Foote and Anor v Barton Property Partnership No 2 [2015] ACTCA 53

Parties: Andrew John Foote (First Appellant) Canberra Urodynamics Pty Ltd as trustee for the Foote Superannuation Fund (Second Appellant) Barton Property Partnership No 2 (Respondent)

Representation: Counsel Mr P Greenwood SC with Mr M Orlov (Appellants) Mr C Erskine SC (Respondent)

Solicitors Mills Oakley Lawyers (Appellants) Kamy Saeedi Lawyers (Respondent)

File Number: ACTCA 2 of 2015

Decision under appeal: Court: Supreme Court of the ACT Before: Mossop M Date of Decision: 18 December 2014 Case Title: Foote & Anor v Barton Property Partnership No 2; Foote v Barton Property Partnership No 2 Citation: [2014] ACTSC 330

THE COURT:

Introduction

1. Dr Foote and the trustee of Dr Foote’s superannuation fund (the appellants) and the Barton Property Partnership No 2 (BPP2, the respondent) were parties to a deed of partnership (the BPP2 Deed). Dr Foote and the members of BPP2 were also members of other, related partnerships that were governed by partnership deeds that were similar to the BPP2 Deed. The BPP2 Deed and the other deeds provided that partnership disputes were to be decided by the final and binding determination of an expert or, in some classes of case, a legal expert.

2. Dr Foote retired from BPP2 and the other partnerships. There were discussions concerning the distribution of partnership assets and liabilities, including the assets of BPP2. A legal expert purported to determine disputes concerning the distribution, including a dispute about a property known as Unit 88, which was an asset of BBP2. Dr Foote occupied Unit 88 under a lease.

3. The primary judge found that the legal expert had not been appointed properly and that, as a result, the legal expert’s determination was not final and binding under the BPP2 Deed. His Honour found that BPP2’s participation in the legal expert determination process amounted neither to an election to abandon its entitlement to challenge the legal expert’s appointment nor an agreement to be bound by the determination: Foote & Anor v Barton Property Partnership No 2; Foote v Barton Property Partnership No 2 [2014] ACTSC 330.

4. On the appeal, the appellants asserted that, by participating in the legal expert determination and engaging in related conduct, BPP2 had “elected not to rely on its earlier stated objections to the validity of [the legal expert’s] appointment for the purpose of contesting the binding nature of any determination”, or had agreed by its conduct to be bound by the determination.

Facts

5. Dr Foote was a medical specialist. He was a member of BPP2, and three related partnerships (BPP1, CDSC and BGP). There was conflict between Dr Foote and his partners. On 18 September 2013, Dr Foote gave notice of retirement from the partnerships.

6. On 15 October 2013, there was a meeting of the partnerships in relation to distribution of the partnerships’ assets and liabilities. The meeting discussed the sale of Unit 88 to Dr Foote’s superannuation fund in consideration of the payment of a cash sum, the relinquishing of participation units that were held by Dr Foote under the BPP2 Deed, and on the further basis that Dr Foote would assume responsibility for “the Medfin loans”, which related to the CDSC partnership. The minutes record that the CDSC partners opposed the proposal to sell Unit 88 but the BPP2 partners supported it. Because the CDSC partners objected, “the unit 88 deal was not acceptable”.

7. After the meeting, Dr Foote concluded that he was in dispute with the partnerships about the sale of Unit 88 and other matters.

8. As noted above, the partnership deeds were in similar terms. Clause 12 of the BPP2 Deed prescribed a dispute resolution process:

(a) Either party could give to the other a notice of dispute: clause 12.2(a).

(b) The parties were required to “endeavour to resolve the dispute...promptly and in good faith”: clause 12.2(b).

(c) If the dispute was not settled within 10 working days of service of the notice of dispute, then either party could give a written confirmatory notice of dispute, and the dispute would be determined by an expert who was agreed upon and appointed jointly by the parties: clause 12.2(c).

(d) If the parties were unable to agree upon an expert within five working days of the confirmatory notice, then either party could apply to the President (or their nominee) of the Australian Medical Association (ACT Branch) (AMA ACT) to nominate an expert to be appointed jointly by the parties: clause 12.3.

(e) The expert was to act as an expert and not as an arbitrator, and the expert’s decision was to be final and binding on the parties: clause 12.4.

(f) If the dispute involved “the legal interpretation” of the BPP2 Deed (or if the parties were “unable to agree upon whether the dispute [involved] legal interpretation of [the] Deed”), then either party could apply to the President (or the President’s nominee) of the ACT Law Society to nominate an independent Queen’s Counsel or Senior Counsel who had been practising at the ACT Bar for more than 10 years to act as the expert to resolve the dispute or determine whether the dispute involved the legal interpretation of the Deed: clause 12.8.

