Expert being defined by that exchange. Rather, the Applicant submitted that it was clear that the dispute to be determined by the Expert was that which was defined in the EDA.

8. [70]

   In relation to reliance and detriment, the Applicant submitted that, by raising the penalty issue in its Points of Claim, it was the Respondents that created confusion that led to rounds of correspondence as to whether the Applicant agreed to the inclusion of that issue in the dispute before the Expert, and that, accordingly, the “cost of anything done by the Respondents in that regard lies at their own feet”. Alternatively, the Applicant submitted that any detriment was nominal and capable of being remedied by an order for monetary compensation.

9. [71]

   In response, it was submitted that the Applicant clearly represented to the Respondents, both in writing and by its conduct, that the dispute to be determined by Professor Peden was to be delineated by reference to the Points of Claim and Points of Defence, and that these included the penalty issue.

10. [72]

    With respect to reliance and detriment, the Respondents submitted that:

11. [73]

    The Applicant summarised the question relating to the construction of the guarantees as follows:

12. [74]

    The Applicant submitted that the primary judge erred in his construction of the Guarantees as falling within the dispute resolution provisions contained in cl 9 of the Development Deed. The Applicant submitted that the Guarantees were entirely separate agreements to the Development Deed, and that the construction of cll 3.1(b)(i), (ii) and 4.2(e) of each Guarantee was not sufficiently connected to the Development Deed such that a dispute about those terms could not properly be conceptualised as “arising out of” the Development Deed, and thus be required to be resolved by expert determination pursuant to cl 9 of that Deed.

13. [75]

    In response, it was submitted that the relief sought, by its very terms, was dependent upon construction of the Development Deed to have meaning. The Respondents submitted that a dispute about whether the Top-Up was payable, whether under the Development Deed or under any other Project Document, was inherently a dispute that arose out of the Development Deed, because that was the agreement that specified the criteria for, and terms of, the Top-Up. Moreover, the Guarantees were schedules, in unexecuted form, to the Development Deed, and their execution was a precondition to the Development Deed coming into effect, as noted at [18] above.

14. [76]

    The Applicant submitted that, even if the question of construction of the Guarantees fell within the dispute resolution provisions of the Development Deed, the primary judge should have exercised his discretion to allow at least paras 57-59 of the Commercial List Statement to proceed in any event. The Applicant submitted that:

15. [77]

    In response, it was submitted that the Applicant’s assertion that only the Court could enforce the Applicant’s rights under the Guarantees and Mortgage was incorrect as a statement of law, that many of the remedies under the Mortgage do not require the Court’s assistance, and that, fatally, the Applicant’s Summons below did not seek any of the relief which could be obtained from the Court, including an order for possession or sale.

Legal principles

1. [78]

   In Inghams, although in dissent as to the construction of the arbitration clause in issue in that case, I stated the principles applicable to the construction of dispute resolution clauses in terms which did not attract any demur from the members of the majority. Aspects of that statement of principles were recently applied in the context of consideration of an expert determination clause by Hammerschlag J in Illawarra Community Housing at [42], [45] and [49]. It is convenient to repeat the summary of applicable principles from Inghams for the purposes of consideration of the present case.

2. [79]

   It has been rightly observed that "the starting point is that the clause should be construed, just as any other contract term should be construed, to seek to discover what the parties actually wanted and intended to agree to": A Briggs, Agreements on Jurisdiction and Choice of Law (2007, Oxford University Press) at 4.58; Insigma Technology Co Ltd v Alstom Technology Ltd [2009] 3 SLR 936 at [30]-[33]. In Australia, of course, the search is for the parties' intention, objectively ascertained: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52.

3. [80]

   In short, the orthodox process of construction is to be followed: Hancock Prospecting Pty Ltd v Rinehart (2017) 257 FCR 442; [2017] FCAFC 170 at [167] (Hancock Prospecting); Rinehart v Hancock Prospecting Pty Ltd (2019) 366 ALR 635; [2019] HCA 13 at [18] (Rinehart). Thus, a dispute resolution clause, like any other clause of a commercial contract, must be construed by reference to the language used by the parties, the circumstances known to them and the commercial purpose or objects to be secured by the contract: see Electricity Generation Corporation v Woodside Energy Ltd; Woodside Energy Ltd v Electricity Generation Corporation (2014) 251 CLR 640; [2014] HCA 7 at [35] (Woodside); Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [47].

4. [81]

   Further, as the plurality observed in Woodside at [35], citing Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530; [2004] HCA 56 at [82], a commercial contract is to be construed so as to avoid it making commercial nonsense or working commercial inconvenience.

