Lepcanfin Pty Ltd v Lepfin Pty Ltd [2020] NSWCA 155 (23 July 2020)

Court of Appeal
Supreme CourtNew South Wales

 

 

Case Name: Lepcanfin Pty Ltd v Lepfin Pty Ltd
Medium Neutral Citation: [2020] NSWCA 155
Hearing Date(s): 14 May 2020
Date of Orders: 23 July 2020
Decision Date: 23 July 2020
Before: Bell P at [1]; Payne JA at [116]; McCallum JA at [117]
Decision: 1.   Grant leave to appeal but dismiss the appeal with costs on the Mandate Issue, as identified in the reasons for judgment.
2.   Refuse leave to appeal with costs in respect of the Guarantee Issue, as identified in the reasons for judgment.
Catchwords: CONTRACT – dispute resolution clauses – expert determination clause – separate Expert Determination Agreement entered into – whether expert exceeded her mandate in determining that clause in a Development Deed was a penalty – construction of ambit of separate Expert Determination Agreement – when one party to dispute initially accepted that penalty issue fell within scope of Expert Determination Agreement and then resiled from that fact – whether party estopped from resiling from initial position – whether other issues sought to be raised in Commercial List proceedings but which had not been the subject of expert determination could be litigated – whether primary judge erred in staying litigation of those issues.
Legislation Cited: Supreme Court Act 1970 (NSW) s 101(2)(e)
Cases Cited: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; [1973] HCA 36
Australian Health & Nutrition Association Ltd v Hive Marketing Group Pty Ltd (2019) 99 NSWLR 419; [2019] NSWCA 61
Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45; [2006] FCAFC 192
Dance With Mr D Ltd v Dirty Dancing Investments Pty Ltd [2009] NSWSC 332
Electricity Generation Corporation v Woodside Energy Ltd; Woodside Energy Ltd v Electricity Generation Corporation (2014) 251 CLR 640; [2014] HCA 7
FAI General Insurance Co Ltd v Ocean Marine Mutual Protection & Indemnity Association (1997) 41 NSWLR 117
Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40; [2007] 4 All ER 951
Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160; (1996) 131 FLR 422
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; [1964] HCA 69
Global Partners Fund Limited v Babcock & Brown Limited (in liq) (2010) 79 ACSR 383; [2010] NSWCA 196
Hancock Prospecting Pty Ltd v Rinehart (2017) 257 FCR 442; [2017] FCAFC 170
Harrington v Browne (1917) 23 CLR 297; [1917] HCA 36
Inghams Enterprises Pty Limited v Hannigan [2020] NSWCA 82
Insigma Technology Co Ltd v Alstom Technology Ltd [2009] 3 SLR 936
Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110
Mastrobuono v Shearson Lehman Hutton Inc. 514 US 52 (1995)
Mitsubishi Motors Corp v Soler-Chrysler Plymouth Inc 473 US 614 (1985)
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37
Paper Products Pty Ltd v Tomlinsons (Rochdale) Limited (1993) 43 FCR 439; [1993] FCA 346
PPK Willoughby Pty Ltd v Baird [2019] NSWCA 48
Rinehart v Hancock Prospecting Pty Ltd (2019) 366 ALR 635; [2019] HCA 13
Rinehart v Welker (2012) 95 NSWLR 221; [2012] NSWCA 95
TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia (2013) 251 CLR 533; [2013] HCA 5
The Illawarra Community Housing Trust Ltd v MP Park Lane Pty Ltd [2020] NSWSC 751
The Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60; [1925] HCA 18
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52
Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17
Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530; [2004] HCA 56
Texts Cited: A Briggs, Agreements on Jurisdiction and Choice of Law (2007, Oxford University Press)
G B Born, International Commercial Arbitration (2nd ed, 2014, Wolters Kluwer)
Category: Principal judgment
Parties: Lepcanfin Pty Ltd (Applicant)
Lepfin Pty Ltd (First Respondent)
Lepcon Pty Ltd (Second Respondent)
Antegra Pty Ltd (Third Respondent)
Domenico Capitani (Fourth Respondent)
Josephine Grace Carmel Capitani (Fifth Respondent)
Antegra Management Leppington Pty Ltd
(Sixth Respondent)
Lepdev Pty Ltd (Seventh Respondent)
Berlyn Holdings Pty Ltd (Eighth Respondent)
Representation: Counsel:

V Whittaker SC, K Petch (Applicant)
W Muddle SC, R Davies (First-Third and Sixth-Eighth Respondents)

Solicitors:

Colin Biggers & Paisley (Applicant)
Dentons Australia Pty Ltd (First-Third and
Sixth- Eighth Respondents)
Submitting appearance (Fourth and Fifth Respondents)

File Number(s): 2019/307949
Publication Restriction: N/A
Decision under appeal:
 Court or Tribunal: Supreme Court of New South Wales
  Jurisdiction: Equity – Commercial List
  Citation: [2019] NSWSC 1328
  Date of Decision: 10 September 2019
  Before: Rein J
  File Number(s): 2019/184969

 

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court’s computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

 

HEADNOTE

[This headnote is not to be read as part of the judgment]

Under cl 3.3 of a Development Deed relating to the development of a home estate on land situated in Leppington, NSW, Lepcon Pty Ltd (Lepcon) was required to make payments to Lepfin Pty Ltd (Lepfin) in the sum of $3.9million, yet only $1,143,332.56 was paid. Clause 12.4 of the Development Deed provided, inter alia, that a Facilitation Fee payable to Lepcanfin Pty Ltd (Lepcanfin) was to be increased by the amount of the shortfall in payments under cl 3.3. Accordingly, Lepcanfin claimed that it was entitled to an increased Facilitation Fee, described as the “Facilitation Fee Top-Up” (the Top-Up), on account of the $2,756,667.44 still to be advanced.

The Development Deed also made provision for various parties to it to enter into guarantees (the 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.

A dispute arose between the parties as to whether or not Lepcanfin had waived the obligation of Lepcon to pay the balance of $2,756,667.44 and its entitlement to the increase in the Facilitation Fee, pursuant to the terms of a Second Amendment and Restatement Deed, cl 2(c) of which acknowledged that Lepcanfin “waives the Existing Defaults on and from the Effective Date”, being 8 July 2015 (the date of the Second Amendment and Restatement Deed).

The Development Deed contained a dispute resolution clause providing for expert determination of various types of dispute. Pursuant to that clause, the parties appointed an independent expert, Professor Elisabeth Peden, to make a final and binding decision in relation to the dispute. A tri-partite expert determination agreement (the EDA) was drawn up, with Lepcanfin signing the EDA on 9 April 2018, and the counterparties executing it on 10 April 2018. A “brief description of subject matter of dispute” contained in a Schedule to the EDA outlined the following:

“…The dispute is, in essence, as to whether or not Lepcanfin waived the obligation of Antegra to pay the balance of $2,756,667.44 and Lepcanfin’s entitlement to the increase in the Facilitation Fee, pursuant to the terms of the Second Amendment and Restatement Deed. Antegra claims that the obligation and increase in Facilitation Fee was waived, while Lepcanfin claims that it was not”.

Prior to execution of the EDA, on 12 March 2018, Antegra and associated companies served Points of Claim, para 13 of which claimed that clause 12.4(a)(i) of the Development Deed “was void and unenforceable as a penalty”. On 9 April 2018, Lepcanfin served a Points of Defence, denying the allegation that cl 12.4(a)(i) was a penalty.

A Joint Bundle, including the Points of Claim and Points of Defence, was delivered to Professor Peden on 11 April 2018.

In the course of the expert determination process, Antegra made detailed submissions in relation to the issue of penalty. In response, notwithstanding its denial in its Points of Defence that cl 12.4(a)(i) was a penalty, Lepcanfin 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. Professor Peden did not agree and Lepcanfin subsequently made submissions on the penalty issue.

Professor Peden provided her determination (the Determination) on 30 June 2014, noting that the scope of the dispute included whether the “entitlement” to the increased fee had been waived by Lepcanfin by way of the Second Amendment and Restatement Deed, and whether such an entitlement was a penalty and could be enforced. She held that there had been no waiver but that the increased Facilitation Fee was a “penalty”, and therefore either void or wholly unenforceable.

Lepcanfin commenced proceedings alleging that Professor Peden had exceeded her mandate in determining the penalty issue, and also sought substantive relief in relation to the Guarantees.

The primary judge 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 in relation to the 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.

The principal issues on appeal were:

  1. whether the primary judge erred in holding that the expert had not exceeded her mandate; and
  2. whether the primary judge erred in staying the proceedings in relation to the Guarantees.

The Court held (Bell P, Payne JA and McCallum JA agreeing):

  1. With respect to the question of mandate, leave to appeal was granted, but the appeal was dismissed. Commercial common sense dictated 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, and that a party’s “entitlement” to rely on a particular contractual provision included whether or not there was a reason why may preclude that party from asserting or enjoying a contractual benefit otherwise conferred by it. The fact that the contractual benefit was a “penalty” amounted to such a reason: [99], [103], [108] (Bell P); [116] (Payne JA); [117] (McCallum JA).
  2. It was, in the circumstances, appropriate to decide this question on a    summary basis: [100] (Bell P); [116] (Payne JA); [117] (McCallum JA).
  3. Observations by Bell P in relation to the construction and interpretation of dispute resolution and expert determination clauses: [80]-[96].
  4. With respect to the Guarantee Issue, leave to appeal was refused. The primary judge’s decision that these claims for relief “arose out of” the Development Deed was correct and the parties should be held to their bargain. The primary judge was correct to stay the proceedings and this was a discretionary decision on a matter of practice and procedure, and was not shown to be infected with error of principle or involve any injustice: [11], [114] (Bell P); [116] (Payne JA); [117] (McCallum JA).

Judgment

  • 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.
  • 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.
  • 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.
  • 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.
  • 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).
  • 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.
  • 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.
  • 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.
  • 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

  • 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.

The Development Deed

  • 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.
  • 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.
  • 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:

“The Builder/Vendor must make an interest free loan to the Financier for working capital in the amount of $3,900,000, such loan to be made:

(a)   as to $1m within 30 days of Newco providing the funding in clause 3.2(a) above;

(b)   as to $2m within a further 30 days thereafter; and

(c)   as to the balance within a further 30 days thereafter”.

  • 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.
  • 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:

12.4 Default (Clause 3.3)

If the Builder/Vendor fails to make any of the payments set out in clause 3.3 within the time periods allowed in clause 3.3 Newco may not immediately terminate this Deed, however if the failure to pay is not remedied within 30 days of the breach of clause 3.3, the parties agree:

(a)        (i)   the Facilitation Fee will be increased by the amount of the shortfall in payment/s; and

(ii)   Newco may, in its sole discretion, contribute the amount of the shortfall itself such contribution being deemed an Additional Contribution pursuant to clause 3.5;

(b)        If the failure to make such payments is not remedied within 90 days Newco may elect to terminate this Agreement.”

