Heart Research Institute v Psiron

The Heart Research Institute Ltd and Anor v Psiron Ltd

SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST
EINSTEIN J
25 July 2002

[2002] NSWSC 646

Einstein J

The Proceedings

[1] Following an order that the issues arising on the plaintiffs’ summons be determined separately from and prior to other issues, the issues now being determined raise principally questions going to whether or not the defendant is bound under the terms of a written agreement to participate in an expert determination procedure.

The Parties

[2] The first plaintiff (“HRI”) is a charitable research organisation whose purpose is to conduct research into cardiovascular disease. HRI is reliant on funding derived from donations, bequests, government grants and arrangements with commercial investors. HRI’s activities are said to be overseen by a Board of Governors whose members are volunteers drawn from the academic and business communities.

[3] HRD, a subsidiary of HRI, undertakes commercialisation of products, procedures, systems and services developed or arising out of the research conducted by HRI.

[4] The defendant Psiron Ltd (formerly known as Medical Innovations Ltd) (“Psiron”) is a professional investor and developer/marketer of medical products in the diagnostic and therapeutic fields. Psiron is a public company listed on the Australian Stock Exchange.

The Agreement

[5] On 16 June 2000, the plaintiffs entered into a written agreement with the defendant whereby the defendant agreed to fund two research projects, a therapeutic project (the “Therapeutic Project”) and a diagnostic project (the “Diagnostic Project”), to be undertaken by HRD and HRI respectively (the “Agreement”).

The Dispute Resolution Clause

[6] Cl18 of the Agreement provides as follows:

The facts

[7] The parties were directed to endeavour to reach agreement upon a Statement of Agreed Facts. The plaintiffs’ version which was generally agreed subject to some reservations by the defendant which do not have any real significance in the way in which the matter was finally argued, serves to provide the foundation for the matters dealt with in the judgment. That version which is set out below has been slightly adjusted following the submissions in relation to the draft Agreed Facts and I have added some short notes of explanation on one or two occasions. The Statement is set out below:

The plaintiffs’ claims to relief

[8] The Amended Summons seeks the following relief:

• A declaration that the process set out in cl18 of the written agreement made on 16 June 2000 between the plaintiffs and the defendant (the “Agreement”) is binding on the parties to the Agreement.
• A declaration that the defendant is bound to do all things, and execute all documents, necessary to perform its obligations in accordance with cl18 of the Agreement.
• A declaration that the defendant is obliged to accept the decision of the Expert as final and binding in accordance with cl18(f) of the Agreement.
• An order that the defendant specifically perform its obligations pursuant to cl18(e) of the Agreement by participating in an Expert Determination pursuant to the Australian Commercial Disputes Centre Guidelines for Expert Determination.
• An order that the defendant do all things, and execute all documents, necessary to perform its obligations pursuant to cl18 of the Agreement.

The issues arising for determination

[9] The defendant has identified in Overview written submissions the issues which arise for determination in the following terms:

(a) whether cl18(e) and cl18(f), [operate] to make expert determination mandatory;
(b) if so whether the clauses are void as against public policy;
(c) if not, whether the clauses are unenforceable by reason of their uncertainty.

(d) whether, in the event they are not void and are enforceable the remedy of specific enforcement of the clauses is available.

[10] It was common ground that although the defence did not squarely treat with the uncertainty issue there was no prejudice to the Plaintiffs in permitting this matter to be litigated and it is to be regarded as if it had been pleaded.

Issues (a) and (b)

[11] It is convenient in the first instance to deal with the first two matters and in the course of that analysis to cover a number of questions of principle. In what follows the detailed and carefully drafted submissions of the plaintiff are generally adopted as of substance.

[12] It can be seen that cl18.1 of the Agreement is explicit as to the procedures to be adopted by the parties in relation to disputes falling within the clause. The clause:

• operates in relation to any dispute which “arises out of or relates to this agreement, or the breach, termination, validity or subject matter thereof, or as to any claim in tort, in equity or pursuant to any domestic international statute or law” – cl18.1;
• involves a mandatory obligation to give written notice to other parties of the fact that a dispute has arisen and specifying the nature of the dispute – cl18.1(a);
• involves a “good faith” obligation to first negotiate and, subsequently, to attempt to settle the dispute by mediation – cl18.1 (b), cl18.1 (c) and cl18.1 (d);
• mandates that, in the event that the dispute has not been settled as a result of those processes, the dispute be submitted to Expert Determination to be “conducted in accordance with the ACDC Expert Determination Guidelines which set out the procedures to be adopted, the process of selection of the expert and the costs involved and which terms are deemed incorporated” – cl18.1(e); and
• expressly provides that the parties agree to accept the determination of the Expert as final and binding – cl18.1(f).

[13] The ACDC Guidelines are clearly quite detailed and cover numerous aspects of the proposed Expert Determination. These include:

• the selection of an Expert to conduct the Expert Determination including the identification by the ACDC of potential appropriately qualified Experts, the provision of information as to the backgrounds of the appropriate Experts, the review of this information by the parties and their advisers, the provision by each party of its order of preference for the proposed Experts, the elimination of any potential conflicts of interest or perception of bias and a procedure for resolving any disagreement as to the choice of Expert – s2;
• ensuring the neutrality of the Expert – s3;
• requiring the parties to sign what is described as “an Expert Determination Appointment Agreement which sets out the terms of the Expert Determination” and which is said to be “consistent with the these Guidelines” – s4;
• the process to be undertaken by the Expert in obtaining information about the disputes, meeting with the parties and the provision of procedural directions where necessary – s5;
• the provision by the parties of statements of issues – s6;
• representation of the parties – s7;
• the powers of the Expert and the manner in which the Expert may conduct the Expert Determination (even including provisions for the operation of the “slip” rule) – s8;
• a statement, that the determination of the Expert is final and binding – preamble and in s8(b);
• a statement that the Expert is not obliged to give reasons for his or her determination – s8(b); and
• confidentiality, releases for the Expert and payment of the Expert’s fees – s9, s10 and s11.

