Supreme Court New South Wales Medium Neutral Citation: Lainson Holdings Pty Ltd v Duffy Kennedy Pty Ltd [2017] NSWSC 203 Hearing dates: 6 March 2017 Decision date: 07 March 2017 Jurisdiction: Equity - Technology and Construction List Before: Stevenson J Decision: Declarations sought refused Catchwords: CONTRACT – construction – dispute resolution clause – expert determination – whether pending expert determination arises from a 'dispute' within the meaning of dispute resolution clause Cases Cited: Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 IBM Australia Ltd v National Distribution Services Pty Ltd (1991) 22 NSWLR 466 Texts Cited: K Lewison and D Hughes, The Interpretation of Contracts in Australia, (2012, Lawbook Co) Category: Principal judgment Parties: Lainson Holdings Pty Limited (Plaintiff) Duffy Kennedy Pty Ltd (First Defendant) Sam Wilson (Second Defendant) Representation: Counsel: M Ashhurst SC with L Corbett (Plaintiff) M Dempsey SC with H Grace (First Defendant) Solicitors: Kemp Strang Lawyers (Plaintiff) Doyles Construction Lawyers (First Defendant) File Number(s): SC 2017/58063 Judgment 1. On 23 June 2015, the plaintiff, Lainson Holdings Pty Limited ("the Principal"), and the first defendant, Duffy Kennedy Pty Ltd ("the Builder"), entered into two agreements concerning the construction of a residential apartment block by the Builder on property owned by the Principal at Cronulla. 2. The first document is entitled "Formal Instrument of Agreement" and was in the form of AS 4902-2000 as amended by a series of special conditions. The parties referred to this as the "Building Contract". 3. The second document is entitled "Deed". The parties referred to this document as the "Side Deed". 4. It is common ground that the contractual relations between the parties came to an end by no later than October 2015. 5. The Building Contract and the Side Deed were executed on the same date as part of one transaction and should be read together for the purpose of determining their legal effect (see the cases discussed at K Lewison and D Hughes, The Interpretation of Contracts in Australia, (2012, Thomson Reuters), at [3.03]). 6. Indeed, it is plain from the terms of the Side Deed that it must be read with the Building Contract. 7. Thus, the Side Deed recites the making of the Building Contract and that: "The Parties wish to record mutual accommodations made to reduce the risk to each of [sic] the Building Contract and to take priority over the Building Contract." 1. Clause 1 of the Side Deed provides that: "The obligations in this Deed are to clarify and extend obligations under the Building Contract and to provide for other obligations. In the event of any inconsistency, the terms of this Deed supersede and take precedence over any term of the Building Contract." 1. The Side Deed then deals with three subject matters under the headings "Security" (cl 2), "Additional Works" (cll 3 and 4) and "Design Management" (cl 5). 2. The effect of each of those provisions is to modify, in various ways, the rights and obligations of the parties as they appear in relation to those matters in the Building Contract. 3. Each of the Building Contract and the Side Deed make provision for resolution of disputes by expert determination. 4. Thus, cl 42 of the Building Contract provides, relevantly, (taking into account the effect of the special conditions): "42 Dispute resolution 42.1 Notice of dispute If a difference or dispute (together called a 'dispute') between the parties arises in connection with the subject matter of the [Building Contract], including a dispute concerning: … then either party shall, by hand or by registered post, give the other…a written notice of dispute adequately identifying and providing details of the dispute. Notwithstanding the existence of a dispute, the parties shall…continue to perform the [Building Contract]. … If the dispute has not been resolved within 28 days of service of the notice of dispute, that dispute shall be and is hereby referred to [expert determination]. … 42.4 Summary relief Nothing herein shall prejudice the right of a party to institute proceedings to enforce payment due under the [Building Contract] or to seek injunctive or urgent declaratory relief." [Emphasis in original] 1. The corresponding clause in the Side Deed is cl 9 which is in the following terms: "9. Dispute resolution If a dispute arises between the parties, the complainant must not commence any court or arbitration proceedings, except where that party seeks urgent interlocutory relief, unless it has first complied with this clause: (a) Notification … (b) Expert Determination (i) Any