Lepcanfin Pty Ltd v Lepfin Pty Ltd

Background to dispute

1. The proceedings arise out of a project for the development of land into a home estate in Leppington, NSW. The Applicant was a financier of that project and agreed to lend $10 million for the venture.

The Development Deed

1. On 21 August 2014, the Applicant entered into the Development Deed with each of the eight Respondents, namely, Lepfin Pty Ltd (Lepfin), Lepcon Pty Ltd (Lepcon), Antegra Pty Ltd (Antegra), Mr Domenico Capitani and Ms Josephine Grace Carmel Capitani (the Capitanis), Antegra Management Leppington Pty Ltd (AML), Lepdev Pty Ltd (Lepdev) and Berlyn Holdings Pty Ltd (Berlyn). The Capitanis entered a submitting appearance, other than as to costs, both at first instance and on appeal. They were also not party to the EDA. For convenience, I shall collectively refer in the balance of these reasons to the other parties to the Development Deed, other than the Applicant and the Capitanis, as the Respondents.
2. Clause 3.2 of the Development Deed outlined that the Applicant would provide funding of $10 million to pay out an existing NAB debt, and use reasonable endeavours to procure senior debt funding to enable the completion of the residential estate.
3. Clause 3.3 of the Development Deed provided that Lepcon (described as the Builder/Vendor) would advance to Lepfin (described as the Financier) an interest-free loan of $3.9 million, as follows: "The Builder/Vendor must make an interest free loan to the Financier for working capital in the amount of $3,900,000, such loan to be made: (a) as to $1m within 30 days of Newco providing the funding in clause 3.2(a) above; (b) as to $2m within a further 30 days thereafter; and (c) as to the balance within a further 30 days thereafter".
4. Clauses 8.1 and 8.3(b) of the Development Deed provided that, after the repayment of all monies provided by the Applicant and Lepcon, and to the extent of available funds thereafter and payment not preventing continuation of the residential estate, Lepfin would pay a "Facilitation Fee" to the Applicant. Schedule Two of the Development Deed provided a method of calculating that fee.
5. Clause 12.4 of the Development Deed provided that if Lepcon failed for a period of 30 days to advance the Lepcon Loan, then the Facilitation Fee payable to the Applicant was increased to the extent of the failure and, should the failure continue for 90 days, the Applicant could terminate the Development Deed. Clause 12.4 is relevantly extracted below: "12.4 Default (Clause 3.3) If the Builder/Vendor fails to make any of the payments set out in clause 3.3 within the time periods allowed in clause 3.3 Newco may not immediately terminate this Deed, however if the failure to pay is not remedied within 30 days of the breach of clause 3.3, the parties agree: (a) (i) the Facilitation Fee will be increased by the amount of the shortfall in payment/s; and (ii) Newco may, in its sole discretion, contribute the amount of the shortfall itself such contribution being deemed an Additional Contribution pursuant to clause 3.5; (b) If the failure to make such payments is not remedied within 90 days Newco may elect to terminate this Agreement." (By the first amendment deed (referred to at [19] below), the references to "Newco" in this clause were replaced by "Lepcanfin", and the clause was slightly supplemented in a manner not material to the present dispute).
6. Lepcon did not advance the full amount of the loan required to be made by cl 3.3 of the Development Deed, with $2,756,667.44 still to be advanced. Accordingly, the Applicant claimed that it was entitled to the increased facilitation fee, described as the "Facilitation Fee Top-Up" (the Top-Up).
7. Clause 9 of the Development Deed dealt with dispute resolution and included a mechanism for negotiated resolution and, failing that, the appointment of an expert. Clause 9 has been extracted in its entirety below: "9.1 Parties to avoid disputes Each party agrees to use its best endeavours to resolve any conflicts in good faith in accordance with the terms and intent of this agreement without such conflicts becoming disputes. 9.2 Disputes If any dispute arises out of this agreement neither party may commence any court or arbitration proceedings unless they have complied with the following paragraphs of this clause (except where the party seeks urgent interlocutory relief). 9.3 Negotiated resolution and selection of expert (a) On service of a notice by any party (Dispute Notice), the parties to this agreement must meet at least once and use reasonable endeavours to resolve the Dispute by negotiation within 14 days of service of the Dispute Notice. Any resolution must be recorded in writing and signed by each party. (b) If the Dispute is not resolved, the parties must within the 14 day period use reasonable endeavours to appoint an expert (Expert) by agreement. That appointment must be recorded in writing and signed by each party. The parties agree that an Expert must only be appointed if that Expert agrees to provide its decision within a period no longer than 42 days from the date of his or her appointment. (c) If the parties do not reach agreement on the appointment of an Expert the Expert must be appointed, at the request of any party, by the President for the time being (or if none, the senior elected member) of the professional body of the following organisations according to the type of dispute: an accounting dispute: by the President of the Institute of Chartered Accountants; a legal dispute: by the President of the Law Society of NSW; a construction or design dispute: by the President of the Royal Australian Institute of Architects (NSW Chapter); an engineering dispute: by the President of the Institute of Engineers; a valuation dispute: by the President of the Australian Property Institute; a property dispute: by the President of the Real Estate Institute of NSW. If the parties cannot agree on the nature of the dispute, it shall be referred to The Institute of Arbitrators and Mediators Australia to determine the Expert. 9.4 Referral to Expert If the Dispute is not resolved under clause 9.3, a party may at any time thereafter refer the Dispute for determination by the Expert. 9.5 Assistance to the Expert (a) Once the Expert has been instructed the parties must: (i) each use their best endeavours to make available to the Expert all information the Expert requires to settle or determine the Dispute; and (ii) ensure that their employees, agents or consultants are available to appear at any hearing or enquiry called by the Expert. (b) The parties may give written submissions to the Expert but must provide copies to the other parties at the same time. 9.6 Expert's decision (a) The decision of the Expert must: (i) be in writing and give reasons; and (ii) be made and delivered to the parties within 42 days from the date of appointment of the Expert. (b) The Expert may conduct the determination of the Dispute in any way it considers appropriate but the Expert may, at its discretion, have regard to the Australian Commercial Dispute Centre's guidelines for expert determination of disputes or such other guidelines as it considers appropriate. (c) The Expert's decision is final and binding on the parties. (d) The Expert must act as an expert and not as an arbitrator. 9.7 Expert's Costs (a) The Expert must also determine how the expenses relating to the referral of the Dispute (including the Expert's remuneration) should be apportioned between the parties and in default of a decision by the Expert those expenses must be borne by the parties equally. (b) In determining the apportionment of costs the Expert may have regard to what the Expert, in its reasonable opinion considers to be a lack of good faith or a failure to use reasonable endeavours by any party in assisting the Expert or resolving the dispute between the parties nominated officers as required by this clause".
8. The Development Deed also made provision for various parties to it to enter into guarantees with the form of the guarantees contained in a proforma guarantee which was a schedule to the Development Deed. Clause 3.1(b) of the Development Deed made execution of the guarantees a pre-condition to the Development Deed coming into effect.