5. [82]

   Contextual considerations are also important, as the High Court's decision in Rinehart (at [26]ff) illustrates. The context in which the dispute resolution clauses had been entered into in the two deeds under consideration in Rinehart bore heavily upon the interpretation in that case of the expression "dispute under this deed". The plurality (at [26]) cited with approval the observations of the Full Court of the Federal Court of Australia in Hancock Prospecting (the decision under appeal in the High Court), that "[c]ontext will almost always tell one more about the objectively intended reach of such phrases than textual comparison of words of a general relational character": see Hancock Prospecting at [193]. In his separate judgment in Rinehart, in agreement with that of the plurality on the question of construction, Edelman J observed at [83] that:

6. [83]

   It is also axiomatic that, in the construction of a contract including an arbitration agreement or an arbitration clause in a commercial agreement, as with the interpretation of a statute, a particular contractual clause or sub-clause must not be construed in isolation but as part of the contract as a whole: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109; [1973] HCA 36; Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17 at [16]; Mastrobuono v Shearson Lehman Hutton Inc. 514 US 52 (1995). In the former case, Gibbs J (as his Honour then was) famously said (at 109):

7. [84]

   One consequence of this is that the same clause, or the same phrase in a particular clause, may not bear an identical meaning from case to case: see FAI General Insurance Co Ltd v Ocean Marine Mutual Protection & Indemnity Association (1997) 41 NSWLR 117 at 120-124 for a discussion of cases where identically worded jurisdiction agreements have been given different constructions.

8. [85]

   In the context of dispute resolution clauses, whether they be arbitration or exclusive jurisdiction clauses, much authority can be found in support of affording such clauses a broad and liberal construction. A particularly well known statement in this area of discourse is that of Gleeson CJ in Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 at 165; (1996) 131 FLR 422 (Francis Travel):

9. [86]

   In Francis Travel, Gleeson CJ referred to the decision of the United States Supreme Court in Mitsubishi Motors Corp v Soler-Chrysler Plymouth Inc 473 US 614 (1985). In that case, at 626, the Supreme Court said that "as with any other contract, the parties' intentions control, but those intentions are generously construed as to issues of arbitrability." (The Court's reference to "arbitrability" was, in context, a reference to the scope of the arbitration agreement.)

10. [87]

    In Rinehart v Welker (2012) 95 NSWLR 221; [2012] NSWCA 95 at [118] (Welker), Bathurst CJ made reference not only to Francis Travel but also to the similarly well known observations of Allsop J (as his Honour then was and with whom Finn and Finkelstein JJ agreed) in Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45; [2006] FCAFC 192 at [164] (Comandate), namely that:

11. [88]

    See also Global Partners Fund Limited v Babcock & Brown Limited (in liq) (2010) 79 ACSR 383; [2010] NSWCA 196 at [60], per Spigelman CJ who identified the rationale for the broad construction of arbitration and exclusive jurisdiction clauses in the following passage (at [67]):

12. [89]

    A similar rationale had been identified by French J (as his Honour then was) in Paper Products Pty Ltd v Tomlinsons (Rochdale) Limited (1993) 43 FCR 439 at 448; [1993] FCA 346, where his Honour noted that:

13. [90]

    In TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia (2013) 251 CLR 533; [2013] HCA 5 at [16], French CJ and Gageler J observed that "…parties who enter into an arbitration agreement for commercial reasons ordinarily intend all aspects of the defined relationship in respect of which they have agreed to submit disputes to arbitration to be determined by the same arbitral tribunal".

14. [91]

    In Australia, unlike other jurisdictions, the process of contractual construction of dispute resolution clauses has not been overlaid by presumptions of the jurisdictions surveyed in G B Born, International Commercial Arbitration (2nd ed, 2014, Wolters Kluwer) at 1325-1338. Thus, in Welker at [122], Bathurst CJ, although not eschewing the liberal approach that had been adumbrated in both Francis Travel and Comandate to the construction of arbitration clauses, rejected the adoption of a presumption that had arguably commended itself to the House of Lords in Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40; [2007] 4 All ER 951 (Fiona Trust). To quote from Lord Hoffmann's speech, the presumption was that the court should, in the construction of arbitration clauses, "start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal", and that the clause should be construed in accordance with that presumption, "unless the language makes it clear that certain questions were intended to be excluded from the arbitrator's jurisdiction": at [13]. The Full Court of the Federal Court in Hancock Prospecting (at [193]) treated Fiona Trust as not saying anything different in substance from Francis Travel and Comandate (the latter case being itself referred to in Fiona Trust at [31]).

