Hooks Enterprises Pty Ltd v Sonnenberg Pty Ltd & Ors

This is an interesting decision which considers the proper construction and application of an alternative dispute resolution clause which provided for expert determination for disputes arising in relation to a contract. The plaintiff argued that the clause was not mandatory and did not prohibit it from commencing legal proceedings. The defendant, by contrast, had rejected the proposed termination and sought to enliven the dispute resolution procedure under the contract. His Honour held that once the defendant had commenced the contractual procedure, it was mandatory under the clause that the plaintiff respond and engage in that procedure.

Daubney J

4 May 2017

The plaintiff in this case had filed its Claim and Statement of Claim for damages for breach of contract in the sum of $2,219,379. The applicant defendants filed a conditional notice of intention to defend and then sought a stay of the proceeding.  The dispute arose after the plaintiff terminated an agreement between the parties, alleging various breaches of the agreement and misrepresentations. [8]. In response, the defendants rejected the purported termination and advised that they intended to enliven the alternative dispute resolution/expert determination process provided for under the agreement. [9]–[10].  The ADR clause is set out in full at [6].

Nonetheless the plaintiff maintained its position that the defendants’ proposal for the dispute to be referred to expert determination was flawed because the matter involved areas of expertise across several disciplines not reasonably capable of being determined by a single expert, and involved resolution of disputes which were not matters of expertise. In addition, the plaintiff contended that the dispute resolution procedure foreshadowed by the agreement was not mandatory, since it did not expressly bar a party from commencing legal proceedings whilst the procedure was underway being effectively in lieu of utilising the dispute resolution procedure. In that regard, the plaintiff argued that since it was the party who raised the dispute, it therefore enjoyed an option to elect to trigger the alternative dispute procedure or to commence legal proceedings. [16], [17], [24].

Was performance of the dispute resolution process mandatory?

Comparing Zeke Services Pty Ltd v Traffic Technologies Ltd [2005] 2 Qd R 563, wherein the procedure required a specific party to make a claim for damages prior to referral of the dispute to expert determination, his Honour was not persuaded by the plaintiff’s contention that the alternative dispute resolution clause was intended to be read as giving the plaintiff alone the option to commence the dispute resolution procedure or to elect to commence court proceedings. [26]. Rather, the defendants had a right to commence the procedure and had provided a complying notice of dispute. [28].

Referring to Straits Exploration v Murchison United NL (2005) 31 WAR 187 in which it was held that “where a contract contains a dispute resolution clause, and a party who has not first proceeded in accordance with that clause sues on the contract, the court has, however, a jurisdiction to stay the proceeding so as, in a practical sense, to force the party to fall back upon the contractual procedure”, his Honour’s view was that there was  “no doubt” that a response to the notice of dispute was mandatory, as indicated by the word “must” in the alternative dispute resolution clause. As such the plaintiff was bound to both respond and participate in the procedure commenced by the defendants, and in failing to do so had breached the agreement between the parties.

Was the dispute amenable to expert determination?

In terms of the exercise of his discretion to allow the proceeding to continue his Honour acknowledged the heavy onus on the plaintiff to demonstrate why the justice of the case favoured not staying the proceeding: see Zeke Services Pty Ltd v Traffic Technologies Ltd [2005] 2 Qd R 563, 569. His Honour did not consider that that onus had been discharged. In particular, after identifying that there were effectively three issues which arose for determination, namely whether development of the property was capable of being completed within three years; whether the property was suitable for development during that period; and whether the profit claimed by the respondent was realistic or achievable, he did not agree that there might be any insurmountable difficulty in the appointment of “a suitably qualified individual, armed with the assistance of submissions and evidence from the parties, who would be able to determine the financial and legal questions posed by the pleadings”. [38].

The proceeding was stayed pending completion of the dispute resolution and expert determination procedure and the parties were heard on costs. [40].

A de Jersey