9. On 11 November 2013, Dr Foote issued a notice of dispute. In relation to BPP2, the notice asserted that, at the partnership meeting on 15 October 2013, BPP2 had entered into a binding agreement to sell Unit 88 to his superannuation fund.

10. On 20 December 2013, Dr Foote issued a confirmatory notice of dispute and nominated a senior counsel associated with The Dispute Group to act as an expert.

11. BPP2 did not respond.

12. On 25 February 2014, Dr Foote contacted Dr Gallagher, who was both a partner in BPP2 and the Acting President of the AMA ACT. When she declined to nominate an expert because of the conflict of interest, Dr Foote stated:

The next step would be to nominate the ACT Law Society president, are you ok if I do that? Dr Gallagher agreed to that proposal.

13. Dr Foote contacted the President of the ACT Law Society by email, attaching a copy of the BPP2 Deed. The email stated that members of the partnership were resisting the appointment of Dr Foote’s preferred expert and noted Dr Gallagher’s conflict of interest.

14. In his response, the President of the ACT Law Society referred only to clause 12.8 of the BPP2 Deed. The President understood that his role was confined to nominating a legal expert under clause 12.8. He indicated that he was in a position to nominate an appropriate senior counsel, and he stated:

There is no scope for me to nominate a person who does not fall within the category outlined in clause 12.8.

15. The President’s understanding of his role was confirmed by Dr Foote when he replied to the President’s email by saying:

I am confirming that I, as a party, make an application to you as the current President of the Law Society, to nominate a senior counsel who has been in practice at the ACT Bar for more than10 years (as required in the BPP2 Partnership Deed 12.8).

16. The President nominated a legal expert who met the requirements of clause 12.8.

17. On 6 March 2014 the legal expert contacted Dr Foote, fixed 5 April 2014 as the date upon which the dispute would be heard, and proposed a strict timetable for the submission of documents and written statements of evidence. The legal expert asked Dr Foote to advise the other parties of his direction. On 8 March 2014, Dr Foote notified the partnerships.

18. Through Dr Tonks, on 18 March 2014 the partnerships wrote to Dr Foote. The partnerships asked Dr Foote to specify the exact nature of the dispute. The partnerships advised Dr Foote that they had legal advice that they were not obliged to sell Unit 88 on the terms discussed at the 15 October 2013 meeting.

19. On 24 March 2014, Dr Foote served documents on the partnerships in preparation for the hearing.

20. On behalf of the partnerships, on 25 March 2014, Dr Porter wrote to the legal expert saying that he did not agree to the appointment and would not be participating in the hearing. On the same day, the legal expert reaffirmed that he was empowered to make the determination.

21. On 27 March 2014, the solicitor for the partnerships wrote to Dr Foote, and sent a copy of the letter to the legal expert. The solicitor noted that Dr Foote was attempting to facilitate a legal expert determination in accordance with clause 12.8 of the BPP2 Deed and the equivalent provisions in the other partnership deeds. The solicitor contended that there was no apparent dispute, that no legal interpretation of the deeds was required and that there had been no attempt to select an expert pursuant to clause 12.3. The letter continued:

As a minimum, the appointment of the expert determination should be adjourned until the above-mentioned issues are resolved so that it can properly proceed. Technically, it appears that it should not have been facilitated at all and that you should be liable for the cost of this improper appointment. The letter made other assertions, concluding:

...it is our opinion that the expert determination has not been properly facilitated and will not be effective... As there is no dispute identified we cannot provide the submissions in response and the hearing should not proceed. Kindly confirm as a matter of urgency that you will consent to the expert conference being adjourned to a later date to be fixed. We invite you to properly set out the legal question or questions that you require [the expert] to answer, in the event that you maintain that an expert determination should proceed in accordance with clause 12.8.

22. The legal expert responded, stating that “[t]here is a clear legal dispute involving the interpretation of Deeds and other documents”. He asserted that the partnerships had “no proper basis for asserting that I have not been properly appointed”. He declined to adjourn the hearing.

23. On 29 March 2014 at 12.09AM, the partnerships made brief outline submissions to the legal expert on the matters raised in the notice of dispute. The submissions did not expressly challenge the dispute resolution process or the appointment of the legal expert.

24. On 1 April 2014, the solicitor for the partnerships wrote to Dr Foote and sent a copy of the correspondence to the legal expert. The contents of the letter were very similar to those of the letter of 27 March 2014. The partnerships contested the existence of any dispute, contended that no legal interpretation was required, asserted that “the expert determination has not been properly facilitated and will not be effective”, sought an adjournment of the expert conference and invited Dr Foote to set out the legal question/s that the legal expert was required to answer under clause 12.8.