(By the first amendment deed (referred to at [19] below), the references to “Newco” in this clause were replaced by “Lepcanfin”, and the clause was slightly supplemented in a manner not material to the present dispute).

  • 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).
  • 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:

9.1    Parties to avoid disputes

Each party agrees to use its best endeavours to resolve any conflicts in good faith in accordance with the terms and intent of this agreement without such conflicts becoming disputes.

9.2    Disputes

If any dispute arises out of this agreement neither party may commence any court or arbitration proceedings unless they have complied with the following paragraphs of this clause (except where the party seeks urgent interlocutory relief).

9.3    Negotiated resolution and selection of expert

(a)   On service of a notice by any party (Dispute Notice), the parties to this agreement must meet at least once and use reasonable endeavours to resolve the Dispute by negotiation within 14 days of service of the Dispute Notice. Any resolution must be recorded in writing and signed by each party.

(b)   If the Dispute is not resolved, the parties must within the 14 day period use reasonable endeavours to appoint an expert (Expert) by agreement. That appointment must be recorded in writing and signed by each party. The parties agree that an Expert must only be appointed if that Expert agrees to provide its decision within a period no longer than 42 days from the date of his or her appointment.

(c)   If the parties do not reach agreement on the appointment of an Expert the Expert must be appointed, at the request of any party, by the President for the time being (or if none, the senior elected member) of the professional body of the following organisations according to the type of dispute:

an accounting dispute: by the President of the Institute of Chartered Accountants;

a legal dispute: by the President of the Law Society of NSW;

a construction or design dispute:  by the President of the Royal Australian Institute of Architects (NSW Chapter);

an engineering dispute: by the President of the Institute of Engineers;

a valuation dispute: by the President of the Australian Property Institute;

a property dispute: by the President of the Real Estate Institute of NSW.

If the parties cannot agree on the nature of the dispute, it shall be referred to The Institute of Arbitrators and Mediators Australia to determine the Expert.

9.4    Referral to Expert

If the Dispute is not resolved under clause 9.3, a party may at any time thereafter refer the Dispute for determination by the Expert.

9.5    Assistance to the Expert

(a)   Once the Expert has been instructed the parties must:

(i)   each use their best endeavours to make available to the Expert all information the Expert requires to settle or determine the Dispute; and

(ii)   ensure that their employees, agents or consultants are available to appear at any hearing or enquiry called by the Expert.

(b)   The parties may give written submissions to the Expert but must provide copies to the other parties at the same time.

9.6   Expert’s decision

(a)   The decision of the Expert must:

(i)   be in writing and give reasons; and

(ii)   be made and delivered to the parties within 42 days from the date of appointment of the Expert.

(b)   The Expert may conduct the determination of the Dispute in any way it considers appropriate but the Expert may, at its discretion, have regard to the Australian Commercial Dispute Centre’s guidelines for expert determination of disputes or such other guidelines as it considers appropriate.

(c)   The Expert’s decision is final and binding on the parties.

(d)   The Expert must act as an expert and not as an arbitrator.

9.7   Expert’s Costs

(a)   The Expert must also determine how the expenses relating to the referral of the Dispute (including the Expert’s remuneration) should be apportioned between the parties and in default of a decision by the Expert those expenses must be borne by the parties equally.

(b)   In determining the apportionment of costs the Expert may have regard to what the Expert, in its reasonable opinion considers to be a lack of good faith or a failure to use reasonable endeavours by any party in assisting the Expert or resolving the dispute between the parties nominated officers as required by this clause”.

  • 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

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

“A   The parties entered into the Development Deed on or about September 2014 (Development Deed).

B   On 27 November 2014, a notice of default under the Development Deed was issued by Lepcanfin Pty Ltd to Lepcon Pty Ltd as trustee of the Leppington MHE Development Trust (Default Notice) as a result of a default in payment by the Builder/Vendor pursuant to clauses 3.3 and 12.4 of the Development Deed.

C   A second default occurred under clauses 3.3 and 12.4 as the balance of the payment due to be made to Lepcanfin Pty Ltd was not received by 3 December 2014. The aggregate amount of $2,900,000 is still owing to Lepcanfin Pty Ltd under the terms of the Development Deed (Second Default Notice).

D   Lepcanfin has agreed that they may consider injecting additional funds into the Project on certain conditions up to a maximum amount of $2,900,000 (or any lesser amount as it determines in its sole discretion).

E   The parties acknowledge that as a result of the defaults above and the Project now being underway it has become apparent that there are amendments required to the Development Deed in order for the Project to efficiently proceed.

F   Amendments are permitted to the Development Deed pursuant to clause 16.5 and this deed now set out the amendments agreed between the parties to the Development Deed effective from the Effective Date”.

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

2   Acknowledgment

(c)   Lepcanfin, in its sole discretion, may decide to waive the Existing Defaults if it considers appropriate in order to obtain alternate funding pursuant to the Development Deed.

(d)   The parties acknowledge and confirm that in calculating the Facilitation Fee there is an additional sum payable under clause 12.4 of the Development Deed. The Facilitation Fee has increased by an amount equal to the shortfall under clause 3.3 of the Development Deed in the amount of $2,900,000 less an amount of the contribution made by the Builder/Vendor between the period of 3 September 2014 until 2 January 2015. This Facilitation Fee is payable in accordance with the Development Deed”.

  • 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:

“(a)   On 27 November 2014, a notice of default under the Development Deed was issued by Lepcanfin Pty Ltd to Lepcon Pty Ltd as trustee of the Leppington MHE Development Trust (Default Notice) as a result of a default in payment by the Builder/Vendor pursuant to clauses 3.3 and 12.4 of the Development Deed;

(b)   A second default occurred under clauses 3.3 and 12.4 as the balance of the payment due to be made to Lepcanfin Pty Ltd was not received by 3 December 2014. The aggregate amount of $2,900,000 is still owing to Lepcanfin Pty Ltd under the terms of the Development Deed (Second Default Notice); and

(c)   A further default occurred in respect of the Facility Agreement between Lepcanfin Pty Ltd and Lepfin Pty Ltd as a result of a third default occurring under the Development Deed. A default notice was issued on 5 June 2015 (Third Default Notice).”

Emergence of a dispute

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

“…We understand the position you have stated however, disagree with your interpretation of the Agreement.

We are instructed by our client that it was always his understanding that the existing defaults were to be waived on the basis that effective control of the project was to be passed to your client.

The definition of ‘existing defaults’ at paragraph (b) does no more than state that, as at the date of the Second Amendment and Restatement Deed the money was owing. Clause 2(c) then makes it clear that ‘Lepcanfin waives the Existing Defaults on and from the Effective Date’.

Given the Existing Defaults were waived expressly, the point you make in clause 5.5 has no application as the obligation you refer to which had not been observed and constituted an Existing Default was ‘expressly waived in this document’.

We are instructed to advise that our client does not agree that distributions should include the full facilitation fee of $2.9m being paid to your client and invokes Clause 9 of the Agreement which requires the issue to be the subject of dispute resolution.

We are instructed to propose that the $2.9m be taken out of the proposed distributions, paid into a trust account and invested in a controlled moneys account pending resolution of the issue…”

  • 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):

“DRAFT EMAIL TO PROFESSOR PEDEN

Dear Professor Peden

We act for Antegra Pty Ltd (ACN 080 385 011) (Antegra). We have copied the solicitors for Lepcanfin Pty Ltd (ACN 600 769 720) (Lepcanfin) to this email.

We refer to your previous correspondence with our offices regarding the dispute between our respective clients.

As you may be aware, the dispute pertains to a Development Deed entered into by the parties (and others) on 21 August 2014 (as amended by an Amendment and Restatement Deed dated 18 May 2015 and a Second Amendment and Restatement Deed dated 8 July 2015) (Development Deed). The Development Deed relates to the development of a Manufactured Home Estate on land situated in Leppington, NSW. Under clause 3.3 of the Development Deed, Antegra was (or is, as the case may be) required to make payments to Lepfin Pty Ltd (ACN 134 397 265) (Financier) in the sum of $3,900,000. Antegra paid $1,143,332.56. Clause 12.4 of the Development Deed provides, inter alia, that a Facilitation Fee payable to Lepcanfin is to be increased by the amount of the shortfall in payments under clause 3.3. The dispute is, in essence, as to whether or not Lepcanfin waived the obligation of Antegra to pay the balance of $2,756,667.44 and Lepcanfin’s entitlement to the increase in the Facilitation Fee, pursuant to the terms of the Second Amendment and Restatement Deed. Antegra claims that the obligation and increase in Facilitation Fee was waived, while Lepcanfin claims that it was not.

Clause 9 of the Development Deed provides for a dispute resolution process, culminating in the appointment of an independent expert, who is to make a final and binding decision in relation to a dispute. The parties have agreed on your appointment as the independent expert for this dispute.

Can you please let us know if you remain available to act as the independent expert in this matter? If so, please provide us with your engagement letter for our review.

If you remain available, we propose to appoint you as an expert effective on 23 March 2018 – following which you will have until 4 May 2018 (42 days) to provide your decision. We also propose the following timetable: The parties intend to provide you with a brief of agreed documents by 23 March 2018. At the time of appointment, the parties expect to have reached agreement on how the matter should proceed and we will then correspond with you as to our suggested timetable.

The parties also agree to provide you with any further information, as requested. While there is provision in the Development Deed for the independent expert to conduct a hearing or enquiry, the parties presently anticipate that it will be sufficient for you to determine the dispute on the parties.

Please let us know if you have any questions or would otherwise like to discuss”.

  • 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:

“…Thank you for the draft email. We have amended the proposed email to Professor Peden, as indicated in red. We do not agree with the timetable for progressing this matter.

When we first spoke with Ben Allen we had indicated that our preliminary view was that the matter could proceed on the papers. We have now had the opportunity of reviewing the files in more detail and in particular your letter of 10 August 2017, which invokes clause 9 of the Agreement. Your letter does not give sufficient detail as to the nature of the dispute which has arisen, nor does it give a description of the circumstances of the dispute. In our view, these details (preferably by way of a properly pleaded points of claim) would assist to narrow the issues and also the scope of evidence. It would also assist us to form a view on how the matter should then proceed, that is on the papers or by way of hearing.

Your proposed timetable provides over a month for an agreed bundle to be provided to Professor Peden. We suggest that this time be utilised as follows:

  1. Your client serve its points of claim by 2 March 2017. We require this document in order to form our view on the agreed bundle.
  2. Your client provide an index to the proposed bundle by 9 March.
  3. Our client provide its response with respect to the proposed bundle by 16 March.

If you agree to the proposal we do not believe it is necessary to require Professor Peden to make any formal orders. These steps can be taken immediately and prior to her appointment.

Please let us have your views as a matter of urgency”. (emphasis added).

  • 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:

“…Whilst our client believes that its position is sufficiently clear, as set out in our previous correspondence with your firm, it is agreeable to your proposal that our client serves a points of claim by 2 March 2018. That agreement is subject to your client serving a points of defence by 9 March 2018, in the interests of reciprocity.

