WTE Co-Generation & Anor v RCR Energy Pty Ltd & Anor [2013] VSC314

Contract Dispute Clauses may be void

A Victorian Supreme Court judge in the case of WTE Co-Generation & Anor v RCR Energy Pty Ltd & Anor [2013] VSC314 (“WTE”) recently decided that a dispute resolution clause was not enforceable due to its inherent uncertainty. The effect of this decision was that the plaintiffs were entitled to continue their proceedings in Court without having to follow the dispute resolution procedure.

The facts of the case:

On 21 June 2013, Vickery J of the Supreme Court of Victoria [41] decided that the words “in the event the parties have not resolve the dispute then [within a further 7 days] a senior executive representing each of the parties must attempt to resolve the dispute or to agree on methods of doing so”, were unenforceable.

The plaintiffs had commenced Court proceedings, in the case of the 1st plaintiff for breach of contract and to enforce a guarantor’s obligations, and in the case of the 2nd plaintiff for misleading representations made in the contract. The defendants sought a stay of the Court proceedings on the basis that there had not been compliance with clause 42 which dealt with a dispute resolution mechanism that had to be followed.

His Honour canvassed the authorities regarding dispute resolution clauses and identified 11 principles from these cases for consideration as to whether a stay should be granted when the dispute resolution process should be considered as a precondition to litigation [39].

His Honour decided that the process established in the dispute resolution clause was uncertain because either the parties were to meet together to resolve the dispute, or had to agree on methods of doing so. He added that there was no process to determine which option was to be selected [42].

He held that the clause could be complied without a meeting of the parties providing they could agree on methods of doing so [43], but there was no method prescribed for the resolving of the dispute which therefore depended on the parties’ further agreement as to that method [44]. The problem was that further agreement was needed before the process could proceed, and it was not for the court to substitute its own mechanism [46], such that the clause was unenforceable due to its inherent uncertainty [47].

Lessons for participants in the engineering and construction industry

1. Check the wording of the dispute resolution clause in the contract that you are currently undertaking or propose to enter into.

2. If the clause contains “… parties must meet to attempt to resolve the dispute or to agree on methods of doing so.” [These were the offending words], it may be that

3. A Queensland Court may follow the WTE case and decide that such a clause is unenforceable; with the effect that:

Current contracts

4. You or the other party to the contract may ignore the procedures within the clause, and seek resolution of the dispute without regard to that clause, which may mean going directly to the Court.

Future contracts

5. If you would prefer to resolve your dispute by going to Court and the other party insists on the wording “or to agree on methods of doing so”, you may choose to do nothing, and then argue it is unenforceable if you wish to go to Court to resolve a dispute.

6. If you would prefer the dispute resolution clause to be enforceable, we suggest that you delete the words “or to agree on methods of doing so.”

 

Contact Lenz Moreton on telephone (07) 3220 0299 to discuss any of the issues arising out of this case.