The limits of uncertainty – what is the appropriate focus for the review of dispute resolution clauses by Standards Australia?

"... very frequently, whether it be in wills, settlements or commercial agreements ... the draftsman has used words wrongly, his sentences border on the illiterate and his grammar may be appalling. It is then the duty of the court ... to give a reasonable meaning to the language if it can do so without doing complete violence to it." Lord Upjohn, Wishaw v Stephens [1970] AC 508

In brief - Standards Australia advises that dispute resolution clauses should be reviewed

In WTE Co-generation and Visy Energy Pty Limited v RCR Energy Pty Limited & Anor [2013] VSC 314 (WTE v RCR), the Victorian Supreme Court found that a contractual clause requiring senior executives to meet "to attempt to resolve the dispute or to agree on methods of doing so" amounted to an "agreement to agree", and was unenforceable at law.

The immediate effect of that decision was an alert Australian Standard Conditions of Contract, published by Standards Australia, (quite properly) advising users to seek legal advice before adopting the standard suite of dispute resolution clauses in light of the judgment. The alert foreshadowed an intention on the part of Standards Australia to carry out a review of all dispute resolution clauses used in its suite of contracts.

Our October 2013 article, Dispute resolution clauses in some standard form contracts may be unenforceable, called into question the enforceability of superintendent administered dispute resolution clauses generally. This article focuses instead on the judgment in WTE v RCR and questions whether the case was, in fact, correctly decided.

Interpretation of dispute resolution clauses by courts

For some time, the orthodox approach of courts has been to hold parties to the terms of dispute resolution clauses to which they have agreed and, in doing so, approach the construction of such clauses "liberally and not narrowly".

In this sense, a dispute resolution clause is no different from any other clause in a commercial contract. The usual rules of interpretation apply, including the rules that require a court to:

give the contract a businesslike interpretation, paying attention to the language used by the parties, the commercial circumstances which the document addresses and the objects which it is intended to secure (see McCann v Switzerland Insurance Australia Limited [2000] HCA 65); construe the contract as a whole and give effect to it accordingly (see Chamber Colliery Limited v Twyerould (1893) [1915] 1 Ch 268; Westgate Ports Pty Limited v Port of Melbourne Corporation [2011] VSC 331; and Avranik Pty Limited v Lloyd [2013] VSCA 244); and only hold a clause void for uncertainty as a last resort, where it is not possible to give it a reasonable meaning (see Lord Denning MR in Greater London Council v Connolly [1970] 2 QB 100). Dispute resolution clause in WTE v RCR

The clause that generated the controversy in WTE v RCR states as follows:

Within 7 days after receiving a notice of dispute, the parties shall confer at least in the presence of the Superintendent. In the event the parties have not resolved the dispute then within a further 7 days a senior executive representing each of the parties must meet to attempt to resolve the dispute or to agree on methods...