We are otherwise agreeable to the balance of the ‘informal’ timetable proposed by you, leading to the provision of the agreed bundle to Professor Peden on 23 March 2018”.

  • 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.”
  • 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

  • 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.
  • 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:

“A dispute concerning a Development Deed entered into by the parties (and others) on 21 August 2014 (as amended by an Amendment and Restatement Deed dated 18 May 2015 and a Second Amendment and Restatement Deed dated 8 July 2015) (Development Deed). The Development Deed relates to the development of a Manufactured Home Estate on land situated in Leppington, NSW. Under clause 3.3 of the Development Deed, Antegra was (or is, as the case may be) required to make payments to Lepfin Pty Ltd (ACN 134 397 265) (Financier) in the sum of $3,900,000. Antegra paid $1,143,332.56. Clause 12.4 of the Development Deed provides, inter alia, that a Facilitation Fee payable to Lepcanfin is to be increased by the amount of the shortfall in payments under clause 3.3. The dispute is, in essence, as to whether or not Lepcanfin waived the obligation of Antegra to pay the balance of $2,756,667.44 and Lepcanfin’s entitlement to the increase in the Facilitation Fee, pursuant to the terms of the Second Amendment and Restatement Deed. Antegra claims that the obligation and increase in Facilitation Fee was waived, while Lepcanfin claims that it was not”.

  • 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.
  • 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:

“Lepcanfin denies the allegation made; and further says that (apart from a right of termination under clause 12.4(b), which right was waived) the consequence of a breach of clause 3.3 was merely an agreed increase in the Facilitation Fee to which Lepcanfin was entitled to the extent that available funds permitted the payment of such an increase and that that consequence is incapable of being regarded in equity or otherwise as a penalty”.

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

Joint bundle

In addition to the documents set out in your client’s points of claim, the joint bundle should include the following documents:

  1. Your client’s points of claim.
  2. Our client’s points of defence.
  3. Title searches for the property. An example is attached.
  4. Mortgage granted in favour of Lepcanfin, a copy of which is attached.
  5. Facility Agreement, a copy of which is attached).
  6. Deed of Acknowledgement and Repayment, dated 23 June 2015, a copy of which is attached).
  7. Mortgage granted in favour of Bawden Custodians Pty Ltd and Shareholding Pty Ltd, a copy of which is attached).

Please arrange for the joint bundle to be provided to Professor Peden as a matter of urgency, with a copy provided to us. Our client reserves its rights to rely on documents not included in the joint bundle.”

  • 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.
  • 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:

“… given that the parties have completed the service of their points of claim and defence, there is no reason to delay the preparation of submissions and the finalisation of this matter.”

  • 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.
  • 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.
  • The following clauses from the EDA should be noted:

Dispute

  1. The dispute that the parties have appointed the Expert to determine is set out in the Schedule (Dispute).

Role of Expert

  1. The Expert will

(a)   determine the Dispute in accordance with the terms of this Agreement; and

(b)   act as an expert and not as an arbitrator.

Submissions by the Parties

  1. Subject to the terms of this agreement, the Expert is free to adopt any appropriate procedure for the Expert Determination, which will assist the Expert in the efficient conduct and resolution of the Expert Determination.

Expert Determination

  1. The Expert will:

(a)   consider any or all of the material (oral or written) put before her in the course of the expert determination;

(b)   not be expected or required to obtain or refer to any other documents, information or material but may do so if the Expert so desires;

(c)   proceed in such manner she thinks fit without being bound to observe the rules of natural justice or the rules of evidence;

(d)   make the Determination on the basis of information received from the parties and the Expert’s own expertise and in accordance with the law;

(e)   make the Determination as expeditiously as possible after receiving the parties’ submissions; and

(f)   record the Determination in writing.

Effect of Determination

  1. The Expert’s determination is final and binding on the parties.
  2. The parties agree to implement the Expert’s determination within 14 days of receiving the written determination or otherwise as agreed between the parties.
  3. The parties will not challenge the determination in any legal proceedings or otherwise.

Confidentiality

  1. The expert determination is private and confidential.
  2. The Expert and the parties will keep the expert determination confidential except to the extent necessary to implement or enforce the determination or to the extent required by law.

…”

Submissions to expert

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

“…For the reasons set out in Lepcanfin’s submissions, Lepcanfin disagrees that anything but the Dispute as defined in the Expert Determination Agreement (Agreement) should be considered.

Antegra served their points of claim on 12 March 2018. Lepcanfin served a points of defence on 9 April 2018. It was only at this stage, once Lepcanfin had become comfortable about the content of the dispute with Antegra, that Lepcanfin returned the Agreement. The content of the dispute did not, in Lepcanfin’s view, include the additional issues now raised by Antegra.

Lepcanfin maintains that only the Dispute as defined in the Agreement should be considered [by] yourself and that it is beyond the scope of your mandate to determine the additional issues.

In the event that you take a different view and will be considering all issues raised by Antegra, Lepcanfin seeks leave as a matter of procedural fairness to address the additional matters raised by Antegra prior to you making a determination…” (emphasis added).

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

“Dear All,

I have considered:

(a)   the terms of the expert determination agreement; and

(b)   the provision of the agreed timetable and bundle and its contents; and

(c)   the emails and submissions concerning the scope of the dispute.

In my opinion, the dispute I must determine encompasses not only waiver, but also the nature and existence of the obligation to pay the increased fee.

I refer to clauses 5-9 of the expert determination agreement and ask that:

  1. Lepcanfin provide any further submissions or documents on the issues within 7 days or notify me and Antegra that it does not propose to do so; and
  2. If Lepcanfin provides further submissions or documents, Antegra respond to those further submissions within 7 days or notify me and Lepcanfin that it does not propose to do so.

I will provide my determination within 7 days of receipt of either the last submissions or notification that no further submissions will be provided”.

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

Expert determination

  • Professor Peden provided her expert determination (the Determination) on 30 June 2018.
  • At para 4 of the Determination, Professor Peden noted that the scope of the Determination included whether:

“a.   There is an ‘entitlement’ to the increased fee, which incorporates an issue of whether it is a penalty and could be enforced; and

  1. If there is an entitlement, it has been waived by Lepcanfin by reason of agreed further terms”.
  • 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:

“The dispute is, in essence, as to whether or not Lepcanfin waived the obligation of Antegra to pay the balance of $2,756,667.44 and Lepcanfin’s entitlement to the increase in the Facilitation Fee pursuant to the terms of the Second Amendment and Reinstatement Deed.” (emphasis added).

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

“…that the proper construction of the clause based on the objective intention of the parties was to waive the legal entitlement to terminate that arose by reason of the defaults in advancing the full Lepcon Loan amount. However, the obligation to advance the Lepcon Loan remained, and the obligation to pay the Facilitation Fee and any triggered increase remained.

If the intention of the parties had been to waive the entitlement to the Facilitation Fee and any available increase, then it would have been expected that the parties would have used clear words to do so”.

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

“…there is no legitimate interest sought to be protected by the increase in the Facilitation Fee, where the ‘risk’ Lepcanfin had undertaken was already contemplated by the parties through, for example, clauses concerning its advance of $10million and the mortgage given to Lepcanfin. If there is no legitimate interest sought to be protected by the provision then it must be a penalty.

The increase in the Facilitation Fee is a penalty and therefore either void or wholly unenforceable”.

  • 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

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

“1   A declaration that the Expert’s purported determination of the Penalty Issue was beyond the [E]xpert’s mandate such that there has been no binding determination of the Penalty Issue.

2   A declaration that the Facilitation Fee Top-up does not constitute a penalty for the purposes of any Relevant Document and is capable of constituting and being recovered as:

  1. Money Owing under the Facility Agreement;
  2. Guaranteed Money under each Guarantee; and
  3. Secured Money under the Mortgage.

3   A declaration that even if the Facilitation Fee Top-up were a penalty, it is still capable of constituting and being recovered from each Guarantor as Guaranteed Money by virtue of clause 4.2(e) of each Guarantee.

4   A declaration that even if the Facilitation Fee Top-up were a penalty, it is still capable of being an amount for which the Guarantor is liable to indemnify Lepcanfin by virtue of clause 3.1(b)(i) and (ii) of each Guarantee.

5    A declaration that the Project Control Group is required to include the Facilitation Fee Top-up in:

  1. the amount calculated in accordance with the formula set out in Schedule Two to the Development Deed; and
  2. any reconciliation performed pursuant to clause 8.3(b) of the Development Deed,

6    An order that the Project Control Group’s obligations set out in prayer 5 above be specifically performed.”

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

“1   That the proceedings, or alternatively the claims in paragraphs 1 to 56 of the Commercial List Statement, be dismissed pursuant to UCPR 13.4.

2   In the alternative to 1 above, that the Commercial List Statement, or alternatively paragraphs 1 to 56 thereof, be struck out pursuant to UCPR 14.28.

3   In the alternative to 1 and 2 above, that the proceedings be permanently stayed.

4   Further and in the alternative to 1, 2 and 3 above, the questions in paragraph 3 of the Commercial List Response filed by the First, Second, Third, Sixth, Seventh and Eighth Defendants on 18 July 2019 be referred to Dr Elisabeth Peden for Expert Determination pursuant to the terms of the Development Deed.

5   Costs”.

  • 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:

“By virtue of the proper construction of clauses 3.2(a), 3.3, 8.1, 8.2, 8.3(a), 8.3(b) and 12.4(a)(i) and Schedule 2 of the Development Deed (as referred to in paragraph 28 above), the Facilitation Fee Top-up does not constitute a penalty.”

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

“As such, the Facilitation Fee Top-up is capable of constituting and being recovered as each of:

  1. Secured Money under the Mortgage (as defined in clause 1.1 of the Mortgage and set out in para 31(a) above).
  2. Guaranteed Money under the Guarantee (as defined in clause 1.1 of the Guarantee and set out in paragraph 30(a) above).
  3. Money Owing under the Facility Agreement (as defined in clause 1.1 of the Facility Agreement and set out in paragraph 29(a) above.

Further, even if the Facilitation Fee Top-up is unenforceable as a penalty it is capable of constituting Guaranteed Money by virtue of clause 4.2(e) of each Guarantee (as set out in paragraph 30(g)(iv)) above).

Further, in respect of each Guarantor, even if the Facilitation Fee Top-up is unenforceable as a penalty, it is capable of being an amount for which the Guarantor is liable to indemnify Lepcanfin, by virtue clause 3.1 (i) and/or (ii) of each Guarantee (as set out in paragraph 30(d) above).

In the circumstances the Plaintiff seeks the relief set out in the Summons.”

The primary judgment

  • The primary judge noted that there were two aspects to the Applicant’s claims:
  • whether Professor Peden exceeded her mandate;
  • 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.
  • 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:

“…by the time that the EDA was entered into, LPL and the Applicants were aware that the penalty issue was a matter that would form part of the dispute to be referred. This was the matrix of facts known to both parties which assists in interpreting what was meant as at 10 April 2018 by the words set alongside the description of ‘brief description of subject matter of dispute’: see CB 100. The words in the EDA (the tripartite agreement between the Applicants, LPL and Dr Peden) – ‘and Lepcanfin’s entitlement to the increase in the facilitation fee’ – are broad enough to cover the penalty issue that the parties had delineated by the exchange of POC and POD.

No relevant or potentially relevant material has been identified by LPL as undermining the conclusion that LPL and the Applicants agreed that the penalty issue would be one of the matters to be determined by the expert and that they intended Dr Peden to determine the penalty issue as at the date that they signed the EDA. LPL’s case is, in my view, obviously untenable and to permit LPL’s case on this issue to proceed, it seems to me, would manifestly involve ‘useless expense’.”

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

“In my view, the dispute does not have to arise wholly or solely out of the Development Deed. It is an issue arising out of or connected with the Development Deed whether an obligation imposed on Lepcon by the Development Deed (i.e. the Top-up) can be enforced against the guarantors (who are also parties to the Development Deed) even if the obligation is found to be a penalty, and I think, objectively, it is clear that the parties intended that disputes of this kind (like the dispute over penalty) would be referred to an expert with a legal background”.

  • 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

  • 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:

“1   The primary judge erred in finding that the applicant’s argument that the expert’s determination as to the penalty issue was beyond the expert’s mandate was obviously untenable and would manifestly involve useless expense (J[33]).

2   The primary judge ought to have found it to be reasonably arguable that the expert’s determination as to penalty was beyond the expert’s mandate.

3   The primary judge erred in determining that the declarations sought by the applicant in relation to the construction of the Guarantees constituted a dispute within the dispute resolution provisions of the Development Deed (J[35], [49] – [52]).

4   The primary judge ought to have found that the declarations sought by the applicant in relation to the construction of the Guarantees did not constitute a dispute within the dispute resolution provisions of the Development Deed.

5   The primary judge erred in permanently staying the proceedings below”.

Notice of Contention

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

“Order 1 of the decision below is supported by an estoppel, operating at law or in equity, preventing the Appellant from alleging that the ambit of the dispute referred to the Expert, did not include the questions of whether there was an enforceable entitlement to an increase in a facilitation fee and whether the provision therefor[e] was void or unenforceable as a penalty”.

Submissions on appeal

The Mandate Issue

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

“…is the applicant’s case that the Expert’s mandate was exceeded so weak as to be amenable to summary dismissal?”

  • 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).
  • The Applicant submitted that the primary judge erred in exercising the Court’s power of summary dismissal for the following reasons:
  • 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”.
  • 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).
  • 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).
  • 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).
  • In relation to the “Pleading Argument”, the Respondents submitted that:

“First, the question of the parties’ intention is to be determined by what was objectively conveyed by what was said or done, having regard to the circumstances. In commercial dealings, there is a strong presumption in favour of an intention to create legal relations, which will only be rebutted with difficulty. That must especially be the case when negotiations proceed through the parties’ legal representatives.

Secondly, the Applicant contends that the offer to proceed by way of points of claim was to ‘narrow the issues’… That contention mistakes the relevant ‘offer’ that was the basis for the Primary Judge’s conclusion. The Primary Judge clearly identifies in his reasoning at J[30] and [31], that the relevant ‘offer’ for his analysis was the counter-offer made by the Respondents on 23 February 2018, accepted by the Applicant by email on 28 February 2018 (J[13]).

The contention that the Primary Judge confused an agreement to exchange pleading documents with an agreement to define the dispute by reference to what was said in those documents… is an artificial distinction which defies ‘what a reasonable business person would have understood those terms to mean’…” (emphasis in original, footnotes omitted).

Notice of Contention

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

“The App[l]icant’s contentions with respect to detrimental reliance ignore the most obvious detriment suffered by the Respondents. By leading the Respondents to assume that the Dispute to be determined would be as delineated by the points of claim and defence, the Respondents executed the EDA in the form initially proposed between the parties and did not spend any time seeking to clarify the nature of the Dispute in that agreement, or issue an additional Dispute Notice in respect of the Penalty Issue.

The contention that the detriment suffered by the Respondents can be remedied in costs only applies to the identified detriment of increased costs incurred by the Respondents in preparing submissions and running the Penalty Issue case before the expert. It has no application to the detriment of losing the opportunity to issue a further Dispute Notice or to amend the EDA prior to its conclusion. That detriment cannot be remedied except by estopping the Applicant from asserting that the Dispute did not extend to the Penalty Issue”.

The Guarantee Issue

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

“…do the Dispute Resolution provisions of the Development Deed preclude the applicant from seeking declarations from the Court about the proper construction of the Guarantees?”

  • 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.
  • 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.

Exercise of discretion

  • 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:

“… only the Court can enforce the applicant’s rights under the Guarantee and Mortgages in the event that the relevant clauses are construed in the applicant’s favour – as such the justice of the case lies with the issue of the construction of the Guarantees being determined by the Court”.

  • 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

  • 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.
  • 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.
  • 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].
  • 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.
  • 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:

“Every clause in a contract, no less arbitration clauses, must be construed in context. No meaningful words, whether in a contract, a statute, a will, a trust, or a conversation, are ever acontextual.”

  • 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):

“It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another.”

  • 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.
  • 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):

“When the parties to a commercial contract agree, at the time of making the contract, and before any disputes have yet arisen, to refer to arbitration any dispute or difference arising out of the agreement, their agreement should not be construed narrowly. They are unlikely to have intended that different disputes should be resolved before different tribunals, or that the appropriate tribunal should be determined by fine shades of difference in the legal character of individual issues, or by the ingenuity of lawyers in developing points of argument.”

  • 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.)
  • 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:

“The authorities … are clear that a liberal approach should be taken. That is not to say that all clauses are the same or that the language used is not determinative. The court should, however, construe the contract giving meaning to the words chosen by the parties and giving liberal width and flexibility to elastic and general words of the contractual submission to arbitration.”

  • 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]):

“A significant purpose of an exclusive jurisdiction clause is to ensure that all disputes are determined in a coherent manner by a single jurisdiction. There is a clear commercial interest in minimising the possibility of a dispute being determined by multiple tribunals, with the consequent prospect of divergent findings. Furthermore, the parties, in advance, have determined that a particular jurisdiction is acceptable to them, both in terms of the speed and efficacy of its civil dispute resolution procedures and for the competence and skill of its judges and lawyers.”

  • 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:

“When the language of the arbitration clause in question is sufficiently elastic, then the more liberal approach of the courts to which Kirby P and others have referred can have some purchase. A wide construction of such clauses can be supported on the basis advanced by Clarke JA that it is unlikely to have been the intention of the parties to artificially divide their disputes into contractual matters which could be dealt with by an arbitrator and non-contractual matters which would fall to be dealt with in the courts. When, as here, the parties have agreed upon a restricted form of words which in their terms, and as construed in the courts, limit the reference to matters arising ex contractu, there is little room for movement.”

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

“The existence of a ‘correct general approach to problems of this kind’ does not imply some legal rule outside the orthodox process of construction; nor does it deny the necessity to construe the words of any particular agreement. But part of the assumed legal context is this correct general approach which is to give expression to the rational assumption of reasonable people by giving liberal width and flexibility where possible to elastic and general words of the contractual submission to arbitration, unless the words in their context should be read more narrowly. One aspect of this is not to approach relational prepositions with fine shades of difference in the legal character of issues, or by ingenuity in legal argument (Gleeson CJ in Francis Travel at 165); another is not to choose or be constrained by narrow metaphor when giving meaning to words of relationship, such as ‘under’ or ‘arising out of’ or ‘arising from’. None of that, however, is to say that the process is rule-based rather than concerned with the construction of the words in question. Further, there is no particular reason to limit such a sensible assumption to international commerce. There is no reason why parties in domestic arrangements (subject to contextual circumstances) would not be taken to make the very same common-sense assumption. Thus, where one has relational phrases capable of liberal width, it is a mistake to ascribe to such words a narrow meaning, unless some aspect of the constructional process, such as context, requires it.”

  • 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:

“Some cases have endeavoured to catalogue differences between the characteristics of arbitration and those of expert determination: see e.g. Strategic Publishing Group Pty Ltd v John Fairfax Publications Pty Ltd [2003] NSWSC 1134 at [22]-[23]; Zeke Services v Traffic Technologies [2005] QSC 135; Northbuild Constructions Pty Ltd v Discovery Beach Project Pty Ltd [2008] QCA 160 at [118]; Lighter Quay at [50]-[51]. The view has been expressed that a characteristic of expert determination is that there will ordinarily be a dispute of a kind which can be determined in an informal way by reference to the specific technical knowledge or learning of the expert. In Nylon Capital at [28], Thomas LJ expressed the view that in contradistinction to arbitration, expert determination clauses generally presuppose that the parties intended certain types of dispute to be resolved by expert determination and other types by the Court (or if there is an arbitration provision, by arbitrators). I do not consider that this approach reflects orthodox canons of construction which apply in this jurisdiction.

What the parties intend is to be determined from the words they choose read in the context in which they chose them.

It is to be borne in mind that expert determination is simply a private contractual mechanism to which parties agree. The determination does no more than create binding contractual rights and obligations. It has no statutory backing as a process. It does not resolve the dispute by the exercise of judicial, quasi-judicial, administrative, statutory, or other power or jurisdiction: Lainson Holdings Pty Ltd v Duffy Kennedy Pty Ltd [2019] NSWSC 576 at [59]. Agreement to expert determination does not bring with it an assumed expectation that procedures which are the hallmark of judicial or quasi-judicial proceedings will apply.

In my view, it is contrary to the orthodox approach to construction to make an a priori presumption or generalisation:

(1)   as to the type of disputes parties will agree should be covered by an expert determination provision;

(2)   that parties did not intend any dispute to be resolved quickly and informally without procedures reminiscent of judicial or quasi-judicial proceedings if it is complex and involves disputes of fact or questions of mixed fact and law;

(3)   that commercial parties intend certain types of disputes to be dealt with procedurally in one way and other types of disputes to be dealt with procedurally in another;

(4)   that parties intended multiple venues or occasions for their disputes even though they never said so; and

(5)   that a single person selected by them to be the expert is not considered by them to be competent to resolve the dispute, including by adopting an appropriate procedure to achieve resolution.

Regularly, significant and complex commercial transactions which come before the Commercial List and the Technology and Construction List contain provisions that all disputes in connection with the transaction are to be resolved by expert determination.”

  • 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

  • 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):

“…I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff’s claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed.”

  • 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.
  • 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.
  • 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.
  • 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).
  • 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:

“Subject to the terms of this agreement, the Expert is free to adopt any appropriate procedure for the Expert Determination, which will assist the Expert in the efficient conduct and resolution of the Expert Determination”.

  • 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.
  • 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:

“The dispute is, in essence, as to whether or not Lepcanfin waived the obligation of Antegra to pay the balance of $2,756,667.44 and Lepcanfin’s entitlement to the increase in the Facilitation Fee, pursuant to the terms of the Second Amendment and Restatement Deed”.

The use of the word “and” in this sentence is capable of being read disjunctively.

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

The Guarantee Issue

  • 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).
  • 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.
  • 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

  • I would grant leave to appeal but dismiss the appeal with costs on the Mandate Issue.
  • I would refuse leave to appeal with costs in respect of the Guarantee Issue.
  • PAYNE JA: I agree with Bell P.
  • MCCALLUM JA: I agree with Bell P.

**********

 

 

Rinehart & Anor v Hancock Prospecting Pty Ltd & Ors; Rinehart & Anor v Georgina Hope Rinehart (in her personal capacity as Trustee of the Hope Margaret Hancock Trust and as Trustee of the HFMF Trust) & Ors [2019] HCA 13

This case highlights the High Court's to give a wider interpretation to arbitration clauses and a vital importance to context in interpretation of arbitration clauses, and to be more willing to send parties to arbitration.

The case also demonstrates the persuasive power of Mrs Gina Rinehart in all areas.

 

Rinehart & Anor v Hancock Prospecting Pty Ltd & Ors; Rinehart & Anor v Georgina Hope Rinehart

 

For a free PDF of this Casewatch, please click the link below:

John Holland Pty Ltd v Adani Abbot Point Terminal Pty Ltd (No 2) [2018] QSC 48

SUPREME COURT OF QUEENSLAND

JOHN HOLLAND PTY LTD (ABN 11 004 282 268)
(Applicant)

V

ADANI ABBOT POINT TERMINAL PTY LTD (ABN 93 149 298 206)
(Respondent)

 

FILE NO: SC No 2604 of 2016
DIVISION: Trial Division
PROCEEDING: Application for Costs
ORIGINATING COURT: Supreme Court at Brisbane
DELIVERED ON: 12 March 2018
DELIVERED AT: Brisbane
HEARING DATE: Written submissions
JUDGE: Jackson J
ORDER: The applicant pay the respondent’s costs of the proceeding, to be assessed on the indemnity basis.
CATCHWORDS: PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – COSTS – INDEMNITY COSTS – PARTICULAR CASES – ABUSE OF PROCESS – where application for leave to appeal under Commercial Arbitration Act 1990 (Qld) s 38 – where length and volume of material oppressive – where framing of application is “tantamount to an abuse of process” – whether costs should be assessed on the indemnity basis

[1]          On 12 December 2016, I ordered that the application for leave to appeal on a question of law arising out of an arbitral award made as between the parties was dismissed. I will refer to the reasons for that decision as “my earlier reasons”.

[2]          The respondent applies for an order that the applicant pay the respondent’s costs of the proceeding to be assessed on the indemnity basis. The applicant submits that an order should be made that it pay the respondent’s costs but not on the indemnity basis.

[3]          The respondent submits there are three special or unusual features of the case that warrant an order that the costs be assessed on the indemnity basis:

(a)     first, the applicant conducted the application in an unacceptable manner;

(b)     second, the applicant unmeritoriously attempted to avoid the submission it made to the arbitrator that he should consider only the issues raised in the written submissions before him; and

(c)     third, the nature and number of deficiencies identified in the reasons for dismissing the application indicate that the applicant failed to critically address the application and its material to the proper issues.

[4]          The respondent submits those special or unusual features led to the undue prolongation of the case, loss of time and greater investment of both the respondent’s and the Court’s resources.

[5]          The applicant submits that an order that the costs be assessed on the indemnity basis should not be made for several reasons:

(a)     first, such an order is not made to punish an unsuccessful party;

(b)     second, the criticisms made of the applicant’s case and conduct in the reasons for judgment do not indicate the application was brought for any improper purpose;

(c)     third, it was necessary for the applicant to show that any question of law that would be the subject of an appeal could substantially affect the applicant’s rights so that it was incumbent on the applicant to show that the errors on which it relied as constituting the question or questions were manifest throughout the reasons for the award;

(d)     fourth, although the structure of its submissions containing 35 pages of submissions and 97 pages of Annexure A was lengthy, it was not prolix and the application was not brought for any ulterior, vexatious or harassing purpose that would amount to an abuse of process; and

(e)     fifth, although during closing argument, the applicant submitted to the arbitrator that he should look at the submissions and deal with the submissions in response to a question about what had to be resolved, the context of that answer was such that the applicant’s attempt to raise other submissions on the application for leave to appeal was not unmeritorious; and

(f)      sixth, the applicant’s failure to identify the specific questions of law for which it sought leave prior to furnishing the draft order which set out those questions and identified the nature and number of the deficiencies in the reasons do not indicate that the applicant failed to critically address the application to the proper issues.

[6]          The applicant further submits that, in any event, the respondent did not put the applicant on notice that it would be seeking a special costs order and failure to do so is a powerful discretionary reason not to order that the costs be assessed on the indemnity basis.

Assessed on the indemnity basis

[7]          The exclusively statutory power to order that one party pay another party’s costs is conferred by s 15 of the Civil Proceedings Act 2011 (Qld) in terms that the Court may award costs in all proceedings unless otherwise provided. In addition, the rule making power conferred by s 85 of the Supreme Court of Queensland Act 1991 (Qld) for the practices and procedures of the Supreme Court includes, by s 21 of Sch 1 to that Act, power to make rules for costs in civil proceedings, including the assessment of costs.

[8]          As rules made under the rule making power, rr 681 and 703 of the Uniform Civil Procedure Rules 1999 (Qld) provide, in part:

 

“681

(1)          Costs of a proceeding, including an application in a proceeding, are in the discretion of the court but follow the event, unless the court orders otherwise.

703

(1)     The court may order costs to be assessed on the indemnity basis.

Costs on the indemnity basis were previously solicitor and client costs—see rule 743S (Old basis for taxing costs equates to new basis for assessing costs).”

[9]          There are numerous cases that consider similar statutory powers to order that costs be assessed on the indemnity basis, which is sometimes included in the category of a “special” order for costs. Many of the cases refer to the 1993 decision in Colgate-Palmolive Co v Cussons Pty Ltd as containing a leading statement of some of the relevant considerations. In the context of the legislation applying in Queensland, the Court of Appeal has made a number of useful pronouncements that inform the exercise of the general discretionary power.

[10]         In Di Carlo v Dubois, White J said:

“… [In] Colgate-Palmolive… Sheppard J was able to derive a number of principles or guidelines. At p232-p234 his Honour recognised that the categories in which the discretion may be exercised are not closed. Woodward J at 637 in Fountain said that there needs to be some special or unusual feature in the case to justify a court departing from the ordinary practice. Sheppard J instanced the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud; misconduct that causes loss of time to the court and the other parties; the fact that the proceedings were commenced at or continued for some ulterior motive; or in wilful disregard of known facts; or clearly established law; the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions; the imprudent refusal of an offer to compromise; and costs against a contemnor.”

[11]         White J reviewed other cases in which cognate statements were made and continued:

“It is important that applications for the award of costs on the indemnity basis not be seen as too readily available when a particular party against whom the order is sought is seen to carry responsibility for the state of affairs calling for a costs order without some further facts analogous to those mentioned in Colgate and other considered decisions.”

[12]         In Schache v GP No. 1 Pty Ltd, Muir JA considered the power to order costs on the indemnity basis as follows:

“The circumstances warranting the ordering of indemnity rather than standard costs were discussed at some length by Sheppard J in Colgate-Palmolive Company v Cussons Pty Ltd. In that case, his Honour observed that the settled practice in Australia has been for costs to be awarded to the successful party to a proceeding on, what is in effect, the standard basis unless the circumstances warrant departure from that course. His Honour noted that some of the circumstances which had been thought to warrant the making of an indemnity costs order were: the making of allegations of fraud which were either known to be false or irrelevant; the engaging in misconduct that caused loss of time to the court and other parties; the commencement or continuation of proceedings for some ulterior motive ‘or in wilful disregard of known facts or clearly established law’; the making of allegations which ought never to have been made or the undue promulgation of a case by groundless contentions; and an imprudent refusal of an offer to compromise. Sheppard J concluded this list with the observation:

‘The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.’”. (footnotes omitted)

[13]         In LPD Holdings (Aust) Pty Ltd v Phillips, Hickey and Toigo, Boddice J said:

“The applicable principles for the awarding of indemnity costs were usefully summarised by Sheppard J in Colgate-Palmolive Company v Cussons Pty Ltd. However, those principles operate as a guide to the exercise of the relevant discretion. They do not define all of the circumstances in which the discretion is to be exercised and do not limit the width of that discretion. Further, the categories in which the discretion to award indemnity costs may be exercised are not closed.

Whilst the awarding of costs on an indemnity basis will always ultimately depend on the exercise of a discretion in the particular circumstances of each individual case, the justification for an award of indemnity costs continues to require some special or unusual feature of the particular case. As was observed by Basten JA in Chaina v Alvaro Homes Pty Ltd, the general rule remains that costs should be assessed on a party and party basis, and the standard to be applied in awarding indemnity costs ought not ‘be allowed to diminish to the extent that an unsuccessful party will be at risk of an order for costs assessed on an indemnity basis, absent some blameworthy conduct on its part.’”  (footnotes omitted)

[14]         To those observations, it may be added that the Court of Appeal has treated a case of abuse of process as sufficient ground for an order that costs be assessed on the indemnity basis.

[15]         Next, a number of cases have considered whether a party who proposes to seek a special order that costs be assessed on the indemnity basis should give notice of an application for indemnity costs before the hearing of the matter. In Australia, that conception appears to have originated in the Court of Appeal of New South Wales in Huntsman Chemical Company Australia Ltd v International Pools Australia Ltd where Kirby P said:

“If such an order is to be made, it would be preferable that it should follow due and timely warning by the successful party to the unsuccessful that indemnity costs will be sought… In short, if the legal representatives of parties to an appeal (particularly perhaps in commercial litigation such as the present) consider that the appeal, or points in it, are obviously hopeless and doomed to fail, they would be well advised to warn their opponents that continued prosecution of the appeal, or of the hopeless points, will result in an application to the Court for a special costs order.”

[16]         That approach has been consistently followed since. However, as the cases show, lack of warning is a relevant consideration to take into account but a warning is not a precondition to making an order for indemnity costs.

Abuse of process by oppression

[17]         The categories of abuse of process are not closed, but there are recognised circumstances where the conduct of a party in starting or conducting litigation may amount to an abuse of process. One of them is where the litigation is oppressive to the other party.

[18]         A variety of things may make litigation oppressive in the relevant sense. But when the manner in which the litigation is conducted includes prolix documents, unnecessary or unwinnable contentions, or unreasonable factual assertions, that combine to cause excessive expense and delay for the other party, and a disproportionate burden on the public resources of the court in the disposition of the proceeding, it may reasonably be said that the proceeding and conduct of the moving party are oppressive.

[19]         The present context is one where the proceeding was an application for leave to appeal under s 38 of the Commercial Arbitration Act 1990 (Qld). There are relevant considerations which inform what is conduct amounting to oppression on an application for leave of this kind.

[20]         First, in most cases it is inappropriate to hear an application for leave of this kind and the substantive appeal, if leave is to be granted, at the same hearing. To do so would not conform with the intention of the statute in expressly limiting any right of appeal to a case where the requirements for a grant of leave are established.

[21]         Second, the circumstances under which the leave requirements in the form of s 38 were introduced and the purpose of those requirements were explained in Promenade Investments Pty Ltd v State of New South Wales. In the course of that explanation, Sheller JA said:

“There should, in my opinion, before leave is granted be powerful reasons for considering on a preliminary basis, without any prolonged adversarial argument, that there is on the face of the award an error of law.”

[22]         That the argument should not be prolonged on such a leave application was not a new idea when Promenade Investments was decided in 1992. From 1979, in England, a similar threshold requirement for leave operated under s 1 of the Arbitration Act 1979 (UK). The well-known decision of the House of Lords in The Nema in 1981 suggested that the leave application was not to involve lengthy argument. In 1982, Mustill and Boyd’s Commercial Arbitration, said:

“The argument on the application for leave must be comparatively brief; for otherwise the same element of potential delay will be introduced on the hearing of the application for leave as was an undesirable feature of the old system.”

[23]         Paragraphs [16]-[23] of my earlier reasons outline the way in which the application for leave to appeal was made in the present case. As well, the hearing of the application took two days and then many more days of reading and analysis in order to absorb and deal with the arguments as presented and to prepare my earlier reasons. It was in this context that I said that “[t]he application so framed is tantamount to an abuse of process.”

[24]         Oppressive conduct of a proceeding is not just a matter between the parties. It concerns court administration. In early times, an extreme example of a court’s displeasure with prolixity occurred in Mylward v Weldon, where a court summarily imprisoned a pleader until a substantial fine was paid. In this court, r 5 of the Uniform Civil Procedure Rules 1999 (Qld) expressly provides that a party impliedly undertakes to the court to proceeding in an expeditious way and the court may impose “appropriate sanctions” if a party does not comply with those rules. In modern times, an adverse order for costs is the appropriate sanction against prolixity, that is intended to compensate the opposite party rather than to punish the party in default.

[25]         The applicant submits that the subject matter of the award concerned communications made during the project over several years that viewed individually and collectively constituted a breach of cl 23 of the contract. The award constituted some 646 paragraphs. The applicant submits that the condition under s 38(5)(a) that determination of the question of law “could substantially affect” the applicant’s rights required it not only to demonstrate that the arbitrator made the errors it contended for but also that those errors manifested themselves throughout the reasons for the award, in explanation of the manner in which it presented the application.

[26]         I accept that, to an extent, the 35 principal pages and the 97 further pages of the annexure to the applicant’s written submissions were organised to highlight the proposed grounds of appeal, but in my view there were many items of detail that were unnecessary for the points to be decided on an application for leave that either might have been omitted or might have been much simplified. Even if I were wrong about that, the applicant does not explain the 2,000 plus pages of affidavit material it read on the application, as justified for the hearing of the leave to appeal application, or why it was justified in presenting oral argument into a second day to identify and make submissions as to the questions of law on which leave should be given.

[27]         In these findings I wish to make it clear that I do not intend personal criticism of any kind. I infer that the intention in presenting the application so fully was to increase its prospects of success and perhaps to show that much of the work that would be necessary for the proposed appeal if leave were granted had been done. Nevertheless, that is not what was required for the presentation of an application of leave to appeal that did not entail either excessive costs or delay. In particular, in my view, the problem was exacerbated by two other circumstances relevant to the disposition of the application for leave.

[28]         First, much of the material and submissions were directed to the contention that the arbitrator had made errors in law because of the failure to consider, decide or provide reasons for not deciding that individually each of the “Impugned Representations” was a material representation calculated to influence the Superintendent made in circumstances that constituted a breach of the “Disclosure Standard”.

[29]         As discussed in my earlier reasons, the sheer number of suggested Impugned Representations and alleged failures to meet the Disclosure Standard presented very significant practical issues for the proposed appeal, but the applicant faced the further difficulty that it had not submitted to the arbitrator that was the way in which he should deal with the case in its lengthy written submissions to him or when he specifically requested direction as to what issues the applicant wanted him to address in deciding the award. This point was the basis for my finding that:

“The applicant cannot avoid the criticism that it now seeks to depart from what it said to the arbitrator as to how he should deal with the applicant’s case and that it now seeks to criticise as appellable the absence of findings in the arbitrator’s reasons that the applicant did not squarely submit he should make anywhere in 192 pages of written submissions.”

[30]         Second, the applicant’s challenges to the arbitrator’s findings that were submitted to entail errors of law, because the arbitrator did not deal with the application of the Disclosure Standard to the Impugned Representations as a separate alternative basis for the applicant’s claim for relief before the arbitrator, were generally speaking challenges to the findings of fact made by the arbitrator as to the alleged breaches of cl 23.

[31]         The applicant further submits that it approached the questions of law in the present case having regard to the practice adopted in other applications under s 38. However, in my view, nothing in those cases suggests that the present application in form or content was consistent with a usual practice that has developed for the hearing of an application under s 38 in this court. The application in the present case was so extensive and wide ranging as to the proposed grounds of appeal that it was not possible on reading it to identify what were the questions of law which would have been the limited subject of the proposed appeal.

Unmeritorious submission

[32]         I do not, however, accept the respondent’s submission that a reason for awarding indemnity costs is that the applicant unmeritoriously attempted to avoid the submission it made to the arbitrator that he should “look at the submissions and deal with the submissions”.

[33]         While it is true that a reason why the application did not succeed was that the proposed questions for the appeal were based on a case that was not that which the applicant had clearly submitted for the arbitrator’s decision, and, in effect, I held that the applicant would be limited on any appeal by the case that it had conducted before the arbitrator, that finding is not a matter of unmeritorious conduct. Whether a point sought to be advanced on appeal is within the scope of the case as it was conducted below is an everyday question of law in appellate practice that does not attract disapprobation just because it is resolved against an appellant.

Nature and number of deficiencies

[34]         Likewise, I do not generally accept the respondent’s submission that the nature and number of the deficiencies identified in the reasons for dismissing the application warrant an order for indemnity costs because they indicate that the applicant failed to critically address the application and its material to the proper issues.

[35]         To support this submission, the respondent lists 30 points from my earlier reasons. But, in my view, the number of points on which an applicant fails is not a per se basis indicating an award of indemnity costs.

[36]         As to the nature of the points raised, in my view, only two warrant mention in addition to the points previously made about the potentially oppressive character of the material in support of the application and the questions sought to be addressed on the application for leave to appeal.

[37]         First, it will be remembered that the Impugned Representations constituted approximately 140 different communications and meetings. In pressing the application for leave to appeal, the applicant did not shrink from the position that the arbitrator was required, in effect, to consider each and all of the Impugned Representations in deciding whether there was a breach of cl 23, including any combination of the Impugned Representations that was available.

[38]         Second, had the arbitrator or the court on appeal reached the conclusion that any of the Impugned Representations amounted to a breach of cl 23, the applicant also submitted that it was for the arbitrator or the court to consider all available permutations and combinations as to whether the breach or breaches justified termination of each of the contracts and it was not for the applicant to have produced to the arbitrator the combination of findings that would amount to a substantial breach justifying termination.

[39]         In my view, the applicant’s position on these points contributed to the potential for the application for leave to appeal to be oppressive.

Conclusion

[40]         In my view, there was oppression in the material filed in support of and in the conduct of the application for leave to appeal. Although the respondent did not warn the applicant that it would seek an order for indemnity costs, my evaluative judgment overall is that an order should be made that the costs be assessed on the indemnity basis.

 

Stepanoski v Aslan [2018] NSWSC 1160

This case highlights the approach taken by the New South Wales Supreme Court in assessing which Construction Contract is in existence and binds the party in the situation whereby a Cost-Plus Contract is in existence, however the parties’ executed a lump sum contract some months later and backdated it to the date of the Cost-Plus Contract.


Casewatch Stepanoski v Aslan

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MANN V PATERSON CONSTRUCTIONS PTY LTD [2018] VSCA 231

This case highlights the approach taken by the Victorian Supreme Court of Appeal when assessing a claim made in quantum meruit as a result of one party accepting the repudiation of a contract made by the other party. The Court will have regard to actual costs when assessing the amount payable, however is not bound by the actual cost under contract, as the contract has ceased. In addition, the case further highlights that claims in quantum meruit for variations are not precluded under s.38 of the Domestic Building Contracts Act 1995, where the variation is one that has been agreed to orally.

 

Casewatch Mann v Paterson Constructions Pty Ltd

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Hancock Prospecting Pty Ltd v Rinehart (No 2) [2017] FCAFC 208

FEDERAL COURT OF AUSTRALIA

Hancock Prospecting Pty Ltd v Rinehart (No 2) [2017] FCAFC 208

Appeal from: Rinehart v Rinehart (No 3) [2016] FCA 539

File numbers: NSD 916 of 2016
NSD 922 of 2016

Judges: 

  • ALLSOP CJ
  • BESANKO
  • O’CALLAGHAN JJ

Date of judgment: 15 December 2017

Catchwords:
ARBITRATION  – stay of proceeding brought in Court in favour of arbitration – making of orders

COSTS – appropriate order for costs – whether costs of stay application below and on appeal should follow the event – whether costs below and on appeal should be payable forthwith

Legislation: Commercial Arbitration Act 2010 (NSW), s8

Cases cited:

  • AED Oil Ltd v Puffin FPSO Ltd (No 2) [2010] VSCA 109
  • Amcor Packaging (Australia) Pty Ltd v Baulderstone Pty Ltd [2013] FCA 253
  • Ansett Australia Ltd v Malaysian Airline System Berhad (No 2) [2008] VSC 156
  • Australian Maritime Systems Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2016] WASC 52 (S)
  • Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192; 157 FCR 45
  • Hancock Prospecting Pty Ltd v Rinehart [2017] FCAFC 170
  • John Holland Pty Limited v Kellogg Brown & Root Pty Ltd (No 2) [2015] NSWSC 564
  • Novawest Contracting Pty Ltd v Brimbank City Council [2015] VSC 679
  • Pipeline Services WA Pty Ltd v ATCO Gas Australia Pty Ltd [2014] WASC 10 (S)
  • Re Ikon Group Ltd (No 2) [2015] NSWSC 981

Date of hearing: Determined on the papers

Date of last submissions: 29 November 2017

Registry: New South Wales

Division: General Division

National Practice Area: Commercial and Corporations

Sub-area: Commercial Contracts, Banking, Finance and Insurance

ORDERS

NSD 916 of 2016
NSD 922 of 2016

BETWEEN:
HANCOCK PROSPECTING PTY LTD ACN 008 676 417(and others named in the schedule)
Applicants/Appellants

AND:
BIANCA HOPE RINEHART (and others named in the schedule)
Respondents

JUDGES:

  • ALLSOP CJ
  • BESANKO
  • O’CALLAGHAN JJ

DATE OF ORDER: 15 DECEMBER 2017

THE COURT ORDERS THAT:

  1. Leave to appeal be granted.
  2. The appeals be allowed.
  3. The cross-appeals be dismissed.
  4. The notices of contention be dismissed.
  5. The orders of the Court made on 26 May 2016 be set aside and in lieu thereof order:
    1. that the proceeding brought in the Court by the applicants being NSD 1124 of 2014 be stayed under s8(1) of the Commercial Arbitration Act 2010 (NSW) article CA Act) pending any arbitral reference between the parties or until further order, save and except for those claims made against those entities that are not parties to the relevant arbitration agreements, being Hope Downs Iron Ore Pty Ltd, Roy Hill Iron Ore Pty Ltd, Mulga Downs Investments Pty Ltd and Mulga Downs Iron Ore Pty Ltd; and
    2. the first and second applicants to the main proceedings (being the first and second respondents to the appeals) pay the costs of the moving parties to the interlocutory application filed on 3 November 2014 in proceedings NSD 1124 of 2014 in connection with paragraph 9 thereof and the costs of the moving parties to the interlocutory application filed on 24 December 2014 in those proceedings, subject to Hope Downs Iron Ore Pty Ltd, Roy Hill Iron Ore Pty Ltd, Mulga Downs Investments Pty Ltd, and Mulga Downs Iron Ore Pty Ltd paying the costs related to the question as to whether those entities are parties to the arbitration agreement pursuant to s 2 of the CA Act.
  6. The claims made by the applicants in the underlying proceedings against Hope Downs Iron Ore Pty Ltd, Roy Hill Iron Ore Pty Ltd, Mulga Downs Investments Pty Ltd and Mulga Downs Iron Ore Pty Ltd be stayed on the same terms as the stay in order 5.
    Subject to the stays in orders 5 and 6 above, the matter be remitted to the primary judge for any application properly available in the light of the stays.
  7. The first and second respondents pay the appellants’ costs of appeal including the costs of the application for leave to appeal, subject to Hope Downs Iron Ore Pty Ltd, Roy Hill Iron Ore Pty Ltd, Mulga Downs Investments Pty Ltd and Mulga Downs Iron Ore Pty Ltd paying the costs related to the question as to whether those entities are parties to the arbitration agreement pursuant to s 2 of the CA Act.
  8. Leave be granted nunc pro tunc to Wright Prospecting Pty Ltd to intervene on the condition that they bear their own costs of intervention.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT
THE COURT:

  1. On 27 October 2017 (Hancock Prospecting Pty Ltd v Rinehart [2017] FCAFC 170) the Court published reasons including proposed draft orders dealing with the appeal arising from orders made by the primary judge on the application by (to use the relevant definitions in the earlier judgment) the HPPL Parties, Mrs Rinehart and 150 Investments to stay proceedings brought by Mr John Hancock and Ms Bianca Rinehart against the HPPL Parties, Mrs Rinehart, and 150 Investments and other parties.
  2. We do not rehearse the detailed background that is in the earlier judgment.
  3. Two issues arise: first, whether costs should be awarded against the first and second respondents (Bianca and John) in the application below, as well as on appeal, or whether the costs below be reserved to a time in the future; and secondly, whether costs (on appeal and below) should be payable forthwith.
  4. Short submissions have been filed on these two questions. Our views are that the first and second respondents should pay the costs of both the appeal and the application below, but that no order for payment forthwith should be made.
  5. Briefly our reasons are as follows. As to the first issue, the costs of the application and the appeals from it are related to the issues whether there should be a stay of the Court proceedings to refer the dispute to arbitration, and, as part of that question, whether there was any properly formulated attack on the arbitration agreements, and if so, what that attack was.  These are issues different from whether or not the underlying claims are valid or not. The primary judge correctly approached the matter on the basis that the underlying claims were not to be decided.  That is how the matter was approached on appeal.  The respondents to the appeal contested and lost the stay and arbitration issues.  Costs of that should follow the event.  There is ample authority for treating the stay as separate in this way: Ansett Australia Ltd v Malaysian Airline System Berhad (No 2)[2008] VSC 156 at [20]; Amcor Packaging (Australia) Pty Ltd v Baulderstone Pty Ltd [2013] FCA 253 at [49]; Pipeline Services WA Pty Ltd v ATCO Gas Australia Pty Ltd [2014] WASC 10 (S) at [33]; Re Ikon Group Ltd (no 2) [2015] NSWSC 981 at [25]; Norwest Contracting Pty Ltd v Brimbank City Council [2015] VSC 679 at [34]; Australian Maritime Systems Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2016] WASC 52 (S) at [27]; John Holland Pty Limited v Kellogg Brown & Root Pty Ltd (No 2) [2015] NSWSC 564 at [46]-[47]; Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192; 157 FCR 45 at 110-11 [253] and 111 [255]; and AED Oil Ltd v Puffin FPSO Ltd (No 2) [2010] VSCA 109 at [3] and [12].
  6. As to the second issue, there is no reason why in justice these costs should be paid forthwith.  The costs will be large. That is a result of how both sides have treated the applications.  With some exception in oral address, no stone has been left unturned, no opportunity for opposition passed up, and no proposition in writing expressed otherwise than to the fullest.  Should the costs be payable forthwith that would raise the real risk of stultification of the substantive complaints of the first and second respondents to the appeal.  That would be a matter of some real injustice.  If the first and second respondents’ complaints are legitimate (whether to be vindicated in an arbitration or court proceeding) they would amount to very serious wrongs.
  7. There were two interlocutory applications before the primary judge that sought to stay the proceeding brought in the Court by Ms Rinehart and Mr Hancock.  The first was filed on 3 November 2014 by the HPPL parties. Paragraph 9 of that application sought an order that the proceeding be stayed.  The remainder of that application sought suppression orders in respect of documents filed in the proceedings.  The second application was filed on 24 December 2014 by Mrs Rinehart and 150 Investments.  It sought orders staying the proceeding brought in Court by Ms Rinehart and Mr Hancock and, in its own terms, referring the proceeding or aspects of the proceeding to arbitration.  In making orders as to costs below, it is important to recognise that there were two interlocutory applications. The costs of both of these applications were reserved in the orders made by the primary judge on 26 May 2016.
  8. Thus, the orders we would make are as follows:
    1. Leave to appeal be granted.
    2. The appeals be allowed.
    3. The cross-appeals be dismissed.
    4. The notices of contention be dismissed.
    5. The orders of the Court made on 26 May 2016 be set aside and in lieu thereof order:
      (a) that the proceeding brought in the Court by the applicants being NSD 1124 of 2014 be stayed under s8(1) of the Commercial Arbitration Act2010 (NSW) (CA Act) pending any arbitral reference between the parties or until further order, save and except for those claims made against those entities that are not parties to the relevant arbitration agreements, being Hope Downs Iron Ore Pty Ltd, Roy Hill Iron Ore Pty Ltd, Mulga Downs Investments Pty Ltd and Mulga Downs Iron Ore Pty Ltd; and
      (b) the first and second applicants to the main proceedings (being the first and second respondents to the appeals) pay the costs of the moving parties to the interlocutory application filed on 3 November 2014 in proceedings NSD 1124 of 2014 in connection with paragraph 9 thereof and the costs of the moving parties to the interlocutory application filed on 24 December 2014 in those proceedings, subject to Hope Downs Iron Ore Pty Ltd, Roy Hill Iron Ore Pty Ltd, Mulga Downs Investments Pty Ltd, and Mulga Downs Iron Ore Pty Ltd paying the costs related to the question as to whether those entities are parties to the arbitration agreement pursuant to s2 of the CA Act.
    6. The claims made by the applicants in the underlying proceedings against Hope Downs Iron Ore Pty Ltd, Roy Hill Iron Ore Pty Ltd, Mulga Downs Investments Pty Ltd and Mulga Downs Iron Ore Pty Ltd be stayed on the same terms as the stay in order 5.
      Subject to the stays in orders 5 and 6 above, the matter be remitted to the primary judge for any application properly available in the light of the stays.
    7. The first and second respondents pay the appellants’ costs of appeal including the costs of the application for leave to appeal, subject to Hope Downs Iron Ore Pty Ltd, Roy Hill Iron Ore Pty Ltd, Mulga Downs Investments Pty Ltd and Mulga Downs Iron Ore Pty Ltd paying the costs related to the question as to whether those entities are parties to the arbitration agreement pursuant to s2 of the CA Act.
    8. Leave be granted nunc pro tunc to Wright Prospecting Pty Ltd to intervene on the condition that they bear their own costs of intervention.

I certify that the preceding eight (8) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Allsop and Justices Besanko and O’Callaghan.

Associate:

Dated:        15 December 2017

SCHEDULE A – SCHEDULE OF PARTIES

Party

NSD1124/2014

(Underlying Proceeding)

NSD916/2016

(HPPL’s Appeal)

NSD922/2016

(Mrs Rinehart’s Appeal)

BIANCA HOPE RINEHART

First Applicant

First Respondent/First Cross-Appellant

First Respondent/First Cross-Appellant

JOHN LANGLEY HANCOCK

Second Applicant

Second Respondent/Second Cross-Appellant

Second Respondent/Second Cross-Appellant

GEORGINA HOPE RINEHART (IN HER PERSONAL CAPACITY AND AS TRUSTEE OF THE HOPE MARGARET HANCOCK TRUST AND AS TRUSTEE OF THE HFMF TRUST

First Respondent

Third Respondent

First Applicant

HANCOCK PROSPECTING PTY LTD ACN (008 676 417)

Second Respondent

First Applicant

Third Respondent

HANCOCK MINERALS PTY LTD (ACN 057 326 824)

Third Respondent

Second Applicant

Fourth Respondent

HANCOCK FAMILY MEMORIAL FOUNDATION LTD (ACN 008 499 312)

Fourth Respondent

Fourth Respondent

Eleventh Respondent

TADEUSZ JOSEF WATROBA

Fifth Respondent

Third Applicant

Fifth Respondent

WESTRAINT RESOURCES PTY LTD (ACN 009 083 783)

Sixth Respondent

Fourth Applicant

Sixth Respondent

HMHT INVESTMENTS PTY LTD (ACN 070 550 104)

Seventh Respondent

Fifth Applicant

Seventh Respondent

150 INVESTMENTS PTY LTD (ACN 070 550 159)

Eighth Respondent

Fifth Respondent

Second Applicant

HOPE RINEHART WELKER

Ninth Respondent

Sixth Respondent

Twelfth Respondent

GINIA HOPE FRANCES RINEHART

Tenth Respondent

Seventh Respondent

Thirteenth Respondent

MAX CHRISTOPHER DONNELLY (IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF THE LATE LANGLEY GEORGE HANCOCK)

Eleventh Respondent

Eighth Respondent

Fourteenth Respondent

HOPE DOWNS IRON ORE PTY LTD (ACN 071 514 308)

Twelfth Respondent

Seventh Applicant

Ninth Respondent

ROY HILL IRON ORE PTY LTD (ACN 123 722 038)

Thirteenth Respondent

Sixth Applicant

Eighth Respondent

MULGA DOWNS INVESTMENTS PTY LTD (ACN 132 484 050)

Fourteenth Respondent

Ninth Respondent

Fifteenth Respondent

MULGA DOWNS IRON ORE PTY LTD (ACN 080 659 150)

Fifteenth Respondent

Eighth Applicant

Tenth Respondent

Wallera v CGM Investments & ANOR

WALLERA PTY LTD V CGM INVESTMENTS PTY LTD & ANOR [2001] NSWSC 96

Supreme Court of New South Wales – 1 March 2001

FACTS

Wallera had franchised a carpet dry-cleaning process from CGM and Whistle. The process of electromagnetically dry-cleaning carpets (“the process”) that was used by Wallera and the use of the name “Electrodry” (“the name”) was owned by Whistle but CGM had exclusive rights to use this process and the name pursuant to a Deed of Licence. Wallera was granted an exclusive license to use the process and a right to grant sub-franchises under a Franchise Agreement (“the contract”). Wallera purchased the chemicals (Electro 1 and 2) from Whistle for many years until the price offered by another supplier was more comparable and it ceased purchasing from Whistle.

In August 1999 a notice was issued under clause 8 of the contract where CGM claimed that Wallera was in breach for not using the appropriate level of chemicals for the process as specified in the contract. Clause 8 stated that if either party failed to remedy a breach within 1 month after a notice, the contract would be terminated.

ISSUES

Whether the notice of intention to terminate, if a breach of contract was not rectified, sufficiently described the relevant breach?

FINDINGS

The notice issued in 1999 was not valid because it failed to draw Wallera’s attention to what the breach was that should be remedied. The notice referred to the required levels of chemicals but did not specify what the levels were or where there may be found.

Clause 8 implied that the notice should provide adequate notification to the Wallera of what was required to be done if the contract was not to be terminated for breach. The automatic termination in the clause was an additional indication that it was appropriate to require that the notice should be made clear what the breach was which if not remedied would lead to termination. The Notice issued by CGM therefore could not be used by CGM as a basis for terminating the contract.

QUOTE

“In the context of the clause 8 a notice must bring to the attention of the recipient the fact that it is alleged that a breach has occurred and that the franchisor requires the breach to be remedied. It must be sufficiently explicit to make it clear to the franchisee what is the breach, which the franchisor requires to be remedied.”

“… I am satisfied that the notice issued in August 1999 was not a valid notice for the purpose of clause 8 of the contract. It did not draw Wallera’s attention to what was alleged to be the breach to be remedied.”

IMPACT

If a notice in a contract purports to include a provision for automatic termination upon failure of either party to remedy a breach then the notice should specify explicitly the cause of the breach which the recipient is required to remedy.

A general reference to a breach may not be sufficient to allow the automatic termination of the contract.

Vince Schokman & ANOR v Xception Construction & ANOR

VINCE SCHOKMAN & ANOR V XCEPTION CONSTRUCTION PTY LTD & ANOR

[2005] NSWSC 297

Supreme Court of New South Wales – 4 April 2005

FACTS

Xception Construction Pty Ltd (‘Xception’) entered into a construction contract with Vince Schokman (‘Schokman’) for the carrying out of construction work at Stotts Street, Bilambil Heights in New South Wales.

On 5 May 2004 Xception served on Schokman a Payment Claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘the Act’). Schokman did not respond with a Payment Schedule and the Superintendent failed to provide a progress certificate. Schokman contended that the amount became due and payable on 19 May 2004. On 6 July 2004 Xception then provided a section 17(2) Notice of Intention to Apply for Adjudication and the matter was determined.

Section 17(2) allows the submission of an Adjudication Application where a Payment Schedule has not been received if the Claimant has notified the Respondent within 20 business days immediately following the due date for payment, of the Claimant’s intention to apply for adjudication of the Payment Claim and the Respondent has been given an opportunity to provide a payment schedule within 5 business days of receiving the notice.

Schokman then sought a declaration that the Adjudication Determination was void on the grounds that the payment claim, the section 17(2) notice was served outside the 20 business day period in breach of the Act and was otherwise not a proper and valid notice as it failed to make any reference to the Act.

Xception contended that the payment claim was due and payable on 9 June 2004, that is, 25 days after the progress claim, as expressly provided for in the Contract. Accordingly, the section 17(2) Notice was within the prescribed time.

ISSUE

Whether the section 17(2) Notice was sent outside the 20 statutory business days allowed.

FINDING

The Court found that Xception’s section 17(2) notice was out of time.

QUOTE

At paragraph 12 and 14, Einstein J stated:

[12] “The Contract between the parties to these proceedings is silent as to when an amount under the payment claim is due and payable where no progress certificate is issued. Accordingly, the Act steps in to fill the gaps: Beckhaus Civil Pty Limited v Council of the Shire of Brewarrina [2002] NSWSC 960 at [60].

[14] The correct analysis of what occurred is as follows: the payment claim was made on 5 May 2004; 10 business days thereafter took the material date when the payment claim became due and payable to 19

May 2004;

[Xception] out of time in notification of intent to apply for adjudication application. pursuant to s 17(2)(a) the statutory 20 business days allowed for [Xception] to notify [Schokman] of its adjudication application should have been served on or before 16 June 2004 under the Act.”

IMPACT

The option to apply for Adjudication when a Payment Schedule is not given, must be strictly within the statutory timeframe.

Doyles Arbitration Lawyers

Villani & ANOR v Delstrat & ANOR

VILLANI & ANOR V DELSTRAT PTY LTD & ANOR [2002] WASC 112

Supreme Court of Western Australia – 16 May 2002

FACTS

This proceeding involved an application by Mr. & Mrs Villani to set aside the award of an arbitrator for misconduct by failingto decide substantial pleaded issues between the parties. Mr. & Mrs Villani had engaged Delstrat to build a house for them inAscot  Waters.

A dispute arose between the parties as to the date for practical completion and as provided in the contract, the matter was referred to arbitration. The Villanis submitted that there had been an oral agreement in the contract that the house would be finished no later than September 2000.

The arbitrator did not at any stage expressly deal with the Villani’s claim that a term of the contract relating to practical completion on or before 20 September 2000 had been breached or that damages therefore flowed from that breach.

ISSUES

Did the arbitrator ignore or fail to consider or decide a material issue in dispute during the arbitration?

If so, did that failure amount to misconduct under the Commercial Arbitration Act?

If it did amount to misconduct, should the court exercise its discretion to set aside the award?

If the award was set aside, should the matter be remitted to the same arbitrator or should the arbitrator be removed?

FINDING

It was held that by providing no reasons for excluding certain documents and not determining whether certain documentsformed part of the contract, the arbitrator had failed to determine all the necessary issues and controversies within the arbitration.

The issue as to the completion date was a material fact which may have influenced the award.

The failure to determine all issues in dispute in an arbitration can amount to misconduct because the procedure may have affected the outcome in some material way.

The award was set aside and the matter remitted to the same arbitrator as there were no reasons put forward as to why he should be removed. The arbitrator was familiar with the evidence and had already determined many of the matters in controversy between the parties.

QUOTE

“It is not of course necessary for an arbitrator to deal with every issue which arises, or every argument or submission put forward. An arbitrator must, however, deal with the substance of a claim or counterclaim, particularly those matters which will materially affect the result.”

IMPACT

Failure by an arbitrator to take into account something that may have affected the outcome of the arbitration in some material way amounts to misconduct on the part of the arbitrator.

The court has a discretion to set aside the whole or part of the arbitrators award. The failure of the arbitrator to decide an important issue in dispute adversely affected the outcome of the entire arbitration process.

Victoria Park Golf Club Inc v Brisbane City Council

VICTORIA PARK GOLF CLUB INC V BRISBANE CITY COUNCIL [2001] QSC 225

Supreme Court of Queensland – 29 June 2001

FACTS

The Council was the owner (on trust) of land used for a golf course. The golf club operated a clubhouse on the land and its members had entitlements to use the golf course. During the early 1990’s the Council and the members of the golf club wanted to formalise their legal relationship. In April 1996 the Council adopted a recommendation that negotiations be conducted withthe golf club for a lease of the land from the Council to the club and a separate agreement that the members of the club have some  exclusive rights to use the golf course.

During 1999 a Mr. S acted on behalf of the Council in negotiations for the relevant contracts. The Council sent a documenten titled “Proposed Lease and Block Playing Times” to the club in September 1999 and a member of the club signed this document to state  that the proposal would be put to members of the club. Other matters delayed a final decision about the future of the golf  course but eventually in 2000 the Council decided to withdraw the document of September 1999.

The golf club sued for specific performance of agreements allegedly outlined in the document of September 1999.

ISSUES

Did Mr. S have authority to bind the Council and make a contract with the golf club?

The golf club argued that Mr. S had actual authority to bind the Council and if he did not have actual authority he had ostensible or apparent authority to bind the Council.

FINDING

The Council’s recommendation of April 1996 only authorised Council officers to negotiate with the golf club and therefore Mr. S did not have actual authority. Also there was no evidence that the Council indicated to the golf club that Mr. S had authority to bind the Council and therefore Mr. S did not have ostensible or apparent authority to bind the Council.

The Court also found that the document of September 1999 was not sufficient evidence of a concluded agreement.

QUOTE

Moynihan J said:

“…[O]stensible or apparent authority arises from a representation made or permitted by a principal to a third party that an agent has authority.

The agent is essentially an agent to the transaction. …

This case is not an example of a corporate principal permitting an employee or officer to enter into contracts in the ordinary course of its business so founding an inference that he is authorised to do so.”

IMPACT

The golf club failed to prove that it was reasonable for it to believe or assume that Mr. S had authority to bind the Council. Relevant factors included: (1) that this was not the case of a corporate principal permitting its officers to enter into contracts in the ordinary course of business; (2) the unusual and important nature of the transaction.

Readers will be aware that corporate principals (particularly large companies) often develop internal procedures to prevent officers entering into contracts above specified amounts (eg. without first seeking the approved of the contracts manager). If an errant officer enters into a contract outside those procedures, the company may nevertheless be exposed. The other party may be able to claim that the officer had ostensible authority to enter into the contract.

Companies should always be vigilant to this prospect and ensure that officers are kept regularly informed of authority limits and the potential consequences of exceeding them (eg. through regular training).