15. [92]

    In Rinehart, the plurality indicated that the appeals could be resolved with the application of orthodox principles of construction, which required consideration of the context and purpose of the Deeds there under consideration, without reference to Fiona Trust: at [18]. In his separate judgment, Edelman J described as a "usual consideration of context" the fact that "reasonable persons in the position of the parties would wish to minimise the fragmentation across different tribunals of their future disputes by establishing 'one-stop adjudication' as far as possible": at [83]. This may have been to treat the considerations underpinning cases such as Francis Travel, Comandate and Fiona Trust as not necessarily giving rise to a presumption, but rather as stating a commercially commonsensical assumption. It may be observed that Lord Hoffmann's speech in Fiona Trust (at [13]) slides from the language of "assumption" to that of "presumption".

16. [93]

    The proper contemporary approach was eloquently articulated in the following passage in Hancock Prospecting (at [167]) which I would endorse:

17. [94]

    To the principles identified in Inghams I would also add my endorsement of and adopt the recent observations of Hammerschlag J in Illawarra Community Housing in relation to expert determination agreements or clauses. His Honour there said (at [60]-[64]) that:

18. [95]

    As the expert determination clause in the present case and cl 9.3(c) of the Development Deed in particular illustrates, the parties to the commercial arrangements associated with the development sought to have all aspects (including legal questions) resolved by expert determination.

Consideration

1. [96]

   The first point to be made is that, in an appropriate case, and recognising the need for due caution, a legal question, even one involving some complexity, may be disposed of in a summary fashion. As Barwick CJ said in a well-known passage in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 130; [1964] HCA 69 (General Steel):

2. [97]

   Accordingly, to the extent that the first and second grounds of appeal complained that the matter was dealt with on a summary basis and that the construction posited by the Applicant was “not obviously untenable” and “reasonably arguable”, these arguments need to be assessed with Barwick CJ’s observations in General Steel in mind. They also need to take into account the matter candidly conceded by Ms Whittaker that I have noted at [64] above, namely that the issue was essentially a question of construction. As Isaacs J said in Harrington v Browne (1917) 23 CLR 297 at 307; [1917] HCA 36, “there can only be one construction given to a contract”. See also The Life Insurance Company of Australia Ltd v Phillips (1925) 36 CLR 60 at 78; [1925] HCA 18.

3. [98]

   In the circumstances of the present case, it was both open and appropriate, in my opinion, for the primary judge to dispose of the matter on a summary basis. The primary judge’s construction was, in my opinion, correct.

4. [99]

   As a matter of plain English, a party’s “entitlement” to rely on a particular contractual provision comprehends, or at least includes, whether or not there is any reason which may preclude that party from asserting or enjoying a contractual benefit otherwise conferred by it. If a clause is properly characterised as a penalty, that will be a classic instance where a party is not entitled to enjoy the benefit the contractual provision otherwise offers.

5. [100]

   The fact that, as the primary judge held at [29] that, when the description of the dispute was first drafted in the email sent to Professor Peden on 23 February 2018, the contention that cl 12.4(a)(i) was a penalty had not been asserted by the Respondents in correspondence with the Applicant, is not to the point. It is a question fundamentally of construing the language used by the parties. In any event, the EDA was only executed by the Applicant after it was aware that the penalty issue was being run and had joined issue with it (see [41] above).

6. [101]

   It is also important to observe that the description of the dispute set out in the Schedule to the EDA was said to be a “brief description of subject matter of dispute”, and the actual description of the dispute was qualified by the phrase “in essence”. The EDA did not contain an entire agreement clause. It provided a “brief description” of the subject matter of the dispute. The EDA also provided in cl 5 that:

7. [102]

   One of the procedures adopted by the Expert, and urged on her by the parties, was the use of Points of Claim and Defence. As is conventional, such documents are designed to identify with particularity the full ambit of a dispute, the essence of which may have been stated elsewhere, for example in a letter of demand. The exchange of Points of Claim and Defence provided a fuller but not, in my opinion, broader statement of the parties’ dispute than the brief description of it contained in the Schedule to the EDA. Indeed, the email from CBP of 5 June 2018 to which I have referred at [41] above accepted as much, and it ill behoves the Applicant to contend that the penalty issue fell outside the scope of the description of the dispute in the EDA.

