Northbuild Construction Pty Ltd v Discovery Beach Project Pty Ltd

CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - OTHER MATTERS - where disputes arising under building contract referred to experts for expert determination - where there are disputed questions of fact involving the credit of witnesses - where parties and experts agree to modify the rules under the contract between the parties that regulated the expert determination to enable the experts to decide on the taking of oral evidence - where experts make directions to allow the cross-examination of witnesses - whether the manner in which the expert determination is to be conducted has changed the nature of the reference from an expert determination to an arbitration

ARBITRATION - THE SUBMISSION AND REFERENCE - HOW MATTERS MAY BE REFERRED - WHAT CONSTITUTES REFERENCE TO ARBITRATION - where disputes arising under building contract referred to experts for expert determination - where there are disputed questions of fact involving the credit of witnesses - where parties agree that cross-examination of the witnesses by the parties should take place before the experts - where experts make directions for the cross-examination - whether the parties have in substance agreed to release the experts from their obligation to provide the expert determination and in lieu entered into an agreement to arbitrate

Commercial Arbitration Act 1990, s 17, s 19, s 26

APM Group (Aust) Pty Ltd v Galwin Pty Ltd [2006] VSC 325, considered

Arenson v Casson Beckman Rutley & Co [1977] AC 405, considered

Australian Mutual Provident Society v Overseas Telecommunications Commission (Australia) [1972] 2 NSWLR 806, , considered

Capricorn Inks Pty Ltd v Lawter International (Australasia) Pty Ltd [1989] 1 Qd R 8, considered

Re Carus-Wilson & Greene (1886) 18 QBD 7, considered

Fletcher Constructions Australia Ltd v MPN Group Pty Ltd, unreported, Supreme Court of New South Wales, Rolfe J, 55028 of 1996, 14 July 1997, distinguished

Heart Research Institute Ltd v Psiron Ltd [2002] NSWSC 646, considered

Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314, considered

Lord v Lee (1868) LR 3 QB 404, considered

Palacath Ltd v Flanagan [1985] 2 All ER 161, considered

Public Authorities Superannuation Board v Southern International Developments Corporation Pty Ltd, unreported, Supreme Court of New South Wales, Smart J, 17896 of 1987, 19 October 1987, considered

Qld Power Trading Corp v Xstrata Qld Ltd [2005] QCA 477, considered

Santos Ltd v Pipelines Authority of SA [1996] SASC 5578; (1996) 66 SASR 38, considered

Straits Exploration Australia Pty Ltd v Murchison United NL [2005] WASCA 241; (2005) 31 WAR 187, considered

Triarno Pty Ltd v Triden Contractors Ltd (1992) 10 BCL 305, distinguished

Zeke Services Pty Ltd v Traffic Technologies Ltd [2005] QSC 135; [2005] 2 Qd R 563, considered

[1] MULLINS J: The applicant is the head contractor for a development known as the "Surfair Redevelopment" at Marcoola. The respondent is the developer for the project and the principal under the building contract ("the building contract") that was entered into between the parties on or about 23 May 2003 for the construction of the project which incorporated the Master Builders of Australia Inc DECON 2 - 1998 Design & Construct Lump Sum General Conditions of Contract. The parties entered into a written agreement dated 11 December 2003 described as a confirming and amending agreement ("the December agreement") which was for the purpose of confirming and amending the terms of the building contract, as set out in the December agreement. By May 2004 the parties were in dispute about a number of matters. Pursuant to section 13 and schedule 26 of the building contract in or about June 2004 the applicant referred the disputed matters (which together with other matters added to the disputed matters have come to be referred to as "the categories 1 to 6 disputes") to be determined by expert determination. The current appointees in respect of that reference are barrister Mr DG Ryan (at least in respect of the categories 1 and 2 disputes) and quantity surveyor Mr S Callaghan (to whom I will refer for ease of reference as "the experts").

[2] As a result of directions given by the experts, the applicant contends that they are no longer acting as experts, but are acting as arbitrators, or if the directions are implemented, they will be acting as arbitrators and not as experts, and seeks declarations to reflect these contentions. In addition, if the applicant shows that the experts are acting as arbitrators, the applicant seeks an order consolidating the categories 1 to 6 disputes with the arbitration proceedings in relation to other disputes arising from the building contract that are presently before Mr W Fischer as arbitrator.

[3] Section 13 of the general conditions of the building contract (as amended by the special conditions) outlines the process for dispute resolution and provides:

13.1.1 If a Dispute arises then either party may give the other written notice of Dispute which adequately identifies and provides details of it.

13.1.2 Notwithstanding the existence of a Dispute, the parties must continue to perform this Agreement.

13.2 CONFERENCE

13.2.1 Within 14 days after receiving a notice of Dispute, the parties must confer at least once to resolve the Dispute or to agree on methods of doing so. At every such conference each party must be represented by a person having authority to agree to such resolution or methods. All aspects of such conferences except the fact of occurrence will be privileged.