Amendment deeds

1. The Applicant and the Respondents entered into two amendment deeds, styled "Amendment and Restatement Deed" dated 18 May 2015 (the first amendment deed) and "Second Amendment and Restatement Deed" dated 8 July 2015 (the second amendment deed).
2. The recitals to the first amendment deed explained the purpose of the amendment as follows: "A The parties entered into the Development Deed on or about September 2014 (Development Deed). B On 27 November 2014, a notice of default under the Development Deed was issued by Lepcanfin Pty Ltd to Lepcon Pty Ltd as trustee of the Leppington MHE Development Trust (Default Notice) as a result of a default in payment by the Builder/Vendor pursuant to clauses 3.3 and 12.4 of the Development Deed. C A second default occurred under clauses 3.3 and 12.4 as the balance of the payment due to be made to Lepcanfin Pty Ltd was not received by 3 December 2014. The aggregate amount of $2,900,000 is still owing to Lepcanfin Pty Ltd under the terms of the Development Deed (Second Default Notice). D Lepcanfin has agreed that they may consider injecting additional funds into the Project on certain conditions up to a maximum amount of $2,900,000 (or any lesser amount as it determines in its sole discretion). E The parties acknowledge that as a result of the defaults above and the Project now being underway it has become apparent that there are amendments required to the Development Deed in order for the Project to efficiently proceed. F Amendments are permitted to the Development Deed pursuant to clause 16.5 and this deed now set out the amendments agreed between the parties to the Development Deed effective from the Effective Date".
3. The first amendment deed included the following acknowledgements, in cll 2(c) and 2(d), namely that: "2 Acknowledgment … (c) Lepcanfin, in its sole discretion, may decide to waive the Existing Defaults if it considers appropriate in order to obtain alternate funding pursuant to the Development Deed. (d) The parties acknowledge and confirm that in calculating the Facilitation Fee there is an additional sum payable under clause 12.4 of the Development Deed. The Facilitation Fee has increased by an amount equal to the shortfall under clause 3.3 of the Development Deed in the amount of $2,900,000 less an amount of the contribution made by the Builder/Vendor between the period of 3 September 2014 until 2 January 2015. This Facilitation Fee is payable in accordance with the Development Deed".

