Court decision

There is a dispute resolution clause in my agreement. Do I have to comply with it or can I commence Court proceedings?

By Anthony Pitt / 30 May 2017
4 min.

Commonly, commercial agreements contain a dispute resolution clause that sets out a process to be followed in the event of a dispute arising under the agreement. Whether it must be complied with depends on the terms of the clause itself and the circumstances of the dispute. 

This was recently considered in the Supreme Court of Queensland decision in Hooks Enterprises Pty Ltd v Sonnenberg Pty Ltd & Ors [2017] QSC 69. In that case, the parties had entered into a Development Management Agreement (Agreement) that was later terminated by the plaintiff for the defendants’ breach. The Agreement contained a dispute resolution clause, but the plaintiff decided to commence Court proceedings seeking damages for breach of contract, or alternatively damages for misleading and deceptive conduct. 

The defendants sought that the proceedings be stayed pending the completion of the dispute resolution procedure. The plaintiff argued that it did not need to comply with the dispute resolution clause because it was not mandatory and the dispute was not amenable to determination by an expert. However, the Court disagreed with the plaintiff’s arguments. 

First, whilst it was held that the dispute resolution clause did not expressly prevent the commencement of legal proceedings before the determination of the dispute resolution procedures, the giving of a notice of dispute (as occurred here) triggered the activation of those procedures. From there, a notice of response must be provided within seven days, and then the parties must take steps to resolve the dispute, failing which either party may refer the dispute to expert determination. As a notice of dispute had been issued by the plaintiff, the parties were therefore obliged to comply with and complete these procedures. 

Second, the Court held that the dispute was suitable for expert determination because:

  • the dispute resolution clause contained various safeguards to ensure that a qualified expert would be appointed, and stipulated procedural rules including a requirement to comply with procedural fairness and natural justice; and
  • it was clearly feasible that an appropriate expert, whether a forensic accountant, a lawyer or an expert with dual qualifications, could determine the financial and legal questions posed in the dispute. 

The Court applied the principles enunciated in Zeke Services Pty Ltd v Traffic Technologies Ltd [2005] 2 Qd R 563 as to whether a stay of the proceedings should be granted, that:

“The discretion whether or not to grant the stay is obviously wide. The starting point for a consideration of its exercise is that the parties should be held to their bargain to resolve their dispute in the agreed manner … However, a stay will not be granted if it would be unjust to deprive the plaintiff of the right to have his claim determined judicially or, to put it slightly differently, if the justice of the case is against staying the proceeding. The party opposing the stay must persuade the court that there is good ground for the exercise of the discretion to allow the action to proceed and so preclude the contractual mode of dispute resolution. The onus is a heavy one. The court should not lightly conclude that the agreed mechanism is inappropriate.”

The Court decided that the parties had bargained for any dispute under the Agreement to be determined in this manner, and that there was no good reason why that should not be the case.  Accordingly, the Court ordered that the proceedings be stayed pending completion of the dispute resolution procedures. 

When faced with the decision of whether to commence Court proceedings or comply with a dispute resolution clause, careful consideration should be given to the proper construction of the dispute resolution clause.  The wrong choice could lead to having to defend an application seeking a stay of any Court proceedings that are commenced. 

For more information or discussion, please contact HopgoodGanim Lawyers’ Special Counsel, Anthony Pitt or our Dispute Resolution team. 

30 May 2017
Anthony Pitt
Special Counsel
Anthony is a Special Counsel in our Dispute Resolution practice who specialises in property-related litigation for his client base of property owners and developers, landlords, manufactured home park owners and bodies corporate.
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