[14] The procedures provided by cl18.1, especially in expressly incorporating the terms of the ACDC Mediation Guidelines and the ACDC Expert Guidelines, are fairly detailed and precise, and take account of every issue that could possibly arise in the course of resolving a dispute.[15] By reason of their significance to this judgment the Expert Guidelines are reproduced hereunder:

Expert Determination and Ouster of Jurisdiction

[16] As the plaintiffs point out, in practice, Expert Determination is a process where an independent Expert decides an issue or issues between the parties. The disputants agree beforehand whether or not they will be bound by the decisions of the Expert. Expert Determination provides an informal, speedy and effective way of resolving disputes, particularly disputes which are of a specific technical character or specialised kind.

[17] Unlike arbitration, Expert Determination is not governed by legislation, the adoption of Expert Determination is a consensual process by which the parties agree to take defined steps in resolving disputes. I accept that Expert Determination clauses have become commonplace, particularly in the construction industry, and frequently incorporate terms by reference to standards such as the rules laid down by the Institute of Arbitrators and Mediators of Australia, the Institute of Engineers Australia or model agreements such as that proposed by Sir Laurence Street in 1992. Although the precise terms of these rules and guidelines may vary, they have in common that they provide a contractual process by which Expert Determination is conducted.

[18] The contractual basis of Expert Determination was confirmed by Rolfe J in Fletcher Construction Australia Ltd v MPN Group Pty Ltd NSWSC, 14 July 1997 (unreported). As in the present dispute, the defendant in Fletcher Construction claimed that the Expert Determination clause in question was invalid and unenforceable because it amounted to a “bare faced attempt to oust the jurisdiction of the Courts” (at 10). The plaintiff relied upon the terms of the agreement between the parties and asserted that the defendant should be held to the bargain it made with respect to the resolution of disputes (at 9).

[19] In Fletcher Construction, Rolfe J concluded that the Expert Determination clause in question:”does not purport to oust the jurisdiction of the Court. It is an agreement between the parties that the specified disputes shall be determined by an expert. There is nothing unusual about such a provision and parties are held to their bargain if they agree to such a clause. Nor is there anything unusual about the clause providing that the expert’s decision shall be “final and binding” or “conclusive”, and provisions such as that do not oust the jurisdiction of the Court. The effect of the clause is to make the decision of the expert final and binding provided the matters referred to him are ones which the agreement contemplates.” (at 18)

[20] Relying on the High Court authority of Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643, Rolfe J held that there is a distinction between agreeing not to invoke the jurisdiction of the Courts and agreeing that some matters on which the Courts might otherwise be required to adjudicate should be determined by a third party. The latter agreement leaves the enforcement of the rights of the parties under the contract, including the dispute resolution clause, to the Courts and consequently does not oust the jurisdiction of the Court. There is no ouster because such an agreement is merely limiting the matters for consideration by the Court to the question of whether the agreed Expert has acted within the scope of the agreement between the parties. Thus, provided that the Expert acts within the scope of the dispute resolution clause, the Court will enforce his or her decision as final and binding (at 15).

[21] As the plaintiffs point out, similar conclusions were reached by the Supreme Court of Victoria in Badgin Nominees Pty Ltd v Oneida Ltd [1998] VSC 188, Gillard J (unreported). Considering whether proceedings should be stayed until the dispute had been considered by an Expert, Gillard J further emphasised the contractual basis of Expert Determination. His Honour referred to the judgment of Scrutton LJ in Metropolitan Tunnel and Public Works Ltd v London Electric Railway Co [1926] Ch 371 where it was stated that “a guiding principle on one side and a very natural and proper one, is that parties who have made a contract should keep it”. Hence his Honour concluded that, “It was their common intention that the dispute resolution procedure be applied in the event of a dispute. It is their contract; and it should be enforced.” (para31 – para32) and, further:”It is a trite proposition of law that parties may contract about anything and subject to the principles of public policy and illegality the agreement should be enforced unless there is some other vitiating factor such as a mistake, misrepresentation or in capacity.” (para29)

[22] I accept that Gillard J applied the same contractual reasoning as Rolfe J in Fletcher Construction to conclude that the procedure to be applied in the Expert Determination depends on the agreement between the parties.”[T]heir agreement [the parties’] expressly stated in bald terms that the dispute in question was to be decided by an expert and his ‘determination in writing…will be conclusive and binding on the parties’, without providing any rules concerning procedure, evidence, obtaining legal advice by the expert or complying with the rules of natural justice.” (para28)

[23] The corollary of the decisions in Fletcher Construction and Badgin is that the decision of the Expert, although stated to be final and binding, is amenable to attack where, for example, there is a failure to comply with the contract or the decision is vitiated by a factor, such as fraud: Fletcher Construction, per Rolfe J at 11. Considerable controversy has arisen as to whether a determination may be impugned on the basis of an error by the Expert, cf Marcus Jacobs QC: “Impugning Expert Determinations in Australia” (2000) 74 ALJ at 858. However, as the plaintiffs submit, in challenging a determination, the seminal question remains whether or not the Expert has acted outside the scope of the agreement which appointed him.