13.2.2 If a Dispute has not been resolved within 28 days of service of a notice of Dispute then it will be referred to arbitration unless the party giving the notice of Dispute informs the other party in writing within that 28 days that it elects to have the dispute determined by expert determination.

13.3 ARBITRATION

Arbitration will be effected by an arbitrator nominated by the President or Chief Executive Officer of the Organisation specified in Item 1 of Schedule 26.

13.4 EXPERT DETERMINATION

13.4.1 Expert determination will be -

1 effected by an expert nominated by the president or Chief Executive Officer of the Organisation in Item 1 of Schedule 26

2 in accordance with the process in Schedule 26

13.4.2 Except to the extent that the Process in sub-clause 13.4.1 provides otherwise:

1 each party will bear its own costs and contribute one half of the expert's fee;

2 all aspects of every expert determination except the fact of occurrence will be privileged;

3 the expert must as a condition of its appointment agree to issue a written determination of the dispute within the number of days from the appointment of the expert specified in Item 3 of Schedule 26, unless otherwise agreed between the parties;

4 the expert will not act as an arbitrator."

[4] The applicant elected to have the categories 1 to 6 disputes determined by expert determination rather than the alternative process of arbitration specified in section 13.2.2.

[5] Schedule 26 of the building contract sets out the "Rules for Expert Determination" ("the rules") for the purpose of section 13.4.1 of the building contract. Schedule 26 specifies that the expert is to be nominated by the Queensland Law Society ("the Society").

[6] The rules describe what is referred to as "the process" for expert determination. Rule 2 requires each of the parties to provide submissions to the expert within specified time frames, but also provides:

"The Expert may allow either party further time in which to make a submission or response in respect of the dispute and may require from either party further information as the Expert sees fit."

[7] Rule 3 deals with the arrangement of a conference by the expert after receiving submissions. Paragraphs (b) and (c) of Rule 3 provide:

"(b) The parties will appear before the Expert at the conference and may make oral representations in respect of the matters contained in their submissions or responses.

(c) The Expert may after consulting both parties make a transcript of the conference and subsequently make the same available to both parties."

The Expert will promptly but not later than twenty-one (21) days after the conference between the parties or such other reasonable time which, having regard to the nature and facts of the dispute is required by the Expert and agreed to by the parties, advise the parties in writing of the Expert's determination on the dispute. The parties will be bound by the determination of the Expert.

5. Procedural Rules

(a) Neither party may communicate directly or indirectly with the Expert in respect of any matter relating to the dispute other than in accordance with this Process.

(b) The parties may have legal or other representation at the conference which will be held in private.

6. Conduct of Expert

(a) The Expert will make a determination on the dispute.

(b) The Expert must act honestly and fairly within the times prescribed and arrive at a reasonable measure or value of work, cost, quantity or time.

(c) The Expert may in the Expert's discretion obtain the advice and assistance of others in reaching the Expert's determination and in respect to any matter of law obtain the opinion of a suitably qualified lawyer.

(d) The Expert is not bound by the Rules of Evidence and may make the Expert's determination on the basis of information received or the Expert's own expertise.

(e) The Expert will act independently and impartially."

[9] Rule 7 provides for the indemnity of the expert by the parties in equal shares against any costs, claims or damage suffered or incurred by the expert in consequence of entering upon the process and the expert's fees for services.

[10] Rule 8 deals with modification of the process in these terms:

"Unless otherwise stated this Process may be modified only by agreement of the parties and the Expert."

History of the reference of dispute for expert determination

[11] The Society nominated Mr Orange, solicitor of Doyles Solicitors, as expert to determine the disputed matters and the parties approached Mr Callaghan to act as a joint expert with Mr Orange.

[12] By letter dated 9 July 2004 to the parties Mr Orange expressed a willingness to be nominated as an expert and outlined the terms of his engagement which expressly referred to section 13 and schedule 26 of the building contract and which in paragraph 2.2 incorporated specified clauses from the Expert Determination Agreement prepared by the Institute of Arbitrators and Mediators Australia. Similarly, by letter dated 16 July 2004 to the parties Mr Callaghan expressed a willingness to be appointed as an expert and outlined the terms of his engagement which included paragraph 2.2 in the same terms as set out in Mr Orange's letter and otherwise acknowledged that the expert determination was to be carried out in accordance with section 13 and schedule 26 of the building contract. Both Mr Orange and Mr Callaghan were subsequently appointed as experts.

