In Mineralogy Pty Ltd v Adani Mining Pty Ltd  QSC 154, Justice Freeburn held that the parties to a dispute were required to resolve their dispute via the contractually agreed expert determination clause.
In his decision, His Honour provided insight into how to interpret dispute resolution clauses and the court's attitude to parties attempting to circumvent these clauses.
Adani Mining Pty Ltd (Adani) agreed to pay royalties to Mineralogy Pty Ltd (Mineralogy) for mining a particular mining tenement (Royalty Deed).
A dispute arose between the parties when Adani sought funding from certain financiers to assist it with developing the mining tenement. The financiers required security. However, the Royalty Deed required that Adani not agree to encumber the tenement unless the financiers execute a priority deed which preserves Mineralogy's rights. There was some correspondence between the parties about the priority deed, however Mineralogy ultimately failed to execute the deed.
Following the procedure prescribed by the Royalty Deed's dispute resolution clause (the Dispute Resolution Clause), Adani referred the dispute to an independent expert for determination. An expert was appointed by the President of the Queensland Law Society. The question for the expert was whether Mineralogy was obliged to execute the priority deed.
Mineralogy applied to the court to stay the expert determination. Adani opposed this application. The principal issue before Justice Freeburn was whether the dispute was within the terms of the Dispute Resolution Clause.
What is expert determination?
Expert determination is an alternative dispute resolution process in which the parties to a dispute present arguments and evidence to an independent expert who makes a binding determination on the issue.
Some of the reasons parties may choose an expert determination over traditional litigation are:
- the expert will often have technical or specialist knowledge
- the expert may also have an investigative role
- the expert determination is conducted privately rather than in public
- parties are often obliged to pay their own costs and to bear the expert's costs equally.
Justice Freeburn dismissed Mineralogy's application, finding that the dispute fell within the Dispute Resolution Clause.
From the outset, His Honour had difficulty seeing how any other conclusion was possible due to the wide scope of the Dispute Resolution Clause:
"8.1 The mechanisms set out in this [Dispute Resolution Clause] apply to all disputes or claims arising out of or relating to this Deed and the alleged breach, termination or claimed invalidity of this Deed."
Mineralogy argued that the dispute did not fall within the Dispute Resolution Clause because:
- the operation of clause 8.1 was limited by the balance of the Dispute Resolution Clause
- the dispute involved the rights of third parties
- the dispute involved questions of mixed fact and law.
Justice Freeburn dealt with each of Mineralogy's arguments separately.
Proper construction of the Dispute Resolution Clause
Justice Freeburn commenced his analysis of the Dispute Resolution Clause by setting out how the construction should be approached. He said:
- dispute resolution clauses, as with ordinary contracts, are to be interpreted so as to ascertain the objective intention of the parties
- commercial contracts are to be construed so as to avoid them making commercial nonsense
- context is important
- the Dispute Resolution Clause is not to be construed in isolation from the remainder of the contract.
Focusing on the plain and ordinary meaning of the Dispute Resolution Clause, Justice Freeburn used the construction principles to reject Mineralogy's argument that the scope of clause 8.1 was limited by the balance of the Dispute Resolution Clause.
Specifically, Mineralogy contended that clause 8.1 must be read with clause 8.3, which "delimits" and confines the otherwise wide embrace of clause 8.1. Clause 8.3 states:
"8.3 For the purpose of this clause 8:
- technical matter means a matter involving issues relating to the production of coal and the determination of coal Mined or the like which is capable of determination by reference to engineering or scientific knowledge and practice;
- financial matter means a matter involving financial calculations which is capable of determination by audit or reference to accounting, taxation or normal financial practices; and
- legal matter means a matter involving the meaning or interpretation of the provisions of this Deed on the rights, duties or liabilities of the parties under or in connection with this Deed which is capable of determination by reference to the law and any other matter that is not a technical matter or a financial matter."
The first difficulty Justice Freeburn found with Mineralogy's argument is that the definitions in clause 8.3 do not expressly confine the width of clause 8.1. The ordinary and literal meaning of clause 8.1 means that the dispute resolution process applies to "all disputes or claims arising out of or relating to the Deed".
The second difficulty Justice Freeburn found is that the evident purpose of clause 8.3 is to give meaning to clause 8.6, which governs who nominates the independent expert when the parties fail to appoint one or cannot agree on the appointment. Clause 8.6 requires a different person to nominate the expert depending on whether it is a 'technical matter', 'financial matter', or 'legal matter'. His Honour considered it was a mistake to ignore the plain and ordinary meaning of the words "all disputes" in clause 8.1 to give clause 8.3 a prominence beyond its purpose. He said that "no reasonable businessperson would adopt such a strained interpretation".
The last difficulty Justice Freeburn found is that the definition of "legal matter" in clause 8.3 includes a 'catch-all' at the end – "and any other matter that is not a technical or financial matter". His Honour therefore concluded that this catch-all was wide enough to cover disputes that are not strictly 'technical' or 'financial' and intrude into different disciplines.
Rights of third parties
Justice Freeburn also rejected Mineralogy's argument that the Dispute Resolution Clause did not apply to the dispute as third party rights may be affected by the expert determination.
His Honour found that the dispute concerned Mineralogy's obligations under the Deed, and was therefore a determination of the rights of only Mineralogy and Adani. The expert determination could not affect the rights of the third parties who were not parties to the Deed or dispute, and would not be binding on any third party. As a result, regardless of the outcome of the expert determination, third parties' rights would be unaffected.
Mixed questions of fact and law
Moving to Mineralogy's last argument, Justice Freeburn rejected their contention that the Dispute Resolution Clause did not apply to disputes which required the expert to make findings of fact, or determine questions of mixed fact and law.
His Honour was outspoken in his disagreement, saying that most disputes will involve some finding of fact, meaning it would be "commercial nonsense to neuter the dispute resolution process in that way". He concluded by finding that there was no logical or commercial reason to exclude from expert determination disputes which involve questions of fact, or questions of fact and law.
Agreed dispute resolution mechanism
After he had addressed each of Mineralogy's arguments, Justice Freeburn concluded his judgement by noting that as the dispute fell within clause 8.1, the court would ordinarily conclude that the agreed dispute resolution mechanism is the most appropriate forum for the parties to resolve their dispute.
In this case, expert determination was therefore the most appropriate forum. This is because the parties agreed that their disputes in relation to the Royalty Deed would be resolved by way of expert determination, and "parties who have made a contract should keep it". Further, in selecting a dispute resolution process that involves expert determination, the parties can be taken to have "consciously selected a substantively different mode of dispute resolution. The court ought not lightly disregard that substantive bargain".
This case provides valuable guidance on the approach to interpreting contractual dispute resolution clauses.
Commercial entities need to be aware that courts will approach the construction of dispute resolution clauses with a focus on the plain and ordinary meaning of the clause, and avoiding commercial contracts "making commercial nonsense". Furthermore, there is a preference for parties to resolve their disputes through the contractually agreed dispute resolution procedure, and courts will not lightly disregard the agreed procedure.
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