[24] Clearly the New South Wales Courts have responded positively to the benefits which Expert Determination can entail. In Public Authorities Superannuation Board v Southern International Developments Corp Pty Ltd, NSWSC, 19 October 1987 (unreported), Smart J stated that, in relation to Expert Determination:”There are many reasons why they may take such a course. They may prefer to have a relatively informal process which they may think is likely to be cheaper and quicker and the decision of an independent consultant who is likely to be familiar with the problems…It is not for the Court to re-write their contract.” (at 10)

[25] His Honour was prepared to extend the matters which may be considered by Expert Determination to issues of liability and quantum. The arguments that the role of an Expert under such agreements should be limited to those “usually dealt with by experts, for example, questions of value, questions of the work to be done prior to practical completion, quality of work and, presumably, extensions of time” (at 7) were rejected.

[26] A positive approach to Expert Determination can also be implied from the decisions in Government Insurance Office of NSW v Atkinson-Leighton Joint Venture (1979) 146 CLR 206 and IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466, both cases dealing with the construction of arbitration clauses. Each of these cases indicates an acknowledgement of the commercial utility of alternate dispute resolution processes and a willingness on the part of courts to construe dispute resolution clauses in an expansive manner. In Government Insurance the High Court held that, even though an arbitration clause contained no express reference to the awarding of interest, the scope of the power was sufficient to imply a power in the arbitrator to award interest in accordance with the relevant Supreme Court Act.

[27] Similarly, in IBM the NSW Court of Appeal confirmed the power of an arbitrator to make awards and orders of the kind contemplated by the Trade Practices Act 1974 (Cth), notwithstanding that the Commercial Arbitration Act (NSW) expressed that it was “the Court” which may grant such relief (at 481). Following Government Insurance, Kirby P asserted that such clauses are “not to be narrowly construed” (at 477) citing a change in the attitude to arbitration clauses in Australia and other countries:”It may be connected with a growing confidence in the skills of arbitrators. It may relate to an increasing desire of businesses (partly reflected in the agreement in this case) to have controversies dealt with confidentially, behind closed doors and not openly in courtrooms. It may be the result of the growing technicality and complexity of commercial disputes in which courts, even with expert evidence, sometimes exhibit their lack of specialist knowledge. It may be stimulated by the great pressure upon courts today and the special challenges presented by complex litigation, often requiring urgent attention. In part, the same pressures are reflected in moves generally to provide efficient means of dispute resolution alternative to the courts.” (at 472)

[28] The plaintiffs’ further point up that the positive approach to dispute resolution clauses suggested by Kirby P in IBM was also clear in Triarno Pty Ltd v Triden Contractors Ltd NSWSC, 22 July 1992 (unreported) where the Court held that failure to specify a procedure to be adopted by the Expert did not necessarily void an agreement to enter into an Expert Determination process. Cole J stated:”Whilst recognising that there may be utility in the court determining procedures to be followed in an expert determination, in my opinion the court has no jurisdiction to do so….if the parties have not by their deed agreed the procedures to be followed upon an expert determination, that is not a void the court can fill. There is no reason to imply a term that the court will determine procedures. It is a matter for either agreement between the parties, or determination by the independent experts as to the procedures to be followed.” (at 5)

[29] The approach of Cole J was followed by Rolfe J in Fletcher Construction in which he referred with approval to the decision of Cole J in Triarno stating that “[i]n my opinion, this decision is authority for the proposition, which I consider is correct, that in the absence of agreement as to procedures, they are to be decided by the expert” (at 23 – 24). In the result, Rolfe J held that an Expert Determination clause was not void for uncertainty because it made no provision about procedural matters, such as whether the parties could be legally represented, whether the parties could be compelled to provide documents, or who should bear the costs.

[30] The expansive approach of the Courts outlined above has culminated in judicial acceptance of the final and binding nature of Expert Determination. In the recent NSW Supreme Court decision Savcor Pty Ltd v New South Wales (2001) 52 NSWLR 587, Barrett J summarised the present state of the law as follows:”In the absence of factors such as fraud and collusion, an expert determination declared by contract to be final and binding is open to challenge only to the extent that it is not in conformity with the enabling contract, including such implied terms as there may be as to the conduct and procedures of the expert” (para35).It is quite conceivable that parties may refer issues such as in IBM for determination by an Expert and “agree to abide by the expert’s decision on that question as if it were an order made by a court” (para37).”where parties have by contract agreed to follow a particular dispute resolution procedure, they should be required to adhere to that procedure unless the party wishing to abandon it in favour of resort to the courts can show good reason for that course.” (para42).Following Badgin the Court has the jurisdiction to stay proceedings on the basis that a contractual process provided that Expert Determination would be used to resolve disputes (para43).Experts may consider legal matters involving questions of law which would otherwise be heard in court proceedings (para44).A party to an Expert Determination will not be able to challenge the determination on the basis that the Expert decided the matter wrongly on the facts. Although an aggrieved party may be able to sue the Expert, that party will generally be unable to challenge the decision itself. The usual basis on which the result of an Expert Determination is challenged is that the Expert has not conducted himself or herself in accordance with the express or implied terms of the agreement for Expert Determination.” (para35).

