Lipman Pty Ltd v Empire Facades Pty Ltd (formerly known as Empire Glass and Aluminium Pty Ltd)

1. [1]

   McCOLL JA: I agree with Gleeson JA.

2. [2]

   MACFARLAN JA: I agree with Gleeson JA.

3. [3]

   GLEESON JA: This application for leave to appeal, and an appeal if leave be granted, concerns the final and binding character of determinations by an expert appointed under a dispute resolution clause in a building contract. The applicant, Lipman Pty Ltd (Lipman), seeks leave to appeal from the order of the primary judge (Ball J) on 17 March 2017, dismissing Lipman’s application for a permanent stay or dismissal of the proceeding commenced by the respondent, Empire Facades Pty Ltd (Empire) (formerly known as Empire Glass and Aluminium Pty Ltd), against Lipman in respect of disputes the subject of earlier expert determinations: Empire Glass and Aluminium Pty Ltd v Lipman Pty Ltd [2017] NSWSC 253. As that order is interlocutory, Lipman requires leave to appeal: Supreme Court Act 1970 (NSW), s 101(2)(e).

Background

1. [4]

   Lipman and Empire are parties to a contract dated 21 November 2014 pursuant to which Empire agreed to supply Lipman with design, supply, construction and associated works for the refurbishment of the lobby of premises at 580 George Street, Sydney for a contract price of $3,750,000 excluding GST (the Contract). The Contract contains a dispute resolution mechanism in cl 42.

2. [5]

   The relevant parts of the dispute resolution clause provide as follows:

3. [6]

   Clause 42.2 then provides for the dispute to be referred to nominated senior executives who are to meet and to undertake genuine and good faith negotiations “with a view to resolving the dispute or agree in writing on a method of resolving the dispute”. If the dispute is “not resolved or the parties have not agreed on a method of resolving the dispute” within a specified period, cl 42.3 requires that “the dispute shall be referred to expert determination”.

4. [7]

   The nature of the expert determination and the process is dealt with in cl 42.4 to 42.10.

5. [8]

   Clauses 42.11 and 42.12 provide as follows:

6. [9]

   Clause 42.14 provides that cl 42 will survive the termination of the subcontract.

7. [10]

   Part P of the General Conditions annexed to the Contract included a form of expert agreement, the terms of which relevantly provide in cl 7:

8. [11]

   Disputes arose between Empire and Lipman concerning the performance and subsequent termination of the Contract. Notices of dispute were issued by the parties pursuant to the dispute resolution clause in the Contract. As required by cl 42, the disputes were referred to senior executive negotiation and subsequently to expert determination. The expert appointed under the Contract entered into an agreement with the parties dated 4 October 2016 (the Expert Agreement) in the form of Part P to the General Conditions to the Contract, including cl 7 as referred to at [10] above. Two expert determinations were made by the expert on 29 November 2016. After off-setting the amounts the subject of those awards, the expert found in favour of Lipman in an amount of $106,943.63.

9. [12]

   On 19 December 2016, Empire, by its solicitors, gave notice of an appeal in accordance with cl 42.11. On the same day Empire commenced and served proceedings against Lipman in the Technology and Construction List of the Equity Division seeking to re-agitate the issues considered by the expert.

10. [13]

    By notice of motion filed 30 January 2017, Lipman sought a permanent stay or dismissal of the proceedings on the ground that the disputes between the parties had been resolved by the expert determination and it was not open for Empire to re-agitate those issues before the Court. It was not in dispute before the primary judge that the court has a discretionary power to stay proceedings where the parties have, by contract, agreed to have their disputes determined by an expert: Badgin Nominees Pty Ltd v Oneida Ltd [1998] VSC 188 at [36] (Gillard J); Lipman Pty Ltd v Emergency Services Superannuation Board [2011] NSWCA 163; Cessnock City Council v Aviation and Leisure Corporation Pty Ltd [2012] NSWSC 221 at [31] (Hammerschlag J).

11. [14]

    Lipman identified the issue of construction as whether Empire is permitted by cl 42 to litigate in court disputes that have already been resolved (adversely to it) by expert determination pursuant to cl 42.11.

12. [15]

    Lipman contended that cl 42 does not permit a party to litigate disputes unless “the determination of the expert does not resolve the dispute” (those words being described by Lipman as the express condition in cl 42.12). Lipman argued that if the “determination” of the disputes has been made by an expert in accordance with the requirements of the Contract or Expert Agreement, it must follow that the determination of the expert does ”resolve the disputes” for the purposes of cl 42. In such circumstances, neither party is entitled to litigate the disputes.

13. [16]

    On Lipman’s preferred construction, the giving of a notice of appeal under cl 42.11 is a necessary step in order for a party to become entitled to commence proceedings in relation to disputes, but it is not a sufficient step; the condition in the introductory words to cl 42.12 must also be met. Lipman contended that the condition in cl 42.12 (“if the determination of the expert does not resolve the dispute”) will be met if the expert makes a determination that is not in accordance with the requirements of the Contract, or that is made in circumstances where the expert has not carried out the task he was required to undertake under the Contract and the Expert Agreement.

14. [17]

    In response, Empire advanced two reasons why the “Litigation” procedure in cl 42.12 should not be limited to the recognised avenue of challenge where a determination is not in accordance with the requirements of the agreement. First, a party does not need cl 42.12 to invoke a common law right to challenge an expert determination that is not in conformity with the agreement. Second, the reference in cl 42.11(c) to an appeal procedure that could result in the expert determination being “reversed, overturned or otherwise changed”, does not on a natural reading of those words include a proceeding for a declaration of nullity with respect to the expert determination.