25. On 2 April 2014, the partnerships’ solicitor wrote to the legal expert, saying:

...[The partnerships] dispute that you have been properly appointed in accordance with the partnership deeds. They maintain that they have not been provided with proper notice of a dispute to enliven your appointment, that there is not a legal dispute requiring your expert opinion, that the pre-requisites under the deeds have not been fulfilled, that the partners have not been provided with notice of your directions and that there is not sufficient compliance with your directions to allow the proposed conference to proceed as scheduled. The remaining partners are further prejudiced by the fact that they will not have the benefit of legal representation on 5 April as I am not available and you seem unwilling to move the date. The remaining partners will reserve their right to dispute the appointment and whether they should be required to meet any resulting fees. Despite this, the remaining partners and the CEO of the partnerships have been scrambling to put together the information in the short time available. (Emphasis added) The letter went on to identify four disputes (including that concerning Unit 88), briefly address each dispute and state that further documents would be provided.

26. On 4 April 2014, the partnerships delivered two volumes of documents and submissions to the legal expert. The volumes were headed “Without Prejudice and confidential for the purpose of the CDSC, BPP1, BPP2, BGP Dispute Resolution to be held on 5 April 2014”. The submissions contained no contention that the legal expert was not properly appointed or that the disputes should not proceed. In relation to Unit 88, the submission said:

The partners believed there was no dispute. Dr Foote has been asked on numerous occasions to show evidence of his dispute without any success. ... There has never been an agreement reached for the sale of unit 88. There has never been an agreement in writing to the conveyance of the unit which would be required to make this binding on the partnerships.

27. The hearing proceeded on 5 April 2014. Dr Foote was present. The CEO of the partnerships and four medical practitioners who were members of the partnerships were present. The legal expert advised that he would deal with each of the four contentious areas in turn, allowing those present to identify relevant documents and make oral submissions about each issue. There is no evidence that, at the hearing, the partnerships’ representatives expressly re-agitated their objection to the appointment of the legal expert, or expressly sought to reserve any rights.

28. In relation to one of four contentious areas (Dr Foote’s claim for the repayment of monies said to be owed by CDSC), it was agreed that the legal expert would suggest a timetable for resolution by the exchange of further documentation, and in his determination of 11 April 2014 the legal expert did so. The legal expert also requested that BPP2 convene a meeting for the purpose of endeavouring to agree about the sale of Unit 88 to Dr Foote.

29. On 8 April 2014, the partnerships met. Dr Tonks reported on the hearing of 5 April 2014. The meeting discussed whether Unit 88 should be sold to Dr Foote. The minutes recorded that:

The BPP2 partners held a vote if they were willing to sell unit 88 to Dr Foote. The vote result was 33 against selling to Dr Foote and 16 for. The vote was in favour of no sale with 49 shares as the denominator. [Dr Tonks] will take this vote back to [the legal expert] and wait for the decision.

30. On 11 April 2014 the legal expert delivered his determination. He noted that he had been nominated under clause 12.8. He found that the dispute involved the legal interpretation of deeds, but he did not identify any dispute concerning the legal interpretation of the BPP2 Deed. In relation to Unit 88, the legal expert found that:

The legal issue raised crucially involves the interpretation of the Minutes of the meeting held on 15 October 2013. ... It is my decision that there is a legal issue arising out of the documentation referred to me and that there was a clear agreement as recorded in the Minutes for the sale of Unit 88 to Dr Foote’s superannuation fund for $2,442,855.58...

31. On 11 April 2014, Dr Tonks wrote to the legal expert stating that the determination contained a number of factual errors and offering “to assist in the production of an amended report”. The legal expert declined the offer, stating that he would not be entering into further correspondence.

32. On 16 April 2014, the partnerships’ solicitor wrote to Dr Foote, referring to the legal expert’s determination of the BPP2/Unit 88 dispute and other matters. In part, the letter stated:

Whilst [the expert’s] determination is correct, that there was a vote passed by BPP2 to sell unit 88, this did not result in an agreement involving you, BPP2 and CDSC. There has not been any agreement reached at any time. The partners of BPP2 do not wish to enter such agreement as shown by the vote on the 8 April 2014.