[31] The extent to which a “final and binding” decision may be challenged was authoritatively considered by McHugh J in Legal and General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314. McHugh J, considering a rent review clause where the rent review was being carried out by an expert valuer, concluded that the validity of a determination is inextricably linked with the scope of the powers under the relevant contract:”It will be difficult, and usually impossible, however, to imply a term that a valuation can be set aside on the ground of the valuer’s mistake or because the valuation is unreasonable. The terms of the contract usually provide, as the lease in the present case does, that the decision of the valuer is ‘final and binding on the parties’.” (at 335)McHugh J continued, noting that by referring a matter to an Expert, “the parties agree to accept his honest and impartial decision” (at 335). If the parties wish to challenge the decision of the Expert, “[t]he question is not whether there is an error in the discretionary judgment of the valuer. It is whether the valuation complies with the terms of the contract” (at 336).

[32] The result of this line of authority is, I accept that a decision will be overturned if, as in Fermentation Industries (Aust) Pty Ltd v Burns Philp & Co Ltd NSWSC, Rolfe J, 12 February 1998 (unreported), it is outside the terms of the agreement. The authorities are usefully gathered by Palmer J in Kanivah Holdings Pty Ltd v Holdsworth Properties Pty Ltd [2001] NSWSC 405, 21 May (unreported), where Palmer J states, with reference to Legal and General that “these principles are now well settled” (para48). Where parties to an agreement have determined:”that a rent review dispute is to be resolved by the determination of a valuer, acting as an expert, and not as an arbitrator and that the determination is to be final and binding, then the determination may be successfully impeached as invalid only if it is shown to be tainted by fraud or collusion, or if it is shown not to have been made in accordance with the determination process, if any, specified in the lease. In either case, this is so because the determination is not one for which the parties have contractually stipulated.” (para47)

[33] These principles are entirely consistent with, and were recently applied in, Aiton Australia Pty Ltd v Transfield Pty Ltd (1999) 153 FLR 236 and State of New South Wales & 3 Ors v Banabelle Electrical Pty Ltd, [2002] NSWSC 178.[34] In the present case, cl18 does not operate so as to oust the jurisdiction of the Court.

Issue (c) – Certainty

[35] The plaintiff contends that the procedure to be adopted pursuant to the clause is sufficiently certain for there to be little doubt as to the circumstances in which the clause operates and as to the process to be adopted by the Expert – Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194 at 206; Aiton Australia Pty Ltd v Transfield Pty Ltd (1999) 153 FLR 236; State of New South Wales & 3 Ors v Banabelle Electrical Pty Ltd, [2002] NSWSC 178 para38.

[36] The central issue raised by the defendant concerns the well-established proposition that agreements to participate in alternative dispute resolution procedures are enforceable in principle provided the conduct required of the parties for participation in the process is sufficiently certain. See Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194; Elizabeth Bay Developments Pty Ltd v Boral Building Services Pty Ltd (1995) 35 NSWLR 709; Aiton Australia Pty Ltd v Transfield Pty Ltd (1999) 153 FLR 236; Morrow v Chinadotcom [2001] NSWSC 209; Banabelle Electrical Pty Ltd, [2002] NSWSC 178.

[37] In Aiton:
• emphasis was given to the statement by Giles J in Hooper Bailie:

• The matter was put as follows:

[38] In Elizabeth Bay Developments the clauses in question provided for a mediation to be administered by the Australian Commercial Disputes Centre. Further the court proceeded on the basis of a concession that the terms of the Australian Commercial Disputes Centre’s Guidelines for mediation were incorporated into the agreement. Indeed the Guidelines then before the court although dealing with mediation were close to word perfect with the Guidelines presently under consideration. Para6 of the Guidelines were in the following terms:

[39] Giles J put the matter as follows:

[40] The real question of substance for determination concerns the defendant’s submission that in an important, indeed critical sense, the approach which should be taken by the court presently should follow the approach taken in Elizabeth Bay Developments. The defendant’s submissions in the sense are follows:
• The similarity between the contractual provisions and the Guidelines considered in Elizabeth Bay and cl18 and the Guidelines in the present matter is noteworthy.
• In particular in both instances the Guidelines provide that the parties are to sign an expert determination appointment agreement the terms of which are required to be “consistent with these guidelines”.
• In neither case can the expert determination commence until the executed agreement is held by the ACDC. See para4 and para5 of the guidelines at JC1 Tab 39.
• In the present case, again as in Elizabeth Bay Developments the guidelines do not call up any particular form of mediation agreement.
• Nevertheless, a copy of the agreement which the expert selected by HRI, is in evidence at JC1 Tab 48. Its terms illustrate the point made by Giles J in the earlier decision. Terms which are included in it but which are not dictated by the Guidelines include the following:
(a) the proposed expert was not prepared to embark on the mediation unless that agreement (no other) was signed by the parties (Tab 48 P1);
(b) the recitals (a) and (b) would give rise to an estoppel by deed which would not be accepted by Psiron (Tab 48 p4);
(c) cl8(a) requires “total confidentiality” in relation to the expert determination and cl8(d) requires every aspect of every communication within the expert determination to be without prejudice (Tab 48 p6 and p7).
(d) by cl10 the parties release the ACDC and the expert from any tortious claim they might have in respect of the expert determination. This right is an important right which the parties would otherwise have see Goldspar Australia Pty Ltd v City of Sydney [2001] NSWCA 246.
• It follows that the agreement to submit to expert determination, if otherwise valid, is unenforceable.

