Australia: Commencing proceedings before complying with dispute resolution procedures under a contract

Last Updated: 11 December 2017
Article by Mathew Deighton

IN BRIEF - FEDERAL COURT REFUSES STAY OF PROCEEDINGS

The recent Federal Court decision in Buurabalayji Thalanyji Aboriginal Corporation v Onslow Salt Pty Ltd [2017] FCA 1240 confirms the position that where parties to a commercial contract agree to a particular dispute resolution procedure, they must comply with that procedure unless the party wishing to abandon it, in favour of recourse to the courts, can show good cause.

APPLICATION FOR STAY OF PROCEEDINGS BROUGHT DUE TO ONE PARTY'S NON-COMPLIANCE WITH DISPUTE RESOLUTION CLAUSE

Commercial agreements are drafted to address a range of circumstances that could arise under a contract, including how parties are to resolve disputes when they arise. While each dispute resolution clause (DRC) will vary depending on the nature of the agreement between the parties, they routinely prescribe certain procedures and preconditions for resolving disputes under a contract (including timeframes), prior to commencing proceedings.

In Buurabalayji Thalanyji Aboriginal Corporation v Onslow Salt Pty Ltd, Buurabalayji Thalanyji Aboriginal Corporation (BTAC) commenced proceedings against Onslow Salt Pty Ltd and the state of Western Australia. Onslow Salt brought an application for stay of the proceedings on the basis that BTAC had failed to comply with the requirements of the DRC under the Development Deed.

McKerracher J acknowledged (at [75]) that the dispute between the parties involved "extremely complex factual matters raised in lengthy pleadings" where BTAC, on behalf of the Thalanyji people, sought a variety of relief. The relief sought is listed at [36] of the judgment and included, for example, damages against Onslow Salt:

  • for its intentional interference with the native title rights and economic interests held by BTAC;
  • and the state of Western Australia for tort of conspiracy; and
  • for breach of contract.

DISPUTE NOT REFERRED TO AN EXPERT IN ACCORDANCE WITH DISPUTE RESOLUTION CLAUSE

Central to the dispute was the Development Deed. Under the Development Deed, the relevant dispute resolution clause provided:

15.3 Dispute Resolution
a. If there is a dispute question or difference between the Parties with respect to any matter then the Parties shall forthwith confer in an effort to settle the dispute question or difference but if they fail to agree within thirty (30) days after first conferring or if a Party refuses to confer then the dispute question or difference shall be referred by either or both Parties to an independent expert selected by agreement between them or failing agreement by the President for the time being of the Law Society of Western Australia (Inc.).

...

c. No Party shall be entitled to commence or maintain any action or proceeding until the dispute decision or difference has been referred to and considered in accordance with this clause'

...

At the hearing of the application, the parties agreed that the dispute had not been referred to an expert in accordance with the DRC. Instead, BTAC challenged the requirement to refer the dispute to an expert on the basis that the nature of the dispute fell outside of the scope of the DRC and further, that it would be both impossible, on any realistic assessment, for an expert to resolve the issues raised in the dispute.

In contrast, Onslow Salt made submissions that there should be strict compliance with the dispute resolution clause under the agreement given the serious allegations that have been raised in BTAC's pleadings.

FEDERAL COURT REFUSES STAY OF PROCEEDINGS NOTING THAT THE DRC WAS LIMITED TO SIMPLER, MORE SPECIFIC ISSUES

McKerracher J had regard to a number of authorities, including Dance With Mr D Ltd v Dirty Dancing Investments Pty Ltd [2009] NSWSC 332 and Savcor Pty Ltd v State of New South Wales [2001] NSWSC 596, and made the following observations in relation to whether or not the proceedings should be stayed:

  • courts will generally hold the parties to their bargain in relation to DRCs;
  • it is for the party opposing the stay of proceedings to show that there is good reason to allow the action to proceed; and
  • generally, a stay will not be granted if it would be unjust to deprive an applicant of its right to have their claim judicially determined. The court assesses the nature of the dispute, the parties to the dispute, the nature of the agreement in which the DRC is contained and the conduct of the actual clause to determine whether the interests of justice warrant the refusal of a stay.

Having regard to the breadth of matters raised in BTAC's pleadings and the inadequacy of the procedures under the DRC, including the inability for the expert to resolve complex factual and credit issues (especially in circumstances where a third party was brought into the proceedings on claims which, for the most part, were well outside the parameters addressed by the Development Deed), the Court refused the stay of proceedings.

In making this decision, McKerracher J noted that this was not a result of a deficiency in the DRC but rather an indicator that the DRC, in this case, was limited to simpler, more specific issues arising under the Development Deed.

CONSIDERATIONS FOR COURTS IN DETERMINING WHETHER TO STAY PROCEEDINGS

A court will have regard to a number of circumstances when determining whether or not it is in the interests of justice to stay the proceedings until the dispute resolution procedure has been followed. These circumstances include where:

  • it would result in multiplicity of proceedings;
  • the dispute is inapt for determination by an expert because, for example, the area of dispute is outside of the expert's field of expertise; and/or
  • the agreed procedures are inadequate for determination of the dispute that has arisen.
Mathew Deighton Alice Blackburn
Commercial litigation
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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