dispute or difference whatsoever arising out of or in connection with this contract shall be submitted to an expert in accordance with, and subject to, The Institute of Arbitrators & Mediators Australia Expert Determination Rules. (c) Continue to Perform Obligations (i) Notwithstanding the existence of a dispute, each party shall continue to perform its obligations under the Deed." [Underlined emphasis added] 1. In May 2016, the parties exchanged documents called "Notification of Dispute", each of which was expressed to be pursuant to cl 9 of the Side Deed. 2. The parties appointed the second defendant, Mr Wilson, as the Expert. The Expert is a lawyer with building expertise. He has entered a submitting appearance. 3. Mr Ashhurst SC, who appeared with Mr Corbett for the Principal, and Mr Dempsey SC, who appeared with Mr Grace for the Builder, informed me that the Expert has conducted the determination as if the proceedings were in court. The parties have exchanged pleadings and witness statements which the Expert has dealt with in accordance with the rules of evidence. 4. The determination commenced before the Expert on 16 October 2016. It has been adjourned on a number of occasions and is now set to conclude next Tuesday and Wednesday, 14 and 15 March 2017. 5. In an earlier iteration of the "pleading" before the Expert, the Builder alleged that the Principal had "failed to obtain finance". 6. That allegation is said to be relevant to special condition 54 of the Building Contract which provides that the Principal cannot terminate the contract due to any "failure…to secure adequate finance for the project or the Works…". 7. Mr Ashhurst informed me that the Principal was able to answer that allegation with a letter from its financier, National Australia Bank Ltd, showing that finance was available at the relevant time. 8. Prior to 7 February 2017, the Expert granted the Builder leave to amend its claim in accordance with a second further amended statement of claim. 9. In that document the Builder alleged, for the first time, that: "At no time during the course of the Contract or after its termination did the Principal have any enforceable financial approval for the performance of the Works under the Contract". [Emphasis added] 1. Evidently, the Principal does not have documentary evidence to show (as it contends to be the fact) that it had financial approval in place during the period after termination of the contract. The Principal has sought to adduce evidence to this effect from an officer of NAB. That officer has informed the legal advisers of the Principal that NAB's policy is that its officers should not give evidence about such matters unless compelled to do so by service of a subpoena. The Expert has no power to cause a subpoena to be issued. Thus, the Principal will not be able to compel a NAB officer to attend before the Expert and give evidence about this matter. Mr Ashhurst informed me that, so far at least, the Expert has refused to receive hearsay evidence. Accordingly, the Principal apprehends that the Expert will not receive hearsay evidence from officers of the Principal as to what the NAB officer has said about the availability to the Principal of finance following termination of contract. 2. In those circumstances the Principal now seeks the following declarations: "(a) A declaration that the dispute between the [Builder] and the [Principal], as constituted by the current pleadings in the Expert Determination (the Dispute), is not a 'dispute' within the meaning of clause 9 of the [Side Deed]; and (b) alternatively, a declaration that on a proper construction of clause 9 of the [Side Deed], the parties did not intend that the Dispute be determined by Expert Determination." 1. Both proposed declarations give rise to questions as to the proper construction of cl 9 of the Side Deed. Proposed declaration (a) 1. The matter that divides the parties is whether the allegation about the Principal's lack of finance is a dispute which arises under the Side Deed and is thus part of the matters that have been submitted for determination before the Expert under cl 9 of the Side Deed. 2. Clause 9(b)(i) calls for any dispute under "this contract" to be so submitted. 3. The question is whether the parties intended "this contract" to mean the Building Contract as amended and superseded by the Side Deed (as Mr Dempsey submitted) or only the Side Deed itself (as Mr Ashhurst submitted). 4. A factor pointing in favour of the correctness of Mr Ashhurst's submission is cl 9(c) which provides that, notwithstanding the existence of "a dispute", the parties shall continue to perform their obligations "under the Deed". 