33. On 1 May 2014, the partnerships’ solicitor wrote to Dr Foote about several issues. In relation to Unit 88, the letter stated:

[The legal expert] determined that there was a vote that was validly passed by BPP2, that it would be part of an agreement to facilitate the sale of unit 88, on terms that included the participation of CDSC. Whilst that was passed by BPP2, CDSC’s involvement was required, and the vote of that partnership was that it was not willing to be a party to that agreement. A majority of the votes was also not obtained considering the combined votes of BPP2 and CDSC at the time. There was no agreement reached through subsequent discussions despite the attempts of the different partnerships.

34. On 9 May 2014, BPP2 gave Dr Foote notice terminating his lease of Unit 88 for non-payment of rent. Dr Foote contested the termination in the Magistrates Court.

35. On 15 May 2014, the partnerships’ solicitor wrote to Dr Foote complaining about a lack of response to its correspondence of 16 April 2014, 1 May 2014 and 9 May 2014, and about his failure to provide information in accordance with the legal expert’s determination.

36. On 4 June 2014, the legal expert wrote to the partnerships in relation to payment of his fees, noting that he had prepared a writ for recovery of the fees, including interest and legal costs, and seeking details for the service of proceedings. The partnerships responded, agreeing to pay the fees claim in full.

37. On 14 August 2014, the appellants filed the originating application in the Supreme Court, claiming declarations (including a declaration that BPP2 was bound by the determination of the legal expert) and specific performance of the agreement to sell Unit 88. The Magistrates Court tenancy dispute was transferred into the Supreme Court. The parties agreed that the outcome of the Magistrates Court tenancy dispute would be governed by the outcome of the Supreme Court proceedings.

38. On 23 October 2014, the primary judge heard the originating application. On 18 December 2014, his Honour dismissed the application and confirmed the termination of Dr Foote’s lease of Unit 88.

Appointment of the expert

39. At [67] of his reasons for judgment, the primary judge summarised the principles applicable to the enforcement of expert determinations in the following way:

...the critical question is whether the determination by [the expert] was a determination that was in accordance with the contract. If it is not such a determination then it is not binding. If it is not binding then inevitably the plaintiff’s claim for a declaration must fail.

40. The primary judge found that the appointment of the expert was not made in accordance with clause 12.3 of the BPP2 Deed; the President of the ACT Law Society was not acting as Dr Gallagher’s nominee, pursuant to clause 12.3, when he nominated the legal expert and the legal expert proceeded on the basis that he was acting under clause 12.8: at [72] – [82].

41. On the appeal, it was accepted that the appointment of the legal expert had not accorded with the BPP2 Deed and that, prima facie, the legal expert’s determination did not bind the parties. It is well established that, if an expert has not been properly appointed under a commercial agreement, then the expert’s determination is not enforceable under the agreement: see, for example, Hardesty & Hanover International LLC & Ors v Abigroup Contractors Pty Ltd [2010] SASC 44.

Application to amend notice of appeal

42. By an application filed on 5 August 2015, the appellants applied to amend the Notice of Appeal by abandoning the claim for specific performance and substituting claims that:

(a) The continuing failure of BPP2 to sell Unit 88 constituted a repudiation of the agreement for sale and entitled Dr Foote to validly terminate the agreement, and Dr Foote had done so.

(b) The matter be remitted to the Associate Judge to assess the damages resulting from the repudiation.

43. Dr Foote submitted that, notwithstanding his election to affirm the asserted agreement of 15 October 2013 by pursuing specific performance of the agreement, there had been a continuing breach by BPP2 amounting to repudiation, giving him a present right to elect to accept the repudiation and terminate the agreement, as discussed in Ciavarella v Balmer (1983) 153 CLR 438 (Ciavarella) and Galafassi v Kelly [2014] NSWCA 190.

44. For the following reasons, the application is refused.

45. First, even if the claim that BPP2 agreed in October 2013 to sell Unit 88 is correct, any claim that, after August 2014 (when proceedings were commenced for specific performance) BPP2 continued to renounce its contractual obligations is of doubtful merit. Since the primary judge’s decision was given in December 2014, BPP2 has been entitled to rely upon that decision as the basis for refusing to transfer Unit 88. Consequently, BPP2’s ongoing failure to transfer Unit 88 does not clearly evince a continuing intention to flout the asserted contractual obligation to sell the property.

46. Second, the proposed change from an application for specific performance to a claim for damages for repudiation would raise new matters of substance. Generally, a party is limited to the issues raised below and may not amend or add issues of substance on appeal: B & T Constructions (ACT) Pty Ltd v Construction Occupations Registrar and Anor [2015] ACTCA 7 at [61]. Had the issue of damages been raised below, the primary judge could have assessed damages at that stage.

47. Third, Dr Foote gave no explanation for the lateness of the application, which was made only eight days before the date fixed for the hearing of the appeal.