Dealing with this issue

[41] It is important to bear in mind that none of the plaintiff’s claims to relief concern the terms of the form of Expert Determination Agreement in fact submitted by Ms Champion. Notwithstanding that the plaintiff’s Contentions include claims that, as is clear from the evidence, the defendant failed to execute that document, and although the plaintiffs do, by reason of all of the matters pleaded in the Contentions para3- para24, rely inter alia upon that failure, the issues raised on the preliminary question are capable of being dealt with without any reference at all to that particular document. The document does however serve as a convenient vehicle for an examination of the certainty issues.

[42] The approach taken by Mr Finch SC who appeared for the plaintiffs was to accept that the critical issue was whether the agreement which the parties had entered into was sufficiently certain to be enforced. He accepted that the exercise involved whether or not the terms of an Expert Determination Appointment Agreement as referred to in the Guidelines, could be sufficiently identified. If not the plaintiffs were not entitled to relief as sought.

[43] The approach was to take the Court extremely carefully through the Expert Determination Appointment Agreement which had been proffered by Ms Champion and in relation to each of the recitals and paragraphs, to engage in a very close comparison between this document and the Guidelines. The proposition for which the plaintiffs contended was that this was a search for consistency. The proposition was that it was not necessary for the proffered agreement to be word for word identical to paragraphs in the Guidelines but that it would be sufficient to find that the provisions of the proffered agreement were precisely reflective of the same concepts as were to be found in the Guidelines. It was put that the necessary consistency would be seen to be present if, for example, the Guidelines included a generic power and the proffered agreement included a provision which fell within that generic power. If, on the other hand, one found provisions in the proffered agreement which could be categorised as extensions of what had been provided for in the Guidelines, by falling outside the generic consistency test it would be appropriate for the Court to apply a blue pencil approach by deleting such provisions. The Court could then order specific performance in terms of the execution of so much of the proffered Appointment Agreement as survived this set of tests.

[44] Without travelling exhaustively through a repetition of this careful analysis it may be convenient to give one only example. Cl11 (c) of the proffered agreement provided:

[45] The first sentence of cl11 (c) is in fact word perfect with para11 (c) of the Guidelines. Hence it was submitted that this clause should remain in the proffered agreement. However it was accepted that the second sentence could not survive the blue pencil test because there was no question of the Guidelines having dealt with any joint and several liability of the parties for all costs relating to the Expert Determination.

[46] The exercise engaged in by the plaintiffs suffers from the difficulty that it seems to me to amount to a colourable attempt to have the Court in effect, engage in drafting for the parties, the very Expert Determination Appointment Agreement which, by the terms of para 4 of the Guidelines they clearly intended to settle themselves.

[47] The words used in the second sentence of para 4 of the guidelines:

require to be construed. At first sight that sentence may seem to the reader to suggest that at the time when the Guidelines were prepared there was in fact an available form of Appointment Agreement to which reference was being made. As the evidence discloses and as the parties accept, this was obviously not the case. In those circumstances the proper construction of the sentence is to treated as if the word “are” is to be replaced by the words “are to be”, so that the sentence would read:

[48] That being the case it is clear beyond doubt that the parties intended that a stage in the relevant procedure would require the parties to negotiate about and to endeavour to settle the terms of an Expert Determination Appointment Agreement. And it does not seem to me that it is in any fashion now appropriate for the Court to endeavour to second-guess what that negotiation may have produced. Not that Mr Finch suggested any such thing. His proposition was that the Court would require to tether its analysis and comparison so as:

• to allow only those sentences in the proffered agreement as, upon examination, were seen to be completely consistent with the Guidelines or could be subsumed under the rubric of a generic power or agreement.
• to apply the blue pencil test by way of disallowing all other sentences.

[49] The alternative approach taken by Mr Finch was to submit that as the Guidelines themselves, on examination, included, a clear set of workable provisions to govern the Expert Determination, the parties and presumably the Expert, could be required to sign the Guidelines so that there could then be an acceptance that the Guidelines themselves amounted to the Expert Determination Appointment Agreement for which provision had been made in the Guidelines.
[50] The submission was presented in some detail, the gravamen of the submission relying upon the following propositions:
• That the parties intended that the terms of the Appointment Agreement would be negotiated and would be consistent with the guidelines;
• That in the absence of the parties being in a position to successfully negotiate the terms of the Appointment Agreement, they could be compelled to accept the terms of such an agreement, providing that those terms included, and included only, terms which were consistent with the Guidelines.

[51] In submissions Mr Finch put the matter as follows:

[52] The submission is misconceived and requires to be rejected. It fails to cope with and to give proper effect to the parties’ obvious intent as reflected by the wording of para 4 of the Guidelines that they be permitted to attempt to negotiate the terms of the Appointment Agreement. It fails also to cope with and to give proper effect to the clear intent that the Expert to be appointed and who was to sign the Appointment Agreement as a party, be also permitted to suggest his or her own suggested terms. Finally and most importantly it fails to cope with the proposition, the subject of the judgment of Giles J in Elizabeth Bay, that notwithstanding that it would be possible to prepare an agreement consistent with the guidelines, there would be an infinite combination of provisions which would not be inconsistent with the guidelines, and that for this reason, the agreement of the parties must fail for lack of certainty in the process to be followed.