8. [103]

   If the consequence of this analysis is to give the description of the dispute in the Schedule to the EDA a broad meaning, that is consistent, in my opinion, with the proper approach to the construction of a dispute resolution clause (see the cases referred to at [85]-[90] and [93] above) or, I would add, the identification of the ambit of the dispute for the purposes of a dispute resolution process. Commercial commonsense dictates that there should be attributed to the parties an intention to give a broad interpretation to the word “entitlement” as used in the Schedule to the EDA, especially when it is recalled that that term appeared in the following sentence:

9. [104]

   The parties were in heated dispute and wished an expert to resolve not a limited question of entitlement, reserving to one or the other the potential to raise some other aspect of entitlement at a later point in time, but the whole of the dispute as to entitlement to the Top-Up. The more narrow construction contended for by the Applicant would result in duplicated expense and be of limited utility. Neither of these is a consequence readily to be attributed to commercial parties.

10. [105]

    This analysis does not depend upon when Professor Peden executed her counterpart of the EDA and, in particular, whether or not it was before or after she had been supplied with the Points of Claim and Defence: see [65(3)] above. That was a clever argument developed by Ms Whittaker on appeal but one which was not, as I have noted, made at first instance.

11. [106]

    An objective analysis of the circumstances is that the contracting parties retained Professor Peden to resolve their dispute, and submitted the dispute to her for determination by reference to the Points of Claim and Defence which she then proceeded to address. As McHugh JA (as his Honour then was) said in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117, “a contract may be inferred from the acts and conduct of the parties as well as or in the absence of their words”. On this footing, as well as on a plain English interpretation of the brief description of the dispute in the EDA, Professor Peden clearly acted within her mandate in resolving the penalty issue in her Determination.

12. [107]

    Had it been necessary to determine the estoppel argument raised by the Notice of Contention, I would also have been inclined to uphold the primary judge’s decision on that alternative footing, even on a summary basis.

13. [108]

    By its Points of Defence, the Applicant unequivocally represented that it accepted that the penalty issue formed part of the dispute, albeit that it did not accept that characterisation of cl 12.4(a)(i) of the Development Deed. Had it, at that early point in time (prior to execution of the EDA), flagged that it considered that the penalty issue fell outside the ambit of the dispute, the Respondents could simply have triggered a further dispute under the provisions of cl 9 of the Development Deed. It is fanciful to suppose that that closely associated dispute would not have been joined to the waiver argument, and that both matters would not have been jointly determined by a single expert; and there is no credible basis for supposing that that expert would not have been Professor Peden who was eminently qualified to consider both the waiver argument and the penalty issue.

14. [109]

    The Applicant’s subsequent resiling from the position it had unequivocally advanced in its Points of Defence in the course of the expert determination process was unconscionable. An aspect of the unconscionability resided in the lack of any ultimate utility in the point being taken insofar as, as I have already explained, there was a simple means for the Respondents to trigger a new additional dispute to bring it to the fore. The Applicant’s stance in the dispute resolution process was unmeritorious.

15. [110]

    For all of the above reasons, this aspect of the appeal should be dismissed.

The Guarantee Issue

1. [111]

   As indicated at [9] above, I would not grant leave to appeal in respect of the primary judge’s decision to grant a stay of the Commercial List proceedings, insofar as they sought substantive declaratory relief in respect of the matters pleaded at paras 57-59 of the Commercial List Statement (see [56] above).

2. [112]

   The primary judge’s decision was, in essence, that these claims for relief “arose out of” the Development Deed. That phrase is one of great amplitude which the cases that have been referred to at [85] – [90] and [93] above illustrate. The parties should be held to their bargain (see, for example, Dance With Mr D Ltd v Dirty Dancing Investments Pty Ltd [2009] NSWSC 332 at [53]), and the primary judge was correct to stay the proceedings to the extent that the Applicant sought to circumvent cl 9 of the Development Deed by seeking to agitate the Guarantee Issue in proceedings in this Court.

3. [113]

   To qualify for a grant of leave to appeal, it is generally necessary for a party to point to some error of principle or clear injustice. In my opinion, there was neither. On the latter point, the Applicant will not be shut out from having the points in relation to the Guarantees that it seeks to agitate determined, but that determination will be by an expert by reference to the elaborate process to which it agreed in cl 9 of the Development Deed.

Conclusion and orders

1. [114]

   I would grant leave to appeal but dismiss the appeal with costs on the Mandate Issue.

2. [115]

   I would refuse leave to appeal with costs in respect of the Guarantee Issue.

3. [116]

   PAYNE JA: I agree with Bell P.

4. [117]

   MCCALLUM JA: I agree with Bell P.