[13] During July and August 2004 the parties delivered written submissions to Mr Orange and Mr Callaghan. These gave some indication of the issues raised by the disputes including that the respondent relied on conversations between representatives of the parties prior to the building contract as having contractual effect. On 17 September 2004 representatives of the parties met with Mr Orange and Mr Callaghan in order to work out how to progress the expert determination.

[14] At the meeting on 17 September 2004 the applicant tabled a document entitled "Surfair - Expert Determination Process" which outlined six categories of disputes and the methodology about which there was broad (but not final) agreement of the parties for progressing the determination of the disputes. Although the six categories of disputes had not all been included in the disputed matters of which notice had been given under section 13.1 of the building contract, Mr Orange, Mr Callaghan and the parties proceeded as if section 13 had been complied with and no issue is raised about any lack of compliance in this respect. The parties agreed to divide the category 2 disputes into two sub-categories, so that the category 2 disputes that involved both legal and quantum issues were put in category 2.1 and the rest of the category 2 disputes were put into category 2.2. Timetables for the creation of a Scott schedule, questions from the experts, answers by the parties, the conference of the parties with the experts and the expert determination were agreed by the parties with Mr Orange and Mr Callaghan for the disputes in categories 1, 2.1 and 2.2. The timetable for the disputes in categories 3 to 6 was agreed to be addressed at a later meeting. The proposed methodology for dealing with the category 1 disputes permitted the applicant after the steps relating to the Scott schedule to submit witness statements and, if that were done, permitted the respondent to submit witness statements in response. It was then proposed that:

"The experts will convene a hearing at which witnesses may be interrogated by the experts and counsel for the parties and submissions made on issues nominated by the experts only."

[15] Although it is not clear whether paragraphs 6.4 and 6.5 of the notes of the meeting held on 17 September 2004 made by Mr Orange relate both to the categories 1 and 2 disputes, they must relate at least to the category 1 disputes:

"6.4 The parties agreed that with the Scott Schedule each would provide any evidence upon which it wished to rely (including any documents, any witness statements/statutory declarations) and any submissions in support of its position.

6.5 Northbuild foreshadowed an intention to use counsel and to cross-examine witnesses at the meeting under Rule 3 (a) Schedule 26. DBP indicated that it objected to any adversarial cross-examination but may be prepared to agree to the Expert being permitted to ask questions of the witnesses. The Expert indicated that if a party intended to seek to cross-examine a witness it would need to demonstrate where the right to do so appeared in the agreement for the expert determination process."

These notes make it clear that, to the extent that the proposed methodology for dealing with the category 1 disputes incorporated cross-examination of witnesses, it was not the subject of agreement between the experts and the parties at the meeting on 17 September 2004.

[16] The category 1 disputes were identified as issues arising out of the letter dated 19 May 2003 and the December agreement relating to future savings, the South Tower Beach House provisional sum adjustment (VR65), project contingency and profit contribution (VR67 and including all claims for profit contributions such as VO34, VR36 and VR72). The abbreviation "VR" refers to variation request (which was made by the applicant) and the abbreviation "VO" refers to variation order issued by the respondent. The category 2 disputes were in respect of valuations of specified variation requests and variation orders.

[17] The parties also agreed with the experts at the meeting held on 17 September 2004 that four further disputes would be the subject of expert determination (even if the notice of dispute had not been delivered). Those four disputes were VR68, VR69 VR70 and VR73. A timetable for the delivery of submissions and responses in relation to those four disputes was also agreed. The timetable for the further steps was to be agreed at the same time as the timetable for the disputes in categories 3 to 6. By the conclusion of the meeting on 17 September 2004, the expert determination process in respect of the categories 1 to 6 disputes had commenced.

[18] After the meeting on 17 September 2004, the respondent delivered further written submissions. The Scott schedule was completed by the applicant on 14 October 2004. The Scott schedule for the category 1 disputes set out the applicant's position on cross-examination. There was acknowledgment that for an expert determination it was not necessary that the material be subjected to test by cross-examination, but the submission was made as a matter of procedural fairness that there were circumstances that required cross-examination to be granted to the applicant. In summary, the reasons advanced were that the respondent raised allegations that a breach of an oral pre-contractual agreement varied the terms of the building contract which would give rise to questions of credit, that the procedure did not require that the respondent disclose any factual material in support of those allegations and that the applicant might be taken by surprise by material raised in the experts' proposed questioning of the witnesses. At the early stages of the expert determination, the applicant contemplated that cross-examination was required because of the disputed questions of fact and questions of credit.