[53] The argument also exposed significant problems, as it seemed to me, in relation to several areas of real difficulty involved in the proposed application of the “consistency” test. The Appointment Agreement which was proffered by Ms Champion provided inter alia that the Expert Determination may be terminated by a party giving written or oral notice to each party to the Expert Determination and the Expert. Whilst this may be consistent with the common law approach to agreements determinable at will, it is difficult to see why the proposed provision would likely have been intended by the parties. Indeed this proposed provision seems to me to be antithetical to the whole endeavour to ensure that the Expert Determination process would lead to a resultant determination. And there was also a provision that the Expert Determination might be terminated by the Expert giving written or oral notification to the parties if, after consultation with them, the expert formed the view that the expert would be unable for whatever reason, to complete the Expert Determination. This led to a close inquiry as to what types of reason the parties may have been content to include in such an agreement permitting the expert to terminate the Expert Determination. Likewise questions would arise in relation to the proposed Appointment Agreement proffered by Ms Champion, where a term included provision that every aspect of every communication within the Expert Determination was to be ‘without prejudice’. These and other matters make entirely unpalatable and inappropriate, the notion that it would be a simple matter for the Court to apply the so-called “consistency” test.

[54] In the result and for the above reasons it is clear that in the absence of identification in the Guidelines, presumably by reference, of precisely which terms were to be included in the Expert Determination Appointment Agreement, the parties agreement fails for relevant uncertainty. It may seem surprising that in the light of the Judgment in Elizabeth Bay delivered in early 1995, the ACDC has apparently not seen fit to amend its procedures, so as to cope with the necessity to ensure that the parties are committed, with precision, to the terms of the relevant Appointment Agreement which they are said to be contractually obliged to execute.

[55] It was also the case that there were some limited areas in respect of which the Guidelines themselves, if signed, have a capacity to confuse. Cl2 (a) for example speaks of ACDC sending career details of qualified experts “upon agreement to seek an expert determination”. The plaintiffs case is that there had already been reached the agreement to seek the expert determination so that even if the Guidelines were signed, this subclause would require to be so understood. Likewise in relation to cl11 (b), the language would have to be read somewhat differently because of the particular circumstances. Whilst these are relatively minor matters, it may be thought, for attention, they do throw up the type of difficulties which arise when an artificial approach is taken to what was obviously otherwise intended.

[56] For those reasons the plaintiffs claims to relief in the form earlier identified must fail. It is however common ground that, reserving the question of costs of the separate question for submission, the appropriate orders are to permit the plaintiffs to further amend the Amended Summons so as to plead the issues on their merits and so as effectively to submit the relevant disputes and their claims for the adjudication of this Court.

Specific Performance

[57] Detailed submissions were also addressed by both parties in relation to whether specific performance should be ordered in the event that cl18 (e) and cl18(f) would be held to be enforceable in principle. Whilst that matter does not now require to fall for determination it seems reasonable in deference to these submissions and against the possibility that the matter may go on appeal, to treat with the general subject matter as a matter of principle.

[58] The defendant’s further submissions included the following:
• “If, contrary to the foregoing, cl18(e) and (f) are enforceable in principle, the court will not order specific performance at the suit of HRI. See Hooper Bailey at 210; Aiton at 244; Banabelle para29.
• The rule enunciated in those cases is applicable in respect of the subject clause for expert determination having regard to the need for co-operation between the parties in agreeing upon the terms of a suitable expert determination agreement.
• Further, as a matter of discretion, the court ought not order any specific performance of cl18(e) having regard to:
(a) the complexity of the disputes between the parties as disclosed by the cross claim;
(b) the unfettered right of the expert to conduct the process without following the rules of natural justice (guidelines para8(a) (ii), and otherwise without any formality whatsoever.
• That combination of circumstances is likely to be productive of further conflict and give rise to the need for extensive continuing supervision by the court of the conduct of the determination process.

[59] Here again the plaintiffs advanced very detailed written submissions which are generally set out below and accordingly adopted

[60] The most recent decision of this Court considering these issues is that in State of New South Wales & 3 Ors v Banabelle Electrical Pty Ltd, [2002] NSWSC 178. In the discussion of the relevant principles one there finds the following:”Equity will not order specific performance of a dispute resolution clause, notwithstanding that it may satisfy the legal requirements necessary for the court to determine that clause is enforceable. This is because supervision of performance pursuant to the clause would be untenable – see Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194 at 210. The court may, however, effectively achieve enforcement of the clause by default, by ordering that proceedings commenced in respect of a dispute subject to the clause be stayed or adjourned until such time as the process referred to in the clause is completed”. (para29)

[61] In Hooper Bailie, which has already been mentioned in some detail, Giles J ordered a stay in the proceedings pending the completion of a conciliation process between the parties.

[62] As the plaintiffs point out, in reaching this decision Giles J deals with the issue of specific performance of an implied term. The plaintiff in that case contended that there was an implied term in the conciliation agreement between the parties that the parties “would take all reasonable steps to endeavour to resolve the conciliation issues under the chairmanship of Mr Eric Schick, by discussion, consideration and agreement” (at 202G). It is with reference to this implied term that Giles J states “[i]t was, I think, common ground that equity would not order specific performance of the implied term for which Hooper Bailie contended, because supervision of performance would be impossible” (at 210E).