15. [18]

    Empire contended that by prescribing for an “appeal” by the cl 42.12 procedure in cl 42.11, the parties were expressly agreeing to litigation as a part of an appeal process “in relation to the dispute”, words that were to be broadly construed.

The judgment below

1. [19]

   After summarising the parties’ competing arguments, the primary judge expressed his preference for the interpretation advanced by Empire. It is convenient to set out his Honour’s dispositive reasons in full at [20] – [29].

Disposition of application

1. [20]

   The argument by Lipman in this Court essentially repeated the argument which the primary judge had rejected. Lipman contended that the opening words of cl 42.12 (“If the determination of the expert does not resolve the dispute then”) impose a pre-condition on the right to litigate. These words are, Lipman submitted, to be read as meaning “if it is by agreement or by finding established that the determination of the expert did not resolve the dispute”.

2. [21]

   According to Lipman, the purpose of cl 42.12 is to set up an option for the party giving the notice of appeal to litigate the dispute, rather than have the dispute referred to another expert for determination, if two conditions are satisfied: first, a notice has been given under cl 42.11 within the specified time period, and second, that it is found (by a court) or agreed (between the parties) that the expert determination was not in accordance with the agreement. Senior counsel for Lipman submitted that on this construction, the reference to the “determination of the expert” in the opening words to cl 42.12 means a purported determination by the expert that is not valid, that is, a determination that is not made in accordance with the terms of the contract: Legal and General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314 at 336 (McHugh JA).

3. [22]

   I do not agree. For the reasons given by the primary judge, cl 42 does not preclude Empire litigating the disputes the subject of the earlier expert determinations. As his Honour correctly observed, the fundamental difficulty with the construction advanced by Lipman is that it does not sit easily with the words of the Contract and does not really provide for a right of appeal at all.

4. [23]

   I would add the following brief observations. Ordinarily, the meaning conveyed by the expression “determination of the expert” is a valid determination in the A Hudson sense, that is, a determination in accordance with the terms of the contract. By contrast, acceptance of Lipman’s argument would give the expression “determination of the expert” in cl 42.12 an unusual meaning because a purported determination not done in accordance with the terms of the contract is not a determination at all.

5. [24]

   It would also involve giving that expression a different meaning in cl 42.12 to the meaning of the same expression in the preceding sub-clause - cl 42.11 – where, as Lipman correctly accepted, the expression “determination of the expert” refers to a valid determination in the A Hudson sense. When cls 42.11 and 42.12 are read together, and in linear sequence, the expression “determination of the expert” is plainly intended to have the same meaning in both sub-clauses.

6. [25]

   That the opening words of cl 42.12 should be given their usual meaning of a valid determination in the A Hudson sense is supported by the terms of cl 42.11(c). That sub-clause contemplates that the appeal may result in the determination being “reversed, overturned or otherwise changed”. That is, curial proceedings may result in a different outcome to the determination. However, nothing in cls 42.11 or 42.12 suggests that reversing, overturning or otherwise changing the outcome of the determination of the expert is contingent upon the prior agreement of the parties or finding by a court that the determination of the expert is a nullity.

7. [26]

   Lipman’s preferred construction that the right of appeal in cl 42.12 is subject to a pre-condition that the expert determination is a nullity, involves reading the opening words of cl 42.12 as saying “if the purported determination of the expert does not resolve the dispute because it is not a valid determination in accordance with the contract, then”. That is an unreasonable and unnatural reading of cl 42.12, because it is inconsistent with the language of cl 42.12 and would substantially constrain the right of appeal which the parties have expressly agreed to.

8. [27]

   Finally, insofar as Lipman contended that his Honour’s construction would have an unbusinesslike consequence, I do not agree. Here, cl 42.11(b) qualifies the final and binding nature of the expert determination by the “appeal” procedure in cl 42.12, which expressly contemplates a party commencing proceedings “in relation to the dispute”. In the present case, unlike the dispute resolution clause considered by this Court in Lipman Pty Ltd v Emergency Services Superannuation Board [2011] NSWCA 163 (which did not include a sub-clause like the “litigation” cl 42.12 in the present case), the parties may be taken to have intended by the progression of the different chosen methods of dispute resolution in cl 42 (senior executive negotiation, expert determination and litigation), that the expert determination does not “resolve” the dispute if either party gives the requisite notice of appeal within the specified timeframe.

9. [28]

   This is consistent with the language of cl 42.3, which speaks of the dispute being “referred” to expert determination, not that the dispute will be “resolved” by expert determination. There is nothing unbusinesslike in giving effect to this bargain that the parties have chosen.

Conclusion and orders

1. [29]

   In my view, Lipman has not demonstrated error in his Honour’s construction of the dispute resolution clause in cl 42 of the Contract. As the matter has been fully argued there should be a grant of leave to appeal, but the appeal should be dismissed with costs.

2. [30]

   I propose the following orders:

   1. (1)

      Grant leave to appeal.

   2. (2)

      Direct the applicant to file a notice of appeal in the form of the draft notice of appeal in the White Book within seven days.

   3. (3)

      Appeal dismissed.

   4. (4)

      Applicant to pay the respondent’s costs in this Court.