48. Finally, remittal of the matter to the primary judge for the assessment of damages would unjustifiably delay the resolution of the proceedings: Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 at [27] – [30]. The appellants’ submissions about election

49. The appellants contended that the primary judge erred in failing to find that, when BPP2 participated in the 5 April 2014 hearing, it elected to be bound by the determination.

50. The primary judge said at [84] – [85]:

The fact that [BPP2] supplied documents and submissions to [the expert] did not, in my view, amount to an election not to rely upon any entitlement to contest the binding nature of any determination. [BPP2] maintained in its solicitor’s letter of 27 March 2014, which [the expert] treated as a submission, that the determination should not be made because the expert had not been properly appointed. Thus, even within the hearing process the validity of its constitution remained a live issue and was not abandoned. While, a point at which an election might have arisen at some later time it did not arise at the point of participation in the hearing before [the expert]. In those circumstances it is not possible to find that the determination is binding notwithstanding that it was a power exercised outside the contractual process available under the BPP2 Deed.

51. Dr Foote asserted that, as the date of 5 April 2014 approached, BPP2 was confronted by a “stark choice” between mutually inconsistent legal rights; the choice between objecting to the legal expert’s authority and submitting to it. Dr Foote contended that, by the time of the hearing on 5 April 2014, BPP2 had elected to abandon its right to challenge the authority of the legal expert’s appointment. As the legal expert obtained his authority only from the parties (not independently, as in the case of a court), BBP2 could not, on the one hand, authorise the legal expert to proceed to a final and binding determination, but on the other hand, refuse to be bound by that determination.

52. In support of this submission, Dr Foote relied upon the conduct of the partnerships in the period immediately before 5 April 2014, at the hearing on 5 April 2014, and in the period following the hearing.

53. In relation to the period immediately before 5 April 2014, Dr Foote submitted that, although BPP2 was alive to the arguments that the appointment was not proper and the disputes did not involve a legal interpretation of the deeds, BPP2 sought no injunction to prevent the hearing. Dr Foote submitted that the partnerships’ communications of 29 March 2014 (which addressed the facts of each dispute) and 4 April 2014 (which provided submissions and documents to the legal expert without expressly objecting to his appointment) established that, by late March 2014, BPP2 had changed its approach; it no longer wished to challenge the legal expert’s appointment and had decided instead that it would endeavour to persuade the legal expert to find in its favour.

54. In relation to BPP2’s participation in the hearing on 5 April 2014, Dr Foote submitted that the partnerships must have attended the hearing for the purpose of persuading the legal expert that he should determine the disputes in their favour, on a final basis. If, on 5 April 2014, the partnerships had intended to maintain their objections, then they should have said so.

55. Dr Foote said that, after the hearing, the partnerships accepted the authority of the legal expert and the validity of his determination. At the hearing, BPP2 had agreed to a direction that there be a further partnership meeting for the purpose of trying to agree on the sale of Unit 88 to Dr Foote. After the hearing, BPP2 adhered to that direction by holding a meeting on 8 April 2014. At the meeting, there was no agreement about the sale of Unit 88, and BPP2 indicated that it was content to await the legal expert’s decision rather than commence proceedings to challenge it. Further, at the hearing on 5 April 2014 the legal expert indicated that he would direct a timetable for resolution of the dispute between Dr Foote and CDSC. He did so on 11 April 2014 when he delivered his determination. On 4 June 2014, the partnerships agreed to pay the legal expert’s fees.

Election and Waiver

56. The common law doctrine of election is often confused with the doctrines of waiver and estoppel: see Agricultural and Rural Finance Pty Limited v Gardiner (2008) 238 CLR 570 (Agricultural and Rural) at [51] – [60] per Gummow, Hayne and Kiefel JJ.

57. The appellants expressly disavowed reliance on estoppel.

58. Election is concerned with choosing between inconsistent rights. Waiver involves the unilateral abandonment or renunciation of a right. Estoppel prevents the unjust departure by one party from an assumption adopted by the other party as the basis for an act or omission which, unless the assumption is adhered to, would operate to that other’s detriment: Thompson v Palmer (1933) 49 CLR 507 at 547 per Dixon J. In Commonwealth v Verwayen (1990) 170 CLR 394 at 423, Brennan J explained:

These distinct doctrines serve different purposes: election (in either species) ensures that there is no inconsistency in the enforcement of a person’s rights; estoppel or equitable estoppel ensures that the party who acts in reliance on what another has represented or promised suffers no unjust detriment thereby; waiver recognises the unilateral divestiture of certain rights.