[63] As already stated, the holding was that an agreement to resolve a dispute by alternative processes is enforceable in principle, provided that the conduct required of the parties for participation in the process is sufficiently certain (discussed at 209D-E). Giles J continued that such agreements may be indirectly enforced by the stay or adjournment of any other proceeding initiated in conflict with the agreed alternative dispute processes. The court’s power to make such orders derives both from its inherent jurisdiction to prevent abuse of its process and from its statutory jurisdiction to make interlocutory orders in relation to arbitration proceedings under the Commercial Arbitration Act 1984, s47 (discussed at 210E-211E).

[64] Giles J further considered that:”there may be a stay of proceedings having the consequence that a party to the proceedings must give effect to an arbitration agreement, even against its will (see s53 of the Commercial Arbitration Act 1984), and that illustrates that there is nothing offensive in indirectly requiring participation in a process of dispute resolution provided there is sufficient certainty in the conduct required by way of participation.” (at 210G)

[65] Giles J referred to Aztec Mining Co Ltd v Leighton Contractors Pty Ltd (1990) 1 ADRJ 104 (at 204 F), where Murray J refused an interlocutory injunction restraining Leighton from proceeding with the submission of a dispute for the determination of an Expert in accordance with the dispute resolution clause in the contract. This was despite the fact that the determination by the Expert was expressed to be “final and binding upon the parties except in the case of manifest error”.

[66] Giles J went on to distinguish the Aztec Mining case on the basis that the clause in Aztec Mining did not provide for conciliation and mediation but for binding determination by third parties.

[67] As the plaintiffs point out, in Hooper Bailie Giles J enunciated the principle that equity would not decree specific performance of an implied term in the circumstances of that case. The basis for this principle is said to be the impossibility of supervision by the Court of such a term.

[68] In Aiton: one finds the following”it is clear that if parties have entered into an agreement to conciliate or mediate their dispute, the Court may, in principle, make orders achieving the enforcement of that agreement as a pre-condition to commencement of proceedings in relation to the dispute: Hooper Bailie.”

[69] Aiton was also a case where the Court was asked to imply a term concerning payment of a mediator’s costs. The holding was that the mediation agreement was “unenforceable by reason of its failure to spell out how responsibility of payment of the mediators’ cost was to be dealt with” (at 271 para174). The Court held that the basis upon which the mediator’s remuneration was to be paid was not sufficiently clear to justify the implication of a term to that effect.

[70] In State of NSW v Banabelle, as in Hooper Bailie and Aiton, the precise terms of the dispute resolution provision were uncertain, namely while the clause provided for a person prescribed in the annexure to nominate an Expert in default of agreement between the parties, there was in fact no person named in the annexure. Once again, as in Hooper Bailie and Aiton, the Court was asked to imply a duty to co-operate in the choice of an Expert.

[71] As the plaintiffs point out, these cases are, undoubtedly correct in circumstances where the contractual provision concerning the alternative dispute resolution processes is not sufficiently certain to be specifically enforced. The principle of equity grounding such decisions, namely that it is impossible or untenable for the Court to supervise such vague and uncertain terms, is clear.

[72] Another way of expressing the same principle is that the Court will not generally order specific performance where it would be required to constantly supervise the order. And as the plaintiff points out, the difficulties faced by the Court in such circumstances are described by Lord Hoffman in Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1 as follows:”It may at first sight suggest that the judge (or some other officer of the court) would literally have to supervise the execution of the order… supervision would in practice take the form of rulings by the court, on applications made by the parties, as to whether there had been a breach of the order. It is the possibility of the court having to give an indefinite series of such rulings in order to ensure the execution of the order which has been regarded as undesirable.” (at 12)

[73] Co-Operative Insurance was considered by the High Court of Australia in Patrick Stevedores Operations No 2 Pty Ltd & Ors v Maritime Union of Australia & Ors (1998) 195 CLR 1, where the Maritime Union sought various orders such as the continuance by Patrick’s administrators of the running of the business and the employment of its members. The High Court noted that such orders sometimes contained the problem of the Court being involved in constant supervision. The Court referred to Co-Operative Insurance by stating:”What is significant is the acceptance by the House of Lords that the concept of ‘constant supervision by the court’ by itself is no longer an effective or useful criterion for refusing a decree of specific performance. Rather, Lord Hoffman placed stress on other propositions. First, a person who is subject to a mandatory order attended by contempt sanction… ought to know with precision what is required; and, second, the possibility of ‘repeated applications for rulings on compliance’ with orders requiring a party ‘to carry on an activity… over a more or less extended period of time’ should be discouraged.” (at 46 – 47)

[74] I accept as correct the plaintiffs’ submission that it follows from the above cases, including Co-Operative Insurance and Patrick Stevedores, that the Court may order specific performance of a contractual provision where it will not be necessary to constantly supervise the order.

[75] As the plaintiff submits, when a Court considers ordering specific performance of a dispute resolution clause the question then becomes, would such an order create the possibility of repeated applications for rulings coming before the Court? If a dispute resolution clause was drafted with sufficient clarity and certainty, there should be no need to seek regular directions from the Court on the execution of the order.

