Are Dispute Resolution Agreements Binding?

It is common practice to include dispute resolution terms in commercial agreements.  Such terms set out a process to be followed in the event a dispute arises between the parties under the agreement.

This was considered in the decision of Hooks Enterprises Pty Ltd v Sonnenberg Pty Ltd & Ors [2017] QSC 69.  In that case, the Supreme Court of Queensland held that the parties must comply with the dispute resolution terms and the process contained therein, even if compliance is not a condition precedent to commencing litigation.

The Facts about Dispute Resolution Agreements

In December 2012, Hooks Enterprises Pty Ltd (“Hooks Enterprises”) and Sonnenberg Pty Ltd (“Sonnenberg”) entered into an Agreement (“Agreement”) by which Sonnenberg was to provide various services to Hooks Enterprises.

Sonnenberg was required to obtain development approval and assist with the construction of a fast food / convenience store on Hooks Enterprises’ property.  By September 2016, Hooks Enterprises terminated the contract, alleging that Sonnenberg had not fulfilled its obligations under the Agreement.

The Agreement contained a dispute resolution process (“clause 12”) which provided that:

  1. either party can give a Notice of Dispute if a dispute arises;
  2. the recipient must provide a Notice of Response;
  3. the parties are required to take reasonable steps to resolve the dispute within 7 days of the Notice of Response; and
  4. either party may refer the dispute for expert determination if the dispute is not resolved within the time provided.

The Agreement also set out provisions in relation to the process of appointing an expert and how the expert determination was to be conducted.

Despite this provision, Hooks Enterprises commenced court proceedings seeking damages for breach of contract and, in the alternative, damages pursuant to the Australian Consumer Law for misleading and deceptive conduct.

In accordance with clause 12 of the Agreement, Sonnenberg issued a Notice of Dispute seeking to refer the dispute to expert determination.  In response, Hooks Enterprises maintained that the Court was the appropriate forum to resolve the dispute.  Sonnenberg applied to stay the proceedings on the basis that the dispute should instead be referred to expert determination pursuant to the dispute resolution terms of the Agreement.

Hooks Enterprises argued the proceedings should not be stayed as:

  1. the dispute resolution clause in the Agreement was not mandatory and did not expressly prevent a party from commencing court proceedings;
  2. it was not appropriate for the dispute to be referred for expert determination as the process operated without safeguards or supervision of the Court; and
  3. the claims raised mixed questions of fact and law

The Court's Decision

The Court ordered the proceeding should be stayed pending the completion of the expert determination procedure under clause 12.

With respect to Hooks Enterprises’ first argument, the Court held that once a party issued a Notice of Dispute under clause 12, the process for resolving the dispute by expert determination became mandatory.  Although there was no express provision in the Agreement preventing a party from commencing court proceedings, the Court held that the parties should nevertheless be held to their agreement to resolve their dispute in the manner prescribed in the Agreement, and that a party opposing a stay must persuade the Court that there is good reason to allow the action to proceed.

In response to Hooks Enterprises’ second argument, the Court took the view that the dispute resolution clause did incorporate adequate safeguards in that it required:

  1. the President of the Queensland Law Society to appoint the expert; and
  2. the expert to comply by the principles of procedural fairness and natural justice.

This decision reinforces the position that a Court will uphold a dispute resolution clause to which parties have agreed to, even if it is not expressed to be a mandatory prior step to litigation.

If parties to an agreement intend to proceed directly to litigation for any dispute between them, then their contract should be clearly drafted to reflect this.

If you require assistance in preparing or reviewing your commercial or business agreements, contact us today on +61 3 9822 8588.  Our Commercial lawyers and Dispute Resolution lawyers are here to assist you with all areas of business, commercial, dispute resolution and if deemed necessary litigation support.

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