Emergence of a dispute

1. A dispute emerged between the Applicant and the Respondents as to whether, by agreeing to waive the existing defaults under the second amendment deed, the Applicant had also waived its entitlement to receive the Top-Up.
2. On 10 August 2017, Dentons (acting for the Respondents) issued a dispute notice to Colin Biggers & Paisley (CBP), acting for the Applicant, as follows: "…We understand the position you have stated however, disagree with your interpretation of the Agreement. We are instructed by our client that it was always his understanding that the existing defaults were to be waived on the basis that effective control of the project was to be passed to your client. The definition of 'existing defaults' at paragraph (b) does no more than state that, as at the date of the Second Amendment and Restatement Deed the money was owing. Clause 2(c) then makes it clear that 'Lepcanfin waives the Existing Defaults on and from the Effective Date'. Given the Existing Defaults were waived expressly, the point you make in clause 5.5 has no application as the obligation you refer to which had not been observed and constituted an Existing Default was 'expressly waived in this document'. We are instructed to advise that our client does not agree that distributions should include the full facilitation fee of $2.9m being paid to your client and invokes Clause 9 of the Agreement which requires the issue to be the subject of dispute resolution. We are instructed to propose that the $2.9m be taken out of the proposed distributions, paid into a trust account and invested in a controlled moneys account pending resolution of the issue…"
3. On 19 February 2018, Dentons sent an email to CBP which contained a draft email of instruction to the proposed expert, including a suggested description of the dispute in respect of which the expert was to be appointed. Professor Elisabeth Peden, a practising barrister and expert in, inter alia, contract law, was agreed by the parties to be a suitable expert. The draft email to be sent was outlined by Dentons as follows (other than the matters either struck through or added in bold, which were amendments subsequently proposed by CBP and accepted by Dentons): "DRAFT EMAIL TO PROFESSOR PEDEN Dear Professor Peden We act for Antegra Pty Ltd (ACN 080 385 011) (Antegra). We have copied the solicitors for Lepcanfin Pty Ltd (ACN 600 769 720) (Lepcanfin) to this email. We refer to your previous correspondence with our offices regarding the dispute between our respective clients. As you may be aware, the dispute pertains to a Development Deed entered into by the parties (and others) on 21 August 2014 (as amended by an Amendment and Restatement Deed dated 18 May 2015 and a Second Amendment and Restatement Deed dated 8 July 2015) (Development Deed). The Development Deed relates to the development of a Manufactured Home Estate on land situated in Leppington, NSW. Under clause 3.3 of the Development Deed, Antegra was (or is, as the case may be) required to make payments to Lepfin Pty Ltd (ACN 134 397 265) (Financier) in the sum of $3,900,000. Antegra paid $1,143,332.56. Clause 12.4 of the Development Deed provides, inter alia, that a Facilitation Fee payable to Lepcanfin is to be increased by the amount of the shortfall in payments under clause 3.3. The dispute is, in essence, as to whether or not Lepcanfin waived the obligation of Antegra to pay the balance of $2,756,667.44 and Lepcanfin's entitlement to the increase in the Facilitation Fee, pursuant to the terms of the Second Amendment and Restatement Deed. Antegra claims that the obligation and increase in Facilitation Fee was waived, while Lepcanfin claims that it was not. Clause 9 of the Development Deed provides for a dispute resolution process, culminating in the appointment of an independent expert, who is to make a final and binding decision in relation to a dispute. The parties have agreed on your appointment as the independent expert for this dispute. Can you please let us know if you remain available to act as the independent expert in this matter? If so, please provide us with your engagement letter for our review. If you remain available, we propose to appoint you as an expert effective on 23 March 2018 - following which you will have until 4 May 2018 (42 days) to provide your decision. We also propose the following timetable: The parties intend to provide you with a brief of agreed documents by 23 March 2018. At the time of appointment, the parties expect to have reached agreement on how the matter should proceed and we will then correspond with you as to our suggested timetable. The parties also agree to provide you with any further information, as requested. While there is provision in the Development Deed for the independent expert to conduct a hearing or enquiry, the parties presently anticipate that it will be sufficient for you to determine the dispute on the parties. Please let us know if you have any questions or would otherwise like to discuss".

Expert Determination Agreement and its background

1. On 23 February 2018, Dentons sent the email of instruction to Professor Peden in the form agreed between the parties, as outlined at [25] above.
2. On 28 February 2018, Professor Peden provided to the parties' solicitors a draft expert determination agreement for their consideration and their clients' execution. The draft agreement paraphrased in a Schedule what was described as a "brief description of subject matter of dispute". This description was essentially taken from the third paragraph of the email of instruction to Professor Peden, referred to at [25] above. The Schedule was in these terms: "A dispute concerning a Development Deed entered into by the parties (and others) on 21 August 2014 (as amended by an Amendment and Restatement Deed dated 18 May 2015 and a Second Amendment and Restatement Deed dated 8 July 2015) (Development Deed). The Development Deed relates to the development of a Manufactured Home Estate on land situated in Leppington, NSW. Under clause 3.3 of the Development Deed, Antegra was (or is, as the case may be) required to make payments to Lepfin Pty Ltd (ACN 134 397 265) (Financier) in the sum of $3,900,000. Antegra paid $1,143,332.56. Clause 12.4 of the Development Deed provides, inter alia, that a Facilitation Fee payable to Lepcanfin is to be increased by the amount of the shortfall in payments under clause 3.3. The dispute is, in essence, as to whether or not Lepcanfin waived the obligation of Antegra to pay the balance of $2,756,667.44 and Lepcanfin's entitlement to the increase in the Facilitation Fee, pursuant to the terms of the Second Amendment and Restatement Deed. Antegra claims that the obligation and increase in Facilitation Fee was waived, while Lepcanfin claims that it was not".
3. On 12 March 2018, the Respondents served a Points of Claim, styled as "Points of Claim and Document Index for Antegra, Lepcon and Lepfin". Relevantly, para 13 claimed that "[c]lause 12.4(a)(i) was void and unenforceable as a penalty", this being a reference to cl 12.4 of the Development Deed, set out at [15] above.
4. On 9 April 2018, the Applicant served a Points of Defence. At para 13, the Applicant denied the allegation that cl 12.4(a)(i) of the Development Deed was a penalty, as follows: "Lepcanfin denies the allegation made; and further says that (apart from a right of termination under clause 12.4(b), which right was waived) the consequence of a breach of clause 3.3 was merely an agreed increase in the Facilitation Fee to which Lepcanfin was entitled to the extent that available funds permitted the payment of such an increase and that that consequence is incapable of being regarded in equity or otherwise as a penalty".

