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Australia – The Importance Of Clear And Certain Drafting In Dispute Resolution Provisions.

16 September, 2013

 

The Victorian Court of Appeal recently held that where a party ‘may’ refer an extension of time (EOT) claim for expert determination, the word ‘may’ creates a prescriptive requirement for parties to comply with that referral. This decision affirms the importance of clear and certain drafting in dispute resolution provisions, particularly for contracts incorporating multiple dispute resolution mechanisms, to avoid conflicting or unintended parallel procedures. Courts will generally endeavour to put all provisions to work in a contract, and in doing so will aim for an interpretation that promotes business efficacy. Courts are reluctant to prevent parties from pursuing remedies under a contract unless the prevention was clearly intended by the parties.


Background


Biosciences Research Centre Pty Ltd and Plenary Research Pty Ltd entered into a project agreement (Project Agreement) to design, construct and operate a biosciences research facility at the Bundoora Campus of La Trobe University in Melbourne.

Plenary submitted three EOT claims which were all subsequently rejected by Biosciences. Plenary served a notice of dispute on Biosciences, referring the dispute to arbitration. However, Biosciences sought to enforce its right to refer the EOT dispute for resolution by an independent expert under clause 26.16 (EOT clause).


The EOT clause provided:


‘…any dispute about an extension of time claim or acceleration under this Clause 26…maybe referred by either party for resolution by an Independent Expert in accordance with the Accelerated Dispute Resolution Procedures…’ (emphasis added)


The reference in the EOT clause to ‘Accelerated Dispute Resolution Procedures’ referred to a fast track procedure in the Project Agreement, whereby an EOT dispute referred to expert determination shall be resolved by expert determination, and not by Senior Management or by referral to arbitration.


Arguments at first instance


Plenary argued that:


  • the word ‘may’ in the EOT clause did not trigger the fast track procedure, and therefore did not prevent Plenary from referring the EOT dispute to arbitration (for the fast track procedure to be triggered, the wording in the EOT clause would need to mandatorily oblige (ie by using the word ‘shall’) the parties to refer the dispute to expert determination, which the clause did not do); and
  • the Project Agreement required all disputes to be referred to arbitration.


In response, Biosciences argued that the EOT clause afforded a unilateral right to refer EOT disputes to expert determination. It argued that the use of the term ‘may’ rather than ‘shall’ did not affect the interpretation of that clause.


In Biosciences Research Centre Pty Ltd v Plenary Research Pty Ltd [2012] VSC 249 the Court at first instance found in favour of Biosciences that, despite the word ‘may’, the EOT clause provided only one form of dispute resolution for EOT disputes, being expert determination in accordance with the fast track procedure.


Plenary’s appeal


Plenary appealed the Court’s decision on the basis that:


  • the language of the EOT clause is ambiguous;
  • the word ‘may’ means that it is not mandatory for the parties to refer an EOT dispute to an independent expert (and therefore the fast track procedure did not apply); and
  • Plenary’s interpretation did not render the EOT clause ‘mere surplusage’, but rather required the parties to agree to the referral of a dispute to expert determination.


The decision on appeal


In Plenary Research Pty Ltd v Biosciences Research Centre Pty Ltd [2013] VSCA 217 the Court of Appeal upheld the judge at first instance’s decision and made the following points:


  • Courts will seek to avoid consequences which are capricious, unreasonable, unjust or not consistent with business efficacy. The different dispute resolution methods under the Project Agreement were consistent with business efficacy and allowed for fast resolution of EOT claims where mediation and arbitration might not be appropriate forums.
  • The word ‘may’ in the EOT clause indicated that it is not obligatory for either party to refer an EOT dispute to expert determination, but if either party did so, the fast track procedure will apply.
  • The referral to expert determination was the only form of dispute resolution within the scope of the EOT clause, and there was no reason to suggest that arbitration was the default dispute resolution method in the Project Agreement.

Clyde & Co

 

For further information, please contact:

 

Glen Warwick, Partner, Clyde & Co
[email protected]


Rupert Coldwell, Clde & Co
[email protected]


Yicheng Chen, Clyde & Co
[email protected]

  

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