[76] The plaintiffs strongly contend that the defendant in this case been obstructionist and, on one view, has done all within its power to avoid complying with its contractual obligations in relation to the Expert Determination in that it is said to have:
• failed to pay the ACDC filing fee for the mediation;
• failed to pay the ACDC filing fee for the Expert Determination;
• failed to reply to certain correspondence from the ACDC;
• failed to express a view on an appropriate Expert,
• necessitating the appointment of the Expert by the ACDC;
• refused to execute the Expert Determination Agreement as required by the ACDC Expert Guidelines; and
• belatedly raised (including in its Cross-Claim in these proceedings) matters which have not been the subject of formal dispute notification under cl18.1(a) of the Agreement.

[77] It was accepted during argument that it was not necessary for the Court in determining the separate question to make any findings in relation to these claims of the plaintiff.

[78] HRI is a charity and is, I accept, unable to afford protracted litigation and the attendant costs. Consequently, Expert Determination should, but regrettably here does not, offer a speedy and cost effective means of resolving disputes, an alternative that was chosen in this case.

[79] Had the subject Agreement not been vitiated for uncertainty, the indirect mechanism of giving effect to the alternative dispute resolution clause discussed in Hooper Bailie, Aiton and Banabelle, namely the grant of a stay or adjournment of the proceedings pending the completion of the alternative dispute resolution process, would not have been needed as the Court would likely have been in a position to grant specific performance. The process contemplated by the clause is likely to have been entirely appropriate to the subject matter of the Agreement, namely medical research into cardiovascular disease and the creation of possibly patentable processes. An Expert who can combine a knowledge of intellectual property law issues with an understanding of research processes may well be ideally placed to resolve the disputes.

[80] As the plaintiffs correctly point, out the comments of the House of Lords in Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd (1993) AC 334 per Lord Mustill at 353 are appropriate to be borne in mind in litigation raising these issues where enforceable agreements not lacking the requisite certainty, are entered into:”those who make agreements for the resolution of disputes must show good reasons for departing from them, but also with the interests of the orderly regulation of international commerce, that having promised to take their complaints to the experts and if necessary to the arbitrators, that is where the appellants should go.” (Quoted with approval by Gillard J in Badgin at para43).

Public Policy Demands

[81] The positive perception of alternative dispute resolution in case law has accorded with the development of case management in Australian jurisprudence. In New South Wales, for example, the Courts are now guided by Pt1 r3(1) of the Supreme Court Rules 1970 (NSW) which provides that:”The overriding purpose of these rules, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in such proceedings.”

[82] Indeed, the aims of case management, for example such as ensuring that the parties are on an equal footing; saving expense; dealing with cases in ways which are proportionate to the amount involved, the importance, the complexity, and the financial position of each party; ensuring that it is dealt with expeditiously and fairly; and allotting to it an appropriate share of the Court’s resources, can seemingly be promulgated through a positive approach to alternative dispute resolution.

[83] On a public policy level the rationale behind supporting alternative dispute resolution includes:
• harnessing the influence of the Courts to encourage the use of alternative dispute resolution as a way of overcoming the reluctance of litigants and lawyers;
• making procedures more simple, and closer to normal business activities;
• decreasing or better focusing paperwork;
• simplifying the work done in preparing disputes for the resolution process;
• facilitating the resolution of disputes by allowing parties to choose an arbitrator or mediator with special knowledge or expertise;
• improving efficiency by finding earlier or more convenient dates for alternative dispute resolution than is permitted by the court listing process;
• reducing costs; and
• achieving results which do not necessarily demand that one side wins and one looses.

[84] In recent years dispute resolution legislation and trends in resolving commercial disputes by alternative means have developed common themes and objectives including better case management, increased speed and reduced expense, party autonomy and greater involvement by the parties themselves. As the High Court has recognised, concepts of public policy are not fixed but change according to developments in society: Stevens v Keogh (1946) 72 CLR 1 at 28.

[85] Both the Federal Government and the Government of New South Wales have in recent years publicly encouraged disputants to consider dispute resolution procedures other than judicial and arbitral proceedings, as reflected in the 1993 report of the Standing Committee on Legal and Constitutional Affairs, “The Cost of Justice: Foundations of Reform”. By advocating such alternatives, those governments seek to reduce court delays and expense to disputants of dispute resolution. Indeed, as Robert Hunt notes in “The Law Relating to Expert Determination” (2002) 18 BCL 2, “[t]he increasing cost of litigation and arbitration up to the late 1980s has led to a significant increase in the use of ADR” (at 2).

[86] More specifically, the increasing use of Expert Determination in lieu of arbitration or litigation in commercial disputes confirms, as Hunt suggests, “that the users of dispute resolution services have created a demand for an additional adjudicative process called expert determination as an alternative to litigation or arbitration” (at 14). Principally, as Hunt continues, “[p]roponents of these processes saw them as offering the prospect of less formal processes (often with no lawyers involved) with substantial savings in time and legal costs” (at 2). Indeed, on a practical level, Expert Determination has apparently been attractive, largely because it is less expensive and speedier, avoids the rigours of the application of the rules of evidence and procedure and offers a finality which avoids delays, potential re-hearings and appeals, which is particularly suitable especially where an expert knowledge of the subject is required or where the parties may have a continuing relationship.

Order

[87] Short minutes are to be brought in. Costs may then be argued.
Counsel for the plaintiffs: Mr S Finch SC
Solicitors for the plaintiffs: Clayton Utz
Counsel for the defendant: Mr R J Webb
Solicitors for the defendant: Russell & Company and Coudert Bros