Because disputes are common in construction projects, most construction contracts contain alternative dispute resolution (ADR) clauses requiring disputes to be resolved by processes such as mediation, arbitration and expert determination.
The main purpose of ADR is to save time and money and to keep matters out of Court, away from public scrutiny. However, sometimes ADR provisions themselves are the cause of disputes.
New South Wales Government GC21 Edition 2 is the form of contract usually employed by NSW Government agencies for construction contracts valued at $1 million or more, or of lower value but with complex contractual requirements.
Recently, the NSW Supreme Court had occasion to consider the meaning of the standard ADR clause in that contract. The decision (CPB Contractors Pty Ltd v Transport for NSW) suggests that a change to the provision might be warranted.
The predecessor to Transport for NSW, Roads and Maritime Services, had contracted CPB Contractors (CPB) to carry out widening of the M1 Pacific Motorway from Tuggerah to Doyalson. The contract was in the form of GC21.
In carrying out the work, CPB accumulated excess non-contaminated spoil. Transport issued CPB with instructions to remove the spoil to a location on Kooragang Island. CPB claimed that it was entitled to be paid extra for this work, but Transport disagreed.
In keeping with the ADR provisions of the contract, the dispute was referred for expert determination. The expert determined that CPB was not entitled to further payments. CPB then commenced Court proceedings seeking payment for these claims and others. Transport sought a stay of the proceedings in relation to the claims determined by the expert, stating that under cl 71 of the contract, CPB had agreed to accept the determination as "final and binding".
Subclause 71.8 of GC21 states:
".8 Neither party may commence litigation in respect of the matters determined by the Expert unless the determination:
- does not involve paying a sum of money; or
- requires one party to pay the other an amount in excess of..."
CBP contended it was not bound by the expert's determination because:
- the expert made no determination for the purposes of cl 71 of the contract because there was a "deficiency or error" in the determination that meant the expert did not make "a determination in accordance with the contract"
- alternatively, assuming a valid determination had been made, it did not "involve paying a sum of money".
This article is only concerned with the second of those contentions.
The question was whether in stating that CPB had no right to further compensation, the expert made a determination that "does not involve paying a sum of money" for the purpose of cl 71.8.1 of the contract.
CPB submitted that where the issues involve a claim for payment of money, a determination that no money is payable is, in effect, a dismissal or rejection of the claim and does not and cannot involve "paying" a sum of money.
Transport, on the other hand, submitted that:
- the determination "involved" the issue that was referred to the expert
- the issue "involved" a claim for money
- the use of the word "involve" in cl 71.8.1 and "requires" in cl 71.8.2 must mean it was intended that those words have different operation
- the use of the word "involve" rather than "requires" in cl 71.8.1 suggests it is directed to circumstances where the issue does not involve a claim for money, an example being an issue as to the proper construction of the contract.
Stevenson J accepted Transport's submission and held that in the context in which "involve" is used in cl 71.8.1, it does not mean "require". That the words "involve" and "requires" are used in the same clause must mean those words are to have different meanings.
The context was that the intent of the clause appears to be that determination of relatively small claims should be binding, whereas parties are free to litigate claims where the determination "requires" one party to pay the other more than the stipulated sum.
His Honour cited Gleeson JA in Lahey Constructions Pty Ltd v State of New South Wales who observed, of cl 71.8.2:
"An arbitrary threshold of $500,000 has been chosen by the parties for what might be described as minor claims, which following an expert determination, are subject to the preclusion of litigation".
However, Stevenson J pointed out that: "the clause, and cl 71.8.1 in particular, works awkwardly in a case where the determination is that a money claim is refused or, in effect, dismissed."
This was illustrated by the competing contentions of the parties; namely:
- on Transport's case, a dismissal of a money claim is binding no matter how big the claim is because cl 71.8.1 is not engaged and cl 71.8.2 operates on the amount of the determination, not the amount of the claim
- on CPB's case, a dismissal of a money claim is not binding no matter how small the claim is, because no sum of money is payable.
Neither of these formulations is entirely consistent with the intention of the clause as postulated by his Honour or the Court of Appeal; that is, to ensure that determination of relatively small claims are binding, whereas the parties are free to litigate more significant claims.
Despite this, Stevenson J felt that a reasonable business person would understand cl 71.8 to mean that a determination of a money claim that leads to the amount payable being less than the stipulated sum (including if the payable sum is zero) is final and binding.
He reasoned that a determination that dismisses a claim for money does "involve" "paying a sum of money" in the sense that it "concerns" a claim to pay a sum of money, and rejects that claim.
CPB's claims regarding the expert's determination were therefore stayed.
Subject to any different interpretation by the Court of Appeal, the meaning of the word "involves" in cl 71.8.1 is settled so that cl 71.8.1 is only relevant to determinations that are not in respect of money claims.
Similarly, the interpretation of cl 71.8.2 as leaving as final and binding a determination of a money claim that awards an amount less than the stipulated sum, including nothing, is settled. This applies even if the amount of the claim may have exceeded the stipulated sum.
That interpretation of cl 71.8.2 is not consistent, however, with the object of the clause in precluding litigation of only minor claims following an expert determination, as described by both the Court of Appeal in Lahey Constructions and Stevenson J in CPB Contractors. In fact, in CPB Contractors CPB's claim before the expert was for some $8.2 million dollars. Had the claim succeeded before the expert, the determination would not have been binding since the stipulated sum was $500,000.
Clearer drafting of the clause would have prevented litigation over the meaning of a provision whose very object was to prevent litigation.
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.