59. On the appeal, the appellants expressed reliance upon the doctrine of election, but at times they also referred to waiver, using the terms interchangeably. For example, at [26] of their written submissions, the appellants submitted that the conduct of the BPP2 partners indicated that they had “decided ...to abandon reliance” on their earlier objections to the authority of the legal expert. Similarly, at [13], [17] and [18] of its written submissions, BPP2 referred to “waiver” when discussing election.

60. In Sargent v ASL Developments Ltd (1974) 131 CLR 634 (Sargent) at 641, Stephen J said:

The [doctrine of common law election] only applies if the rights are inconsistent the one with the other and it is this concurrent existence of inconsistent sets of rights which explains the doctrine; because they are inconsistent neither one may be enjoyed without the extinction of the other and that extinction confers upon the elector the benefit of enjoying the other, a benefit denied to him so long as both remained in existence.

61. And in Sargent at 655, Mason J observed:

A person is said to have a right of election when events occur which enable him to exercise alternative and inconsistent rights, i.e. when he has the right to determine an estate or terminate a contract for breach of covenant or contract and the alternative right to insist on the continuation of the estate or the performance of the contract.

62. To be binding, an election must be unequivocal. Election will be inferred from conduct “which is consistent only with” the asserted legal right: Carr v JA Berriman Pty Ltd (1953) 89 CLR 327 at 349. In Sargent at 646 Stephen J stated:

The words or conduct ordinarily required to constitute an election must be unequivocal in the sense that it is consistent only with the exercise of one of the two sets of rights and inconsistent with the exercise of the other...

63. In Immer (No 145) v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 39, Deane, Toohey, Gaudron and McHugh JJ said:

The consequences of election may well be serious to the party electing; in particular, election involves the abandoning of a right that is available. A party can only be held to have elected “if he has so communicated his election to the other party in clear and unequivocal terms”. (Citation omitted)

64. When a party is confronted with inconsistent rights, the party is not bound to make an election immediately. In Tropical Traders Ltd v Goonan (1964) 111 CLR 41 at 55, Kitto J said:

Any act done by [the appellant] and consistent only with the continuance of the contract on foot the law would hold to constitute an election against rescinding; and an election once made could not be retracted. But the appellant was not bound to elect at once. It might keep the question open, so long as it did nothing to affirm the contract and so long as the respondent’s position was not prejudiced in consequence of the delay. (Citations omitted) This approach was endorsed by Mason J in Sargent at 656.

65. In Agricultural and Rural the High Court decided that neither election nor waiver applied to the circumstances in that case. An indemnity agreement was expressed to be conditional on the borrower punctually paying amounts due under a related loan agreement. The borrower made late loan repayments, which the lender accepted without enforcing a term of the loan agreement that accelerated the obligation to pay the whole of the debt if payments were not punctually paid. It was critical to the decision that it was the loan contract rights that were affected by acceptance of the late payment, not the rights under the indemnity contract. The Court held that, as the indemnifier had made no election between competing rights to which it was entitled, and there had been no forbearance by the indemnifier from exercising its rights and no waiver by the indemnifier of a right (in the sense of an abandonment of a right), the indemnity agreement was unaffected by the acceptance of late payment under the loan agreement.

66. A decision to pursue a particular remedy may constitute an election. However, in Ciavarella at 448, the Court emphasised that a decision to pursue a litigious remedy is not a relevant election unless, in the circumstances, it constitutes the choice of one right over another, inconsistent right:

Election between inconsistent rights differs from election between inconsistent remedies. The distinction and its consequences are fundamental...the doctrine of election is directed to the making of a choice between alternative and inconsistent rights. A party is not called upon to elect between inconsistent remedies in litigation until a point is reached when the remedies are pursued to judgment. Then the plaintiff must elect because the judgment to be pronounced will give effect to one right rather than the other. (Citation omitted)

67. On the appeal, BPP2 drew an analogy between the subject case and cases where a litigant participates in proceedings following an unsuccessful recusal application.

68. However, an election between remedies does not usually involve an election between rights in the relevant sense. An election between remedies is more likely to raise a question of waiver, and most of the recusal cases are better characterised as invoking waiver rather than election. In such cases, provided that a litigant makes the objection that the decision-maker is biased, the litigant is not obliged to commence pre-emptive injunctive proceedings, and may decide to participate in the decision-making process for pragmatic reasons without prejudicing a later challenge: see, for example, Vakauta v Kelly (1989) 167 CLR 568 (Vakauta). In Bilgin v Minister for Immigration and Multicultural Affairs (1997) 149 ALR 281 (Bilgin) at 294 Finkelstein J observed:

Once an objection is taken, a party's right to complain will not be waived for the reason that the party continues to participate in the case. ...To suggest that it is a requirement that a party should refuse to participate in a case or apply for a writ of prohibition or an interlocutory injunction or take some other legal proceeding against the Tribunal in order to avoid the defence of waiver is to impose an unreasonable if not intolerable burden. (Citations omitted)

69. The approach taken in Vakauta and Bilgin was applied in Hutchinson v Roads and Traffic Authority & Anor [2000] NSWCA 332 by Powell JA at [5] and Giles JA at [28] (Meagher JA agreeing). In that case, the Court of Appeal held that continued participation in tribunal proceedings after the decision-maker refused to recuse himself for apprehended bias was not an imputed waiver of the right to object to the decision. More recently, in Michael Wilson & Partners Limited v Nicholls (2011) 244 CLR 427 at [84], the plurality observed that:

Whether failure to seek leave to appeal against refusal of an application that a judge not try the case on account of a reasonable apprehension of bias precluded maintenance of the complaint in an appeal against the final judgment would require consideration of whether the failure to seek that leave was reasonable. That would require examination of all relevant circumstances. Ordinarily those would include the stage the proceedings had reached when the disqualification application was made and refused and the consequences that would follow from leaving appellate determination of the issue of disqualification until after trial.

Consideration of the Submissions on Election and Waiver

70. This is not a case of inconsistent rights requiring an election. Nor is it a case of waiver in the sense of unilateral abandonment or renunciation of a right.

71. In order to establish that BPP2 elected to be bound by the legal expert’s determination, the appellants would first need to identify the inconsistent rights between which BPP2 was required to choose. Second, the appellants would need to show that, by its conduct, BPP2 unequivocally elected to assert one of those rights and forgo the other.

72. The appellants’ submission fails at both stages.

73. First, there were no inconsistent rights. The circumstances did not create one legal right, let alone two competing and incompatible legal rights that required a choice to be made. Whether the legal expert was properly authorised to make a binding decision and whether that decision was final and binding on BPP2 was an objective legal matter. If the legal expert was properly authorised under the BPP2 Deed, then BPP2 had no choice; it was bound by the determination. If the legal expert was not properly authorised, then the determination was not final and binding and, prima facie, BPP2 was not bound by it. As is now conceded, the legal expert was not properly authorised to make a determination. Consequently, under the BPP2 Deed, no rights or obligations attached to the determination process or the determination itself.

74. Second, BPP2 did not unequivocally elect to treat the legal expert’s determination as final and binding.

75. In order to appreciate the significance of BPP2’s participation in the legal expert determination process and its related conduct, it is necessary to consider the context in which the relevant conduct occurred.

76. Prior to the hearing of 5 April 2014, BPP2 objected to the legal expert’s appointment and sought further information for the purpose of deciding whether there was a relevant dispute that enlivened clause 12.8 of the BPP2 Deed. Despite repeated requests that he do so, Dr Foote did not articulate a legal dispute under the BPP2 Deed. BPP2 wanted to understand the precise dispute; it wanted to consider whether any dispute was a clause 12.3 dispute (that required an expert to be appointed by the President of the AMA ACT) or a clause 12.8 dispute (that required a legal expert to be appointed by the President of the ACT Law Society). BPP2 had legal advice that the determination process was unauthorised and could be challenged. But BPP2 could not be certain that the process was unauthorised; the legal expert maintained that it was authorised. There was little time to reflect on the matter and BPP2 did not have all the material that it required to reach a view about whether the process was authorised by the BPP2 Deed. The legal expert made it clear that he would proceed despite BPP2’s objections.

77. In those circumstances, BPP2 decided to participate in the determination process in order to protect itself from the possibility that (contrary to the legal advice that it had received) the legal expert was properly authorised. If he was properly authorised, then BPP2 wanted to take advantage of the opportunity to put its case before it became bound by the legal expert’s determination. The legal expert had forced on the hearing at short notice, and BPP2 focused its resources on the hearing, knowing that, if it did not participate, it would forgo an opportunity to prevent an adverse outcome. In those circumstances, BPP2’s decision to engage in the determination process under protest was reasonable.

78. From the outset, BPP2 made its position clear, both to the legal expert and to Dr Foote. In its correspondence with the legal expert on 25 March 2014, 27 March 2014, 1 April 2014 and 2 April 2014, BPP2 contended that the legal expert had not been properly appointed, that there was no relevant legal dispute and that the partnerships were being unfairly pressured to meet an unreasonable timetable. In the letter of 2 April 2014, the partnerships’ solicitor said:

The remaining partners will reserve their right to dispute the appointment and whether they should be required to meet any resulting fees. Despite this, the remaining partners and the CEO of the partnerships have been scrambling to put together the information in the short time available.