[19] On 24 December 2004 Mr Orange withdrew as an expert. The parties agreed to Mr Orange being replaced by Mr Ryan. Mr Ryan prepared an agreement for his appointment as expert by the parties, the terms of which were then settled by the applicant and the respondent. This agreement expressed in the preamble that Mr Ryan was prepared to accept the appointment of the parties to act as expert with respect to the determination of legal issues which were disputes, or were ancillary to disputes, arising under the building contract. These legal issues were identified as those with respect to the disputes known as categories 1, 2.1 and 2.2 disputes. Clause 2 of the agreement with Mr Ryan expressly confirmed that the determination of the legal issues would be conducted in accordance with the rules (except insofar as those rules may be modified by the terms of the agreement or any subsequent agreement between the parties and Mr Ryan). This agreement was signed by the parties, but not by Mr Ryan, but Mr Ryan has acted as expert in accordance with the terms of the agreement that was signed by the parties. The terms of appointment of Mr Ryan included the terms of engagement set out in paragraph 2.2 of Mr Orange's letter of 9 July 2004.

[20] A meeting was held between representatives of the parties and the experts on 1 April 2005. In the determination of the experts subsequently made on 30 September 2005, the experts have recorded (at p 19) what Mr Ryan observed at the meeting on 1 April 2005 about what had been recorded at the meeting on 17 Sepetmber 2004 about the procedure that had been proposed in relation to the reference:

"Mr Ryan said that the procedure agreed upon in the contract for the appointment of an expert appeared to have been departed from so far as the legal expert was concerned and that in order to determine the legal issues arising with respect to the various items in the Scott schedule:

(a) there would have to be decisions made with respect to questions of fact;

(b) that may involve judgments being made as to the credit of witnesses;

(c) the expert (or the experts jointly) would therefore be acting as arbitrators in all but name."

[21] This joint determination also recorded (at p 20) that at that meeting on 1 April 2005 the parties through their solicitors advised the experts:

"(a) they accepted that the process now being undertaken was not in accordance with the expert determination provisions of the contract between the parties referred to in Mr Ryan's appointment agreement;

(b) the parties were agreed that they were proceeding on the basis that -

(i) Mr Ryan and Mr Callaghan should act in a broader role than that of an expert;

(ii) they should make determinations of fact or of mixed fact and law necessary to the resolution of legal and quantity surveying issues;

(c) the parties intended that Mr Ryan and Mr Callaghan should then produce a joint decision on legal and quantum issues and that neither party should challenge the decision by reason of any departure from the expert determination appointment and processes appearing in section 13 or schedule 26 of the Contract;

(d) that nonetheless the experts in accepting their appointments to act as outlined above should so far as possible follow the procedural rules and conduct themselves as outlined in rules 5 and 6 of schedule 26 and that the other provisions of schedule 26 should apply to the above mentioned expert determination process in so far as they were not consistent with it."

[22] Although the parties and the experts acknowledged (as was the case) at the meeting on 1 April 2005 that the process of the expert determination was more complex than contemplated by the rules, the parties and the experts did not abandon or otherwise agree to displace the expert determination with another process.

[23] In relation to the determination by the experts of questions of fact or mixed questions of fact and law necessary for the decision of legal issues and quantum issues, the joint determination made on 30 September 2005 recorded about the meeting on 1 April 2005 that (at p 21):

"It was agreed by the parties that the experts should proceed as follows:

(a) they would identify such issues of fact or of mixed fact and law which they felt unable to decide without further documents or statements from witnesses or oral evidence from relevant witnesses;

(b) the parties should then have an opportunity to provide any further documents or statements they thought relevant to such issues;

(c) insofar as the experts required oral evidence with respect to such issues:

(i) the parties should make submissions as to the process to be employed; that is, whether the witness should give evidence in chief orally or whether that evidence should be cross-examined by the opposing party or whether the only evidence to be taken from the witness should be in response to questions by the experts, or any combination of those methods;

(ii) that the experts should then advise their decision as to how the oral evidence of any such witness should be taken;

(iii) that the parties would accept that decision by the experts and that the evidence should be taken accordingly."

[24] It is not entirely clear that what is quoted in the preceding paragraph was recording an agreement in relation to the process for categories 1, 2.1 and 2.2 disputes or whether it was limited to category 1 disputes. At the least it related to category 1 disputes and suggests that the parties did agree to leave it to the experts to determine how the oral evidence of witnesses was to proceed (including the question of cross-examination).

[25] The joint determination made on 30 September 2005 also recorded in relation to the meeting on 1 April 2005 (at pp 21-22):

"The parties indicated to the experts that they anticipated that the experts would extract from the Scott schedule with respect to Category 1 issues and the submissions referred to above the issues to be decided by them with respect to fact, law and quantum and that the parties were content that the experts should then proceed to determine those issues as experts and accepted that any such decision should be binding on the parties."

[26] It is common ground for the purpose of this application that what occurred at the meeting on 1 April 2005 is accurately recorded at pp 19-22 of the determination made on 30 September 2005.