Submissions to expert

1. In the course of the expert determination process, the Respondents made detailed submissions in relation to the issue of penalty. In response, notwithstanding its denial in its Points of Defence of 9 April that cl 12.4(a)(i) of the Development Deed was a penalty and its positive contention that, "in equity or otherwise", it was incapable of being a penalty (see [33] above), the Applicant contended that only the "dispute as defined" in the EDA should be considered by Professor Peden, and that this did not include the penalty issue.
2. CBP sent an email to Professor Peden on 5 June 2018 on behalf of the Applicant, noting that: "…For the reasons set out in Lepcanfin's submissions, Lepcanfin disagrees that anything but the Dispute as defined in the Expert Determination Agreement (Agreement) should be considered. … Antegra served their points of claim on 12 March 2018. Lepcanfin served a points of defence on 9 April 2018. It was only at this stage, once Lepcanfin had become comfortable about the content of the dispute with Antegra, that Lepcanfin returned the Agreement. The content of the dispute did not, in Lepcanfin's view, include the additional issues now raised by Antegra. Lepcanfin maintains that only the Dispute as defined in the Agreement should be considered [by] yourself and that it is beyond the scope of your mandate to determine the additional issues. In the event that you take a different view and will be considering all issues raised by Antegra, Lepcanfin seeks leave as a matter of procedural fairness to address the additional matters raised by Antegra prior to you making a determination…" (emphasis added).
3. Interpolating here, the passage in this email that has been emphasised contains a complete non-sequitur and Ms Whittaker candidly accepted that she was unable to offer any rational explanation for it. On the one hand, it clearly identifies and accepts that the ambit of the parties' dispute was reflected in the Points of Claim and Defence. This plainly involved the penalty issue. The email then, however, goes on to assert that that issue did not form part of the dispute.
4. Returning to the chronology of events, on 6 June 2018, Professor Peden received an email on behalf of the Respondents, contending that the Applicant should not be permitted an opportunity to deal with the penalty issue, since that had been on the table from the time of the Points of Claim served on 12 March 2018.

Expert determination

1. Professor Peden provided her expert determination (the Determination) on 30 June 2018.
2. At para 4 of the Determination, Professor Peden noted that the scope of the Determination included whether: "a. There is an 'entitlement' to the increased fee, which incorporates an issue of whether it is a penalty and could be enforced; and b. If there is an entitlement, it has been waived by Lepcanfin by reason of agreed further terms".
3. It may be noted that the word "entitlement" was placed in inverted commas by Professor Peden in para 4(a) of the Determination, no doubt because the word was used in the description of the Dispute contained in the Schedule to the EDA: "The dispute is, in essence, as to whether or not Lepcanfin waived the obligation of Antegra to pay the balance of $2,756,667.44 and Lepcanfin's entitlement to the increase in the Facilitation Fee pursuant to the terms of the Second Amendment and Reinstatement Deed." (emphasis added).
4. On the waiver issue, Professor Peden determined at paras 28-29: "…that the proper construction of the clause based on the objective intention of the parties was to waive the legal entitlement to terminate that arose by reason of the defaults in advancing the full Lepcon Loan amount. However, the obligation to advance the Lepcon Loan remained, and the obligation to pay the Facilitation Fee and any triggered increase remained. If the intention of the parties had been to waive the entitlement to the Facilitation Fee and any available increase, then it would have been expected that the parties would have used clear words to do so".
5. As to whether the increased Facilitation Fee was a "penalty", Professor Peden determined at paras 53 and 58 that: "…there is no legitimate interest sought to be protected by the increase in the Facilitation Fee, where the 'risk' Lepcanfin had undertaken was already contemplated by the parties through, for example, clauses concerning its advance of $10million and the mortgage given to Lepcanfin. If there is no legitimate interest sought to be protected by the provision then it must be a penalty. … The increase in the Facilitation Fee is a penalty and therefore either void or wholly unenforceable".
6. Professor Peden noted that the Applicant was entitled to the base Facilitation Fee in accordance with the Development Deed, but held that whether it was payable had not yet arisen for determination: at paras 59-61.

Proceedings at first instance

1. By its Commercial List Summons filed 14 June 2019, the Applicant sought the following relief, in addition to costs: "1 A declaration that the Expert's purported determination of the Penalty Issue was beyond the [E]xpert's mandate such that there has been no binding determination of the Penalty Issue. 2 A declaration that the Facilitation Fee Top-up does not constitute a penalty for the purposes of any Relevant Document and is capable of constituting and being recovered as: a. Money Owing under the Facility Agreement; b. Guaranteed Money under each Guarantee; and c. Secured Money under the Mortgage. 3 A declaration that even if the Facilitation Fee Top-up were a penalty, it is still capable of constituting and being recovered from each Guarantor as Guaranteed Money by virtue of clause 4.2(e) of each Guarantee. 4 A declaration that even if the Facilitation Fee Top-up were a penalty, it is still capable of being an amount for which the Guarantor is liable to indemnify Lepcanfin by virtue of clause 3.1(b)(i) and (ii) of each Guarantee. 5 A declaration that the Project Control Group is required to include the Facilitation Fee Top-up in: a. the amount calculated in accordance with the formula set out in Schedule Two to the Development Deed; and b. any reconciliation performed pursuant to clause 8.3(b) of the Development Deed, 6 An order that the Project Control Group's obligations set out in prayer 5 above be specifically performed."
2. By Notice of Motion filed 24 July 2019, the Respondents sought the following orders: "1 That the proceedings, or alternatively the claims in paragraphs 1 to 56 of the Commercial List Statement, be dismissed pursuant to UCPR 13.4. 2 In the alternative to 1 above, that the Commercial List Statement, or alternatively paragraphs 1 to 56 thereof, be struck out pursuant to UCPR 14.28. 3 In the alternative to 1 and 2 above, that the proceedings be permanently stayed. 4 Further and in the alternative to 1, 2 and 3 above, the questions in paragraph 3 of the Commercial List Response filed by the First, Second, Third, Sixth, Seventh and Eighth Defendants on 18 July 2019 be referred to Dr Elisabeth Peden for Expert Determination pursuant to the terms of the Development Deed. 5 Costs".
3. Paragraph 1-55 of the Commercial List Statement culminated in the plea that "the Expert's decision on the Penalty Issue is not a binding determination pursuant to the Development Deed": at para 55. Paragraph 56 was a plea that: "By virtue of the proper construction of clauses 3.2(a), 3.3, 8.1, 8.2, 8.3(a), 8.3(b) and 12.4(a)(i) and Schedule 2 of the Development Deed (as referred to in paragraph 28 above), the Facilitation Fee Top-up does not constitute a penalty."

The primary judgment

1. The primary judge noted that there were two aspects to the Applicant's claims: 1. whether Professor Peden exceeded her mandate; 2. whether, in respect of the Guarantees, the Applicant was free to litigate the question whether the guarantors were liable for the Top-Up, even assuming it was a penalty.
2. In relation to the Mandate Issue, the primary judge dismissed prayer 1 of the Applicant's Summons, on the basis that the case that the Expert's mandate had been exceeded in relation to the penalty issue was "untenable": at [33]. At [32]-[33], the primary judge concluded that: "…by the time that the EDA was entered into, LPL and the Applicants were aware that the penalty issue was a matter that would form part of the dispute to be referred. This was the matrix of facts known to both parties which assists in interpreting what was meant as at 10 April 2018 by the words set alongside the description of 'brief description of subject matter of dispute': see CB 100. The words in the EDA (the tripartite agreement between the Applicants, LPL and Dr Peden) - 'and Lepcanfin's entitlement to the increase in the facilitation fee' - are broad enough to cover the penalty issue that the parties had delineated by the exchange of POC and POD. … No relevant or potentially relevant material has been identified by LPL as undermining the conclusion that LPL and the Applicants agreed that the penalty issue would be one of the matters to be determined by the expert and that they intended Dr Peden to determine the penalty issue as at the date that they signed the EDA. LPL's case is, in my view, obviously untenable and to permit LPL's case on this issue to proceed, it seems to me, would manifestly involve 'useless expense'."
3. In relation to the Guarantee Issue, the primary judge concluded (at [52]) that: "In my view, the dispute does not have to arise wholly or solely out of the Development Deed. It is an issue arising out of or connected with the Development Deed whether an obligation imposed on Lepcon by the Development Deed (i.e. the Top-up) can be enforced against the guarantors (who are also parties to the Development Deed) even if the obligation is found to be a penalty, and I think, objectively, it is clear that the parties intended that disputes of this kind (like the dispute over penalty) would be referred to an expert with a legal background".
4. The primary judge dismissed prayer 1 of the Applicant's Commercial List Summons and otherwise permanently stayed the proceedings: at [58]. This had the consequence that the issues sought to be raised in paras 57-59 of the Commercial List Statement (see [56] above) would need to be resolved by the dispute resolution process contemplated by cl 9 of the Development Deed, extracted at [17] above.

Grounds of appeal

1. The Applicant sought leave to appeal on 9 December 2019, pursuant to the Supreme Court Act 1970 (NSW) s 101(2)(e). By its draft notice of appeal, the following grounds of appeal were raised: "1 The primary judge erred in finding that the applicant's argument that the expert's determination as to the penalty issue was beyond the expert's mandate was obviously untenable and would manifestly involve useless expense (J[33]). 2 The primary judge ought to have found it to be reasonably arguable that the expert's determination as to penalty was beyond the expert's mandate. 3 The primary judge erred in determining that the declarations sought by the applicant in relation to the construction of the Guarantees constituted a dispute within the dispute resolution provisions of the Development Deed (J[35], [49] - [52]). 4 The primary judge ought to have found that the declarations sought by the applicant in relation to the construction of the Guarantees did not constitute a dispute within the dispute resolution provisions of the Development Deed. 5 The primary judge erred in permanently staying the proceedings below".

Notice of Contention

1. The Respondents filed a Notice of Contention on 20 December 2019 in these terms: "Order 1 of the decision below is supported by an estoppel, operating at law or in equity, preventing the Appellant from alleging that the ambit of the dispute referred to the Expert, did not include the questions of whether there was an enforceable entitlement to an increase in a facilitation fee and whether the provision therefor[e] was void or unenforceable as a penalty".

The Mandate Issue

1. In written submissions, the Applicant summarised the question arising on appeal in relation to the Mandate Issue as: "…is the applicant's case that the Expert's mandate was exceeded so weak as to be amenable to summary dismissal?"
2. In oral submissions on the appeal, Ms Whittaker candidly accepted that this was essentially a question of construction, with the only evidence that was potentially relevant but not before the Court being evidence as to when Professor Peden received the Points of Claim and Defence, and when she signed the EDA. (As to the former topic, there was in fact evidence before the Court to the effect that Professor Peden was sent the Points of Claim and Defence on 11 April 2018: see [35] - [36] above).
3. The Applicant submitted that the primary judge erred in exercising the Court's power of summary dismissal for the following reasons: 1. First, the text of the EDA strongly supported the Applicant's position that Professor Peden was empowered to determine only the waiver issue. The Applicant submitted that the definition of the "dispute" made no reference whatsoever to any issue as to whether or not the Facilitation Fee Top-Up was a penalty. Although the primary judge found that the words used to define the dispute were wide enough to encompass the penalty issue, the Applicant contended that the "primary judge ought to have found either that the Penalty Issue was outside of the terms of the agreed dispute or that there was an extant controversy about the proper construction which was sufficient to render the dispute inappropriate for summary dismissal". 2. Secondly, the primary judge's conclusion that the Applicant's claim ought to be dismissed was largely based upon the findings that the Points of Claim and Points of Defence constituted a legally binding agreement which brought the Penalty Issue within the Expert's remit, and that this conclusion was "erroneous", as the primary judge's reasoning did not explain how the parties could be said to have evinced any intention to enter into legal relations, and any purported "offer" would have been only to "narrow the issues and also the scope of evidence", as opposed to an offer to expand the scope of the dispute (the Pleading Argument). 3. The Applicant also submitted that the fact that the Points of Claim and Points of Defence joined issue as to whether or not cl 12.4(a)(i) of the Development Deed was a penalty could not be taken into account as background matrix evidence in construing the definition of dispute in the EDA, because that agreement was tripartite and it was not established that the joinder of issue in the Points of Claim and Points of Defence on the penalty issue was a matter known to Professor Peden at the time she executed the EDA. (Ms Whittaker fairly conceded that this argument was not advanced at first instance, which no doubt explains why there was no direct evidence as to when Professor Peden in fact executed the EDA).

Notice of Contention

1. With respect to the Notice of Contention (see [62] above), the Respondents submitted that the Applicant was estopped from denying that the penalty issue was within the Expert's mandate. The Respondents contended that the estoppel was one by representation, which was relied on by the Respondents in incurring the costs of contesting the penalty issue through multiple rounds of submissions before the Expert, and refraining from issuing a further dispute notice, and that there was an injustice to the Respondents in the Applicant being permitted to depart from that representation. Alternatively, the Respondents claimed that there was an estoppel in pais, due to the assumed position that the penalty issue was to be determined by the Expert, and the resulting injustice to the Respondents if the Applicant were permitted to depart from that assumption and convention.
2. The Applicant submitted that it did not accept that it made any such representation as contended by the Respondents, namely, that by the exchange of Points of Claim and Points of Defence with the Respondents, the Applicant had represented or created an assumption that it agreed to the issues before the Expert being defined by that exchange. Rather, the Applicant submitted that it was clear that the dispute to be determined by the Expert was that which was defined in the EDA.
3. In relation to reliance and detriment, the Applicant submitted that, by raising the penalty issue in its Points of Claim, it was the Respondents that created confusion that led to rounds of correspondence as to whether the Applicant agreed to the inclusion of that issue in the dispute before the Expert, and that, accordingly, the "cost of anything done by the Respondents in that regard lies at their own feet". Alternatively, the Applicant submitted that any detriment was nominal and capable of being remedied by an order for monetary compensation.
4. In response, it was submitted that the Applicant clearly represented to the Respondents, both in writing and by its conduct, that the dispute to be determined by Professor Peden was to be delineated by reference to the Points of Claim and Points of Defence, and that these included the penalty issue.
5. With respect to reliance and detriment, the Respondents submitted that: "The App[l]icant's contentions with respect to detrimental reliance ignore the most obvious detriment suffered by the Respondents. By leading the Respondents to assume that the Dispute to be determined would be as delineated by the points of claim and defence, the Respondents executed the EDA in the form initially proposed between the parties and did not spend any time seeking to clarify the nature of the Dispute in that agreement, or issue an additional Dispute Notice in respect of the Penalty Issue. The contention that the detriment suffered by the Respondents can be remedied in costs only applies to the identified detriment of increased costs incurred by the Respondents in preparing submissions and running the Penalty Issue case before the expert. It has no application to the detriment of losing the opportunity to issue a further Dispute Notice or to amend the EDA prior to its conclusion. That detriment cannot be remedied except by estopping the Applicant from asserting that the Dispute did not extend to the Penalty Issue".

The Guarantee Issue

1. The Applicant summarised the question relating to the construction of the guarantees as follows: "…do the Dispute Resolution provisions of the Development Deed preclude the applicant from seeking declarations from the Court about the proper construction of the Guarantees?"
2. The Applicant submitted that the primary judge erred in his construction of the Guarantees as falling within the dispute resolution provisions contained in cl 9 of the Development Deed. The Applicant submitted that the Guarantees were entirely separate agreements to the Development Deed, and that the construction of cll 3.1(b)(i), (ii) and 4.2(e) of each Guarantee was not sufficiently connected to the Development Deed such that a dispute about those terms could not properly be conceptualised as "arising out of" the Development Deed, and thus be required to be resolved by expert determination pursuant to cl 9 of that Deed.
3. In response, it was submitted that the relief sought, by its very terms, was dependent upon construction of the Development Deed to have meaning. The Respondents submitted that a dispute about whether the Top-Up was payable, whether under the Development Deed or under any other Project Document, was inherently a dispute that arose out of the Development Deed, because that was the agreement that specified the criteria for, and terms of, the Top-Up. Moreover, the Guarantees were schedules, in unexecuted form, to the Development Deed, and their execution was a precondition to the Development Deed coming into effect, as noted at [18] above.

Exercise of discretion

1. The Applicant submitted that, even if the question of construction of the Guarantees fell within the dispute resolution provisions of the Development Deed, the primary judge should have exercised his discretion to allow at least paras 57-59 of the Commercial List Statement to proceed in any event. The Applicant submitted that: "… only the Court can enforce the applicant's rights under the Guarantee and Mortgages in the event that the relevant clauses are construed in the applicant's favour - as such the justice of the case lies with the issue of the construction of the Guarantees being determined by the Court".
2. In response, it was submitted that the Applicant's assertion that only the Court could enforce the Applicant's rights under the Guarantees and Mortgage was incorrect as a statement of law, that many of the remedies under the Mortgage do not require the Court's assistance, and that, fatally, the Applicant's Summons below did not seek any of the relief which could be obtained from the Court, including an order for possession or sale.

Legal principles

1. In Inghams, although in dissent as to the construction of the arbitration clause in issue in that case, I stated the principles applicable to the construction of dispute resolution clauses in terms which did not attract any demur from the members of the majority. Aspects of that statement of principles were recently applied in the context of consideration of an expert determination clause by Hammerschlag J in Illawarra Community Housing at [42], [45] and [49]. It is convenient to repeat the summary of applicable principles from Inghams for the purposes of consideration of the present case.
2. It has been rightly observed that "the starting point is that the clause should be construed, just as any other contract term should be construed, to seek to discover what the parties actually wanted and intended to agree to": A Briggs, Agreements on Jurisdiction and Choice of Law (2007, Oxford University Press) at 4.58; Insigma Technology Co Ltd v Alstom Technology Ltd [2009] 3 SLR 936 at [30]-[33]. In Australia, of course, the search is for the parties' intention, objectively ascertained: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52.
3. In short, the orthodox process of construction is to be followed: Hancock Prospecting Pty Ltd v Rinehart (2017) 257 FCR 442; [2017] FCAFC 170 at [167] (Hancock Prospecting); Rinehart v Hancock Prospecting Pty Ltd (2019) 366 ALR 635; [2019] HCA 13 at [18] (Rinehart). Thus, a dispute resolution clause, like any other clause of a commercial contract, must be construed by reference to the language used by the parties, the circumstances known to them and the commercial purpose or objects to be secured by the contract: see Electricity Generation Corporation v Woodside Energy Ltd; Woodside Energy Ltd v Electricity Generation Corporation (2014) 251 CLR 640; [2014] HCA 7 at [35] (Woodside); Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [47].
4. Further, as the plurality observed in Woodside at [35], citing Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530; [2004] HCA 56 at [82], a commercial contract is to be construed so as to avoid it making commercial nonsense or working commercial inconvenience.
5. Contextual considerations are also important, as the High Court's decision in Rinehart (at [26]ff) illustrates. The context in which the dispute resolution clauses had been entered into in the two deeds under consideration in Rinehart bore heavily upon the interpretation in that case of the expression "dispute under this deed". The plurality (at [26]) cited with approval the observations of the Full Court of the Federal Court of Australia in Hancock Prospecting (the decision under appeal in the High Court), that "[c]ontext will almost always tell one more about the objectively intended reach of such phrases than textual comparison of words of a general relational character": see Hancock Prospecting at [193]. In his separate judgment in Rinehart, in agreement with that of the plurality on the question of construction, Edelman J observed at [83] that: "Every clause in a contract, no less arbitration clauses, must be construed in context. No meaningful words, whether in a contract, a statute, a will, a trust, or a conversation, are ever acontextual."

Consideration

1. The first point to be made is that, in an appropriate case, and recognising the need for due caution, a legal question, even one involving some complexity, may be disposed of in a summary fashion. As Barwick CJ said in a well-known passage in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 130; [1964] HCA 69 (General Steel): "…I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff's claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed."
2. Accordingly, to the extent that the first and second grounds of appeal complained that the matter was dealt with on a summary basis and that the construction posited by the Applicant was "not obviously untenable" and "reasonably arguable", these arguments need to be assessed with Barwick CJ's observations in General Steel in mind. They also need to take into account the matter candidly conceded by Ms Whittaker that I have noted at [64] above, namely that the issue was essentially a question of construction. As Isaacs J said in Harrington v Browne (1917) 23 CLR 297 at 307; [1917] HCA 36, "there can only be one construction given to a contract". See also The Life Insurance Company of Australia Ltd v Phillips (1925) 36 CLR 60 at 78; [1925] HCA 18.
3. In the circumstances of the present case, it was both open and appropriate, in my opinion, for the primary judge to dispose of the matter on a summary basis. The primary judge's construction was, in my opinion, correct.
4. As a matter of plain English, a party's "entitlement" to rely on a particular contractual provision comprehends, or at least includes, whether or not there is any reason which may preclude that party from asserting or enjoying a contractual benefit otherwise conferred by it. If a clause is properly characterised as a penalty, that will be a classic instance where a party is not entitled to enjoy the benefit the contractual provision otherwise offers.
5. The fact that, as the primary judge held at [29] that, when the description of the dispute was first drafted in the email sent to Professor Peden on 23 February 2018, the contention that cl 12.4(a)(i) was a penalty had not been asserted by the Respondents in correspondence with the Applicant, is not to the point. It is a question fundamentally of construing the language used by the parties. In any event, the EDA was only executed by the Applicant after it was aware that the penalty issue was being run and had joined issue with it (see [41] above).

The Guarantee Issue

1. As indicated at [9] above, I would not grant leave to appeal in respect of the primary judge's decision to grant a stay of the Commercial List proceedings, insofar as they sought substantive declaratory relief in respect of the matters pleaded at paras 57-59 of the Commercial List Statement (see [56] above).
2. The primary judge's decision was, in essence, that these claims for relief "arose out of" the Development Deed. That phrase is one of great amplitude which the cases that have been referred to at [85] - [90] and [93] above illustrate. The parties should be held to their bargain (see, for example, Dance With Mr D Ltd v Dirty Dancing Investments Pty Ltd [2009] NSWSC 332 at [53]), and the primary judge was correct to stay the proceedings to the extent that the Applicant sought to circumvent cl 9 of the Development Deed by seeking to agitate the Guarantee Issue in proceedings in this Court.
3. To qualify for a grant of leave to appeal, it is generally necessary for a party to point to some error of principle or clear injustice. In my opinion, there was neither. On the latter point, the Applicant will not be shut out from having the points in relation to the Guarantees that it seeks to agitate determined, but that determination will be by an expert by reference to the elaborate process to which it agreed in cl 9 of the Development Deed.

Conclusion and orders

1. I would grant leave to appeal but dismiss the appeal with costs on the Mandate Issue.
2. I would refuse leave to appeal with costs in respect of the Guarantee Issue.
3. PAYNE JA: I agree with Bell P.
4. MCCALLUM JA: I agree with Bell P.

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