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Will your expert determination clause hold up?

13 July 2021

#Construction, Infrastructure & Projects, #Transport, Shipping & Logistics

Published by:

Anita Cukic, Ally Frizelle

Will your expert determination clause hold up?

When drafting construction contracts, dispute resolution provisions will often receive less attention than they deserve. Expert determination is one form of dispute resolution that, depending on how it works under the terms of the contract, is generally quick, cost-effective and suitable for a variety of disputes.

Despite the advantages of expert determination, an expert’s decision may be hard to challenge and can have severe financial consequences upon parties if they don’t understand their rights to enforce or challenge a decision. This was apparent in the recent NSW Supreme Court decision in CPB Contractors Pty Ltd v Transport for NSW [2021] NSWSC 537.

Background

The decision concerned a road-widening contract between CPB Contractors (CPB) and Transport for NSW (TfNSW). The parties disputed CPB’s entitlement to payment for the removal of excess spoil accumulated during the road widening works. CPB claimed an entitlement of $11.4 million but was only paid $1.4 million by TfNSW. The contract provided for expert determination as the appropriate dispute resolution process for the unresolved claims. 

The expert decided in favour of TfNSW, finding that CPB was not entitled to any further payment. However, CPB sought to challenge the determination by relying upon the exceptions contained in the expert determination clause of the contract. Specifically, clause 71.8 stipulated that the expert determination was “final and binding” and that the parties could not commence litigation in respect of the matters determined unless the determination:

“.1 does not involve paying a sum of money; or

.2 requires one party to pay the other an amount in excess of [$500,000]”.

CPB commenced proceedings seeking compensation for all of its claims, including the claims determined by the expert. The question for the Supreme Court was whether a determination ‘dismissing’ or ‘refusing’ a monetary claim “involves” paying a sum of money as contemplated by clause 71.8.1.

Whether dismissing or refusing a money claim “involves” paying a sum of money

The Supreme Court ultimately held that an expert dismissing or refusing a claim does “involve” paying a sum of money in the sense that it “concerns” a claim that, if successful, would have resulted in the paying of a sum of money and rejects that claim.

The Court considered this interpretation of “involve” to be preferable, as the focus of clause 71.8.1 appeared to be the ‘nature’ of the determination and not the ‘amount’ to be paid as the monetary threshold was already set in clause 71.8.2. Additionally, the Court considered that this interpretation would mean that certain claims in relation to the construction of the contract or general terms and monetary claims in excess of $500,000 could still be challenged.

CPB was unable to challenge the expert determination, as the matter did not fall within an exception to the “final and binding” nature of the determination in clause 78.1. Accordingly, the proceedings were stayed to that extent and CPB did not obtain the additional $10 million it believed it was entitled to.

Carefully consider any dispute resolution clauses

If you are considering including dispute resolution mechanisms into your contract, you should carefully consider any limitations which you may seek to enforce or challenge and seek advice to ensure that the outcomes fit within your risk profile before entering into the contract.

Authors: Kirsty Smith, Anita Cukic & Ally Frizelle

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Anita Cukic, Ally Frizelle

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