[27] By letter dated 10 May 2005 the experts advised the parties that they did not consider that the parties had adequately identified the legal issues for determination with respect to the category 1 disputes. In that letter the experts identified eight issues which they described as fundamental (dealing with the content of the building contract) and suggested the steps that should be taken to enable them to enter upon a determination of those eight issues. The experts advised that unless the preliminary contract issues were first decided, they were unable to assist the parties with any expert determinations. The steps proposed by the experts to enable them to determine the preliminary contract issues included a process for agreeing on the refinement of those issues and the making of oral and/or written submissions with respect to the agreed issues. The experts left open the possibility that there may be oral evidence as part of the process of determining those preliminary issues by their step (e):

"If oral evidence is taken the parties may make oral and/or written submissions at the conclusion of that evidence. Following those submissions no further submissions or correspondence with respect to the agreed issues will be accepted or suggested."

The experts proposed that they would determine the agreed preliminary issues and their determination would be binding on the parties. The experts concluded their letter of 10 May 2005 with a statement to the effect that if the parties could not agree on the formulation of the preliminary contract issues, they could not see how the expert determination could move forward. In their joint determination made on 30 September 2005, the experts retracted that conclusion, however, and stated (at p 24):

"In the way in which matter had unfolded...we do not think that it was a necessary preliminary to our determination of those issues that the parties should formally advise that they agreed with us that those were the issues to be decided."

[28] The expert determination did not progress while the parties participated in a mediation which commenced on 19 May 2005. That came to an end. By letter dated 15 July 2005 the respondent's solicitors advised the experts that the respondent was happy to proceed on the basis outlined in the experts' letter of 10 May 2005 and that the eight preliminary contract issues were appropriately identified for determination. The respondent foreshadowed that if the experts were to determine that the express or implied terms contended for by the respondent did not form part of the contract, the respondent reserved the right to make submissions on the application of equitable principles that may impact on the rights of the parties.

[29] The applicant's solicitors in their letter to the experts dated 20 July 2005 asserted that the process in schedule 26 of the building contract appeared unworkable "where issues of law, including the determination of what constitutes the contract, are in dispute" and that it was particularly the case "where contested oral testimony exists". They then raised (for the first time) that the process proposed by the experts in their letter of 10 May 2005 of determining questions of fact and receiving oral evidence from the parties was an arbitration. The applicant's solicitors also asserted that the respondent by accepting the terms contained in the experts' letter of 10 May 2005 had "agreed to the matter proceeding in the arbitration style format proposed" and that if the experts accepted an appointment as an arbitrator with the parties' consent, the proceeding should be consolidated with the arbitration proceedings before Mr Fischer.

[30] By letter dated 22 July 2005 addressed to the experts, the respondent's solicitors disagreed with the assertion of the applicant's solicitors that the process proposed by the experts was not consistent with an expert determination, but was an arbitration.

[31] The experts by letter dated 26 July 2005 addressed to the parties' solicitors confirmed the opinion they had expressed in their letter of 10 May 2005 that they could not assist the parties with any expert determinations, unless the preliminary contract issues were first decided by them. By letter dated 28 July 2005, the applicant's solicitors foreshadowed to the experts that the applicant would be taking steps to ensure that a single forum was established for dealing with all the disputes between the parties.

[32] Representatives of the respondent only attended a conference with the experts on 8 August 2005. The experts requested that they be provided with written submissions covering the contentions raised in communications between the parties following the conclusion of the mediation process and the views the experts expressed in their letter of 10 May 2005. On 24 August 2005 the respondent's solicitors forwarded to the experts written submissions prepared by the respondent's counsel. The applicant's solicitors provided the experts with a written response to those submissions on 31 August 2005.

[33] The experts then made their joint determination dated 30 September 2005. The experts recited at length the history and the progress of the expert determination. They referred to the fact that what had been agreed by the parties with Mr Orange and Mr Callaghan to be the subject of the expert determination (namely the categories 1 to 6 disputes) was not entirely coincidental with the disputes that had initiated the request by the applicant to the Society on 19 May 2004 for the nomination of an expert. The experts made the following observations (at pp 14-15):

"43. In these circumstances it follows, in our opinion, that the conduct of the parties described above evidenced an agreement between them -

(a) to do away with any requirement for strict compliance with the provisions of clauses 13.1 to 13.4 of the contract as a necessary preliminary to the Category 1 disputes being referred for expert determination;

(b) to treat the Category 1 disputes identified in the manner mentioned above as having been referred to Messrs Orange and Callaghan for expert determination.

44. So far as the process to be followed is concerned it seems to us, judging by the notes of what occurred at the meeting of 17 September 2004, that the parties further agreed:

• that a Scott Schedule should be prepared with respect to the Category 1 disputes and that with that Schedule each party should provide any evidence upon which it wished to rely (including any documents, any witness statements/statutory declarations) and any submissions in support of its position;

• that whether any evidence should be tested by cross-examination or by the experts asking questions of a witness should be determined in accordance with the provisions of the agreement for the expert determination process (no doubt a reference to schedule 26) and that if there was no provision covering any such point then the experts should determine how it would be dealt with."