79. BPP2’s subsequent conduct was not an admission that, by participating in the hearing on 5 April 2014, it had elected to be bound by the outcome. Rather, the subsequent conduct evidenced pragmatic attempts to resolve differences between BPP2 and the appellants. BPP2’s decision to pay the legal expert’s fees was not an admission that it had previously elected to be bound by the legal expert’s determination. It too was a pragmatic decision; it was made in the face of the legal expert’s threat to sue for his fees.

80. For the same reasons, BPP2’s reasonable decision that it would participate in the dispute resolution process under protest, did not evidence a waiver of any right to later challenge the process. As already discussed, BPP2 had repeatedly objected to the authority of the legal expert. The hearing was fixed at short notice and it was reasonable for BPP2 to take the pragmatic decision that it would participate in the process in case it transpired that the legal expert was authorised to make a final and binding decision.

Was there an agreement by conduct?

81. Because it was not authorised under the BPP2 Deed or the other partnership deeds, the legal expert’s determination could become final and binding only by agreement between the parties. Neither by its participation in the hearing process nor by its subsequent conduct was BPP2 capable of conferring authority on the legal expert or validity on his determination, unless BBP2’s conduct evidenced a separate agreement to be bound by the legal expert’s determination.

82. The primary judge found that the conduct of the parties did not give rise to a separate agreement to depart from the requirements of the dispute resolution clause in the BPP2 Deed. At [83], the primary judge said:

While there could be circumstances where, by a separate agreement, parties agree to the appointment of an expert to resolve their disputes and agree to the consequences of that appointment, in this case I am not satisfied that there was any separate agreement that would permit a departure from the requirements of the BPP2 Deed. The letter from [BPP2’s] solicitor dated 27 March 2014, the letter from [BPP2’s] solicitor to Dr Foote on 1 April 2014 and the email from [BPP2’s] solicitor to [the expert] dated 2 April 2014 each make it clear that the capacity to make a binding determination of the notified dispute relating to unit 88 was contested and is inconsistent with there being an agreement to be bound notwithstanding the terms of the BPP2 Deed.

83. On the appeal, the appellants submitted that the primary judge asked the wrong question when he asked whether the evidence established an agreement to be bound “notwithstanding the terms of the BPP2 Deed”. The appellants submitted that the focus should have been on BPP2’s conduct at the hearing of the determination on 5 April 2014, rather than on the correspondence that preceded the determination. The appellants submitted that the agreement to be bound by the determination was reached on 5 April 2014, when BPP2 chose to participate in the hearing, and the agreement was evidenced by subsequent conduct.

84. We reject the appellants’ submissions.

85. First, BPP2’s conduct on 5 April 2014 was incapable of establishing an agreement with certain terms that was clearly intended to displace the agreed process of dispute resolution contained in the BPP2 Deed. The appellants failed to explain how BPP2’s conduct on 5 April 2014 could constitute an agreement of any sort. What were the terms of the offer that were allegedly accepted by the partnerships’ conduct on that day? In particular, what did the asserted agreement have to say about what would occur if a party disagreed with the legal expert’s determination?

86. Second, the conduct of the partnerships on 5 April 2014 must be understood in the context of what occurred before that date. The partnerships (including BPP2) had consistently asserted that the legal expert was not properly appointed and lacked authority to make a final and binding determination. On 2 April 2014 they indicated that they would participate in the process, but only under protest. In their letter of 2 April 2014, the partnerships repeated earlier assertions that the legal expert had not been properly appointed and that no relevant legal dispute had been identified that would support the appointment of a legal expert. They also submitted that the hearing date had been fixed with undue haste. Nevertheless, as the legal expert did not accept their legal contentions and was not prepared to afford them more time, they would address the situation as best they could, “scrambling to put together” relevant material.

87. Finally, the subsequent conduct of the partnerships did not evidence that, on 5 April 2014, the partnerships had reached an agreement. The subsequent attempt to negotiate a settlement in relation to Unit 88 does not evidence an agreement that, if the negotiation failed, BPP2 would accept the determination of the legal expert. The decision to pay the legal expert’s fees was a pragmatic decision made in the face of a threat to sue.

88. The primary judge did ask the correct question. It would be necessary for any agreement by conduct to unambiguously displace clause 12 of the BPP2 Deed, by which the parties had contracted to adhere to a particular dispute resolution process.

Orders

89. The appeal is dismissed.

90. The appellants pay the respondent’s costs of the appeal.

I certify that the preceding ninety [90] numbered paragraphs are a true copy of the Reasons for Judgment of the Court.

Associate:

Date: 30 October 2015