5. Mr Ashhurst submitted that the "dispute" referred to in cl 9(c) must be the same "dispute" referred to in cl 9(b) and that this pointed to the conclusion that when the parties provided in cl 9(b) that "any dispute…arising out of…this contract" was to be referred to expert determination they intended to refer to the same document as is mentioned in cl 9(c): namely "the Deed". 6. Mr Ashhurst also pointed to the "location" of cl 9 amongst what he described as "boilerplate" provisions of the Side Deed (dealing with such questions as confidentiality, whether the Side Deed contained the parties' entire agreement, severance, notices and the like) and submitted that this suggested the same conclusion. 7. There is some force in Mr Ashhurst's submission. 8. However, the overall structure of the transaction into which the parties entered on 23 June 2015, was that there be a Building Contract in which the bulk of the agreements between the parties was set out and a further Side Deed which, as it recites, was to "take priority over the Building Contract", to "clarify" and "extend" the parties' obligations under the Building Contract and, in the event of inconsistency, supersede and take precedence over the terms of the Building Contract. 9. I see no bright line between the obligations of the parties as they are described in the Building Contract and as they are described in the Side Deed. As Mr Dempsey said, the two documents "intermesh". The nature of the parties' rights and obligations can only be ascertained by looking at both documents together. 10. It is inherently improbable that the parties contemplated separate dispute resolution mechanisms (under cl 42 of the Building Contract and under cl 9 of the Side Deed) to be utilised depending on whether the relevant dispute arose under the Building Contract itself, the Side Deed itself or, more problematically, the Building Contract as amended by the Side Deed. 11. The mechanism that the parties adopted to achieve resolution of any drafting infelicities which might otherwise have arisen by reason of the parties having recorded their agreement in separate (but contemporaneous) documents was to make clear that the Side Deed trumped the Building Contract. 12. The parties made but one contract. It is comprised in two documents. In my opinion, reasonable business people in the position of the parties would, in those circumstances, have understood that the reference in cl 9(b) to "this contract" was to mean the contractual relations between the parties as a whole; that is, as Mr Dempsey submitted, the Building Contract as amended and superseded by the Side Deed. 13. For those reasons, my opinion is that the dispute currently before the Expert, and as constituted by the current pleadings in the Expert Determination (including the dispute about the availability of finance to the Principal), is a "dispute" within the meaning of cl 9 of the Side Deed. 14. Accordingly, I refuse to make the first declaration sought by the Principal. Proposed declaration (b) 1. As to the second declaration sought by the Principal, the substance of Mr Ashhurst's submission was that, on the proper construction of the Building Contract and the Side Deed, it should be concluded that the parties did not intend that there be referred for expert determination an issue, the resolution of which was not possible without the use of coercive powers such as a subpoena. 2. I see two answers to this submission. 3. The first is that the parties have agreed that "any" dispute or difference between them arising out of or in connection with the contract be referred for expert determination. The word "any" is of the widest import: IBM Australia Ltd v National Distribution Services Pty Ltd (1991) 22 NSWLR 466 at 477B-D, 485C-G and 488A and Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 at 165B-F and 166C-F. 4. I see no reason to conclude, from the use of that language, that the parties intended some kind of carve out for disputes which could only be resolved after the exercise of coercive powers. 5. In any event, I see no reason why the dispute between the parties as to the finance available to the Principal cannot be resolved without resort to coercive powers (even if a particular kind of evidence, namely, the word of the bank officer, is not able to be adduced). 6. For that reason I am not prepared to make the second declaration sought by the Principal. Conclusion 1. I decline to make either of the declarations sought by the Principal. 2. I will hear counsel as to the future conduct of the proceedings. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 March 2017