[34] The experts then made the following similar observations (at pp 17-18):

"53. As we have said, we think that the parties had by agreement set up a new structure for the referral of disputes to expert determination and that the experts had acquiesced in that and had agreed to enter upon the process of determining those disputes.

54. Further, it seems to us that the parties by their conduct had evinced an intention to modify the process set out in the rules under schedule 26. For example, they had agreed to make particular provisions with respect to the making of submissions and the tendering and obtaining of evidence which were not in conformity with rr. 2, 3 and (perhaps) certain parts of r. 6 under schedule 26. We think that the parties had agreed to modify their original agreement to that extent and that it is implicit in the notes of the meeting held on 17 September 2004 that the parties agreed to abide by the decision of the experts with respect to what might be termed matters of 'practice and procedure' to be followed in the process of considering submissions and considering and testing any evidence."

[35] This application has proceeded on the basis that Mr Orange's notes of the meeting held on 17 September 2004 are accurate. They show that the requirement for a Scott schedule arose as a result of the preference expressed by Mr Orange and Mr Callaghan who indicated that they had no power to direct the parties to prepare the Scott schedule, but the parties expressly agreed to proceed with a Scott schedule. That variation on the procedures set out in the rules was therefore the result of an express agreement. The experts' conclusion that it was implicit in the notes of the meeting held on 17 September 2004 that the parties agreed to abide by the decision of the experts with respect to matters of practice and procedure does not accord with the manner in which the Scott schedule became part of the procedure. I therefore do not agree with the experts' observations set out in paragraphs 44 and 54 of the determination dated 30 September 2005 to the effect that the parties had agreed at the meeting on 17 September 2004 to abide by the decision of the experts with respect to matters of practice and procedure.

[36] The experts concluded (at p 36) that the parties had reached the agreement for the determination of the issues in dispute by expert determination in the manner and the circumstances described in the joint determination, they had chosen a person or persons qualified to determine the issues, that the determination of those issues by the experts was not inappropriate and that the experts were obliged to proceed to such a determination. The experts requested that the parties meet with them on 10 October 2005 to discuss any further evidence and the manner in which it was to be taken and whether further submissions should be received by the experts after the evidence.

[37] The lawyers for the parties met with the experts on 10 October 2005. A transcript was made of that meeting. The applicant indicated that it would participate in the meeting on the basis that it assumed the experts were properly appointed and seized of the expert determination without conceding that was the position. The applicant's counsel raised the issue of whether the expert determination should continue in view of the fact that there were common issues between the expert determination and other disputes between the parties that were before different fora and that there was a risk of inconsistent findings. The respondent's counsel expressed the view that the respondent did not see any difficulty with the expert determination continuing. The experts indicated their view that they were bound to proceed with the expert determination. On the issue of the manner in which evidence was to be taken by the experts, the applicant's counsel indicated (at p 10 of the transcript) that the process would need to test evidence, as there were contested issues of fact "and there's really no effective substitute for the resolution of the contested factual questions than testing the proponents". That only reiterated the position of the applicant as expressed in the Scott schedule. The respondent's counsel indicated (at p 10 of the transcript) that the respondent did not object to cross-examination of witnesses by the parties if that were the method that the applicant and/or the experts thought ought to be followed. In view of what the experts had recorded in their determination dated 30 September 2005 about what the parties had agreed (at least in relation to the category 1 disputes) on 1 April 2005 that the parties would accept the decision of the experts on how the oral evidence of witnesses would be taken, the respondent's attitude at the meeting on 10 October 2005 did not depart from the position previously taken by the respondent at the meeting on 1 April 2005. The respondent was, in effect, acquiescing to cross-examination of witnesses by the parties, if that was required by the experts. This exchange about cross-examination was in the context of the process for expert determination by the experts.

[38] The experts sent a letter to the parties' solicitors dated 24 October 2005. In that letter they gave directions for the delivery by the parties of any further witness statements upon which they intended to rely in relation to category 1 issues and directed that each party advise by a specified time and date which witnesses it wished to cross-examine. They then stated that they would then "confer with the parties and arrange a date upon which witnesses should attend for cross-examination". They also suggested that final submissions be made at the end of the week which followed the week during which the last of the witnesses had been cross-examined. They then proposed to provide their final determination on the category 1 disputes. The experts did not direct expressly that cross-examination of witnesses by the parties take place, but their directions proceeded on the basis that cross-examination of witnesses was permitted by them.

[39] The representatives of the parties met with the experts on 22 November 2005. As a result the experts made directions requiring the applicant to deliver certain statements by specified dates. The experts also advised that the current stage of the proceedings before them was limited to category 1 issues.

[40] Further statements were delivered by the applicant in January 2006 and correspondence was then exchanged between the experts and the parties' solicitors about the availability of hearing dates for cross-examination. On 20 January 2006 the respondent's solicitors estimated that cross-examination may take more than five days. This prompted the applicant's solicitors to send a letter dated 25 January 2006 to the experts in which they made the point that when the applicant requested an opportunity to cross-examine witnesses, "it was never intended that the process evolve further into a full trial having all the hallmarks of an arbitration". The applicant sought a return to what it described as the process that had been contemplated by the parties as early as September 2004 which involved the experts asking specific questions they had as to the evidence prior to the conference to narrow the issues and that witnesses would be made available for questioning by the experts and the other party in relation to those issues raised by the expert. The applicant suggested that if the experts had already assessed the evidence and identified any questions, the conference would be completed within one to two days. In response, the respondent's solicitors adopted the position that the changes that had occurred in the process had "been driven by Northbuild's insistence on delivery of further evidence and cross-examination of witnesses". The respondent requested the experts to give the parties directions as to the process they intended to adopt.

[41] This was done in the experts' letter to the parties dated 3 February 2006. The experts referred to paragraphs 6.4 and 6.5 of the notes of the meeting held on 17 September 2004 and expressed the view that it did not record that there was an agreement concerning a process by means of which witnesses might be cross-examined. The experts then identified two means by which cross-examination of witnesses could be undertaken. These were the exercise by the experts of their right under rule 2 of schedule 26 to require from either party further information as they saw fit which they considered was wide enough to permit them to require any one or more of the witnesses to attend before the experts to answer such questions as the experts thought fit in relation to the matters in their statements. The other means by which the experts considered cross-examination of witnesses could be undertaken was if they and the parties agreed upon a process for cross-examination of witnesses either by themselves or by the parties or both. They expressed the opinion that the second means for undertaking cross-examination should not be adopted and they proposed to proceed in reliance on rule 2 and, to the extent they thought necessary, would require a party to arrange for a witness to attend upon them in order for them to put questions in relation to assertions appearing in a witness statement.

[42] In their letter dated 7 February 2006 the respondent's solicitors requested the experts to reconsider the course they proposed in their letter of 3 February 2006. The respondent's solicitors expressed their understanding that there had been an agreement at the request of the applicant to modify the rules for expert determination to allow for the cross-examination of witnesses which was reflected in the directions made by the experts on 24 October 2005 and the way the parties conducted themselves after that date. The respondent's solicitors requested the experts to convene a conference. In an email to the experts on 10 February 2006, the applicant's solicitors expressed the view that there was no need for a further conference and that it was apparent "that there is no agreement as to how any cross-examination process would proceed".

[43] There were delays between February and June 2006 due to other commitments of Mr Ryan and the consideration by the parties of the options for replacing Mr Ryan. The applicant's solicitors by letter dated 30 June 2006 to the experts foreshadowed facing an originating application in the court seeking a declaration that the matters before the experts for expert determination were arbitrations. By letter dated 10 July 2006 the applicant's solicitors advised that the applicant would not be proceeding at that time with the application for a declaration because of associated costs and delay and requested the experts to convene a directions hearing. One of the issues which the applicants' solicitors required to be clarified was whether the experts intended to deal with disputed questions of fact and associated questions of credibility and the process by which it was intended to resolve them and that an associated issue would be whether any process resolving such issues would be in accordance with the building contract.

[44] The parties' representatives had a meeting with the experts on 19 July 2006. Counsel for the applicant handed written submissions to the experts at the meeting. These submissions identified the disputed questions of fact, that those disputes could be resolved only by an examination of competing versions of evidence and of the events surrounding negotiations which were conducted on 23 May 2003 and that questions of credit were involved. The submission was made that any process which requires examination or cross-examination of witnesses and a determination of a dispute based upon that process is an inquiry in the nature of a judicial inquiry where the parties should be heard and be permitted to put their cases and was beyond the ambit of an expert determination as contemplated by the building contract.

[45] As a result of the meeting on 19 July 2006, the experts sent a letter to the parties dated 3 August 2006 which set out their decision on the issue of cross-examination. They resiled from the approach that they had signalled in their letter dated 3 February 2006. They acknowledged that in taking the approach set out in the letter of 3 February 2006 they had overlooked the conclusions that they had reached and expressed in their determination dated 30 September 2005 and the statements made by the parties during the hearing on 10 October 2005. They considered that the agreement between the parties for expert determination of the disputes had evolved to encompass cross-examination of witnesses by the parties. They therefore decided that they should make arrangements for the cross-examination of witnesses by the parties and the taking of submissions from the parties before reaching a determination of the category 1 issues. The experts therefore requested the lawyers for the parties to confer and to advise the experts whether they considered that any definition of issues should be undertaken before setting dates for the cross-examination. They requested advice by 4 pm on 10 August 2006 on whether or not the parties had reached agreement on this point.

[46] I do not consider that the experts could rely on the conclusion that they reached in their determination of 30 September 2005 to support the existence of an agreement between the parties (and the experts) that there would be cross-examination of witnesses by the parties, to the extent that the conclusion in the determination of 30 September 2005 was based on the experts' interpretation that the parties at the meeting on 17 September 2004 had agreed that the question of cross-examination of witnesses was a matter to be decided by the experts. This is because the experts incorrectly interpreted the notes made by Mr Orange of the meeting on 17 September 2004. The agreement between the parties and the experts on the taking of oral evidence made at the meeting on 1 April 2005 and also the statements made on behalf of the parties about cross-examination of witnesses at the meeting on 10 October 2005 which were accepted and acted upon by the experts in their directions given on 24 October 2005 are sufficient to support the existence of an oral agreement between the parties and the experts that cross-examination of the witnesses by the parties should take place if directed by the experts. The conclusion by the experts in their determination of 3 August 2006 that the process of expert determination had evolved (by agreement between the parties and the experts) to encompass cross-examination of witnesses by the parties was justified.

[47] The respondent's solicitors sent an email to the experts on 14 August 2006 stating:

"In your letter of 3 August you indicated that if a joint advice was not provided by 4pm on 10 August you would convene another directions hearing.

That date has past (sic). A joint position has not been reached. Could you please convene another directions hearing."

[48] The applicant's solicitors in their letter dated 14 August 2006 to the experts indicated that the applicant was content to proceed in the way the experts indicated they would conduct the process in their letter dated 3 August 2006. The applicant's solicitors also expressed the view, however, that the experts were arbitrators and requested that the question of consolidation with the arbitration before Mr Fischer be considered. By letter dated 21 August 2006 the applicant's solicitors requested the experts to make a provisional order in accordance with s 26 of the Act that the arbitration before them be consolidated with the arbitration before Mr Fischer and that Mr Fischer determine the consolidated arbitration. The application related to the categories 1 to 6 disputes. Extensive written submissions on the application were delivered by the parties in September 2006.

[49] A lengthy hearing of the application before the experts took place on 9 October 2006 following which further submissions were delivered by the parties.

[50] The experts delivered their determination on the application for provisional orders for consolidation on 8 November 2006. They rejected the submission that there was an agreement between the parties to refer to arbitration the disputes that were before the experts. The experts summarised the history of the matter and referred to the review of the conclusions that they had reached in their determination dated 30 September 2005. They stated at paragraph 28:

"What our review had made clear was that on 30 September 2005 we concluded that, as long ago as 17 September 2004, the parties had agreed that whether any evidence should be tested by cross-examination should be determined in accordance with the provisions of the agreement for the expert determination process, and that if there was no provision covering any such point then the experts should determine how it would be dealt with. Further, during the hearing on 10 October 2005 Northbuild proposed cross-examination. Discovery Beach agreed to go along with that proposal. We determined that there should be cross-examination and gave directions towards that end."

[51] The experts therefore determined that the applicant's letter of 14 August 2006 did not constitute the final element to evidence an agreement in writing referring to arbitration the matters in dispute before the experts, but was no more than an acceptance of the decision that the experts had made. They confirmed at paragraph 38 that in order to resolve some contractual issues, they would need to assess the testimony of certain witnesses and that they had decided to permit cross-examination of those witnesses by opposing parties and take submissions. They clarified that their directions with respect to cross-examination related to some preliminary matters to be determined in connection with the category 1 disputes. Although I do not agree with the experts' reliance on an agreement having been made on 17 September 2004 about the experts to decide whether there should be cross-examination, as I have indicated above there was otherwise justification for the experts' conclusion that the parties had agreed they could decide whether there should be cross-examination.

[52] On 19 December 2006 Mr Fischer made a provisional order in his arbitration that the proceedings presently before the experts be consolidated as a single arbitration proceeding with the arbitration comprising the Waves 1 and 2 disputes that were presently before him and that Mr Fischer be the arbitrator of the consolidated proceedings.

[53] The applicant filed the originating application that commenced this proceeding on 21 December 2006. On 21 February 2007 the experts indicated to the parties that they would not take any further steps in the expert determination until this application was determined.

Authorities on the nature of arbitration and expert determination

[54] Before considering the issues, it is appropriate to refer to the characteristics of and the means of instituting an arbitration or an expert determination. Arbitrations have a long history and developed as an alternative means to litigation for parties to resolve their disputes. Most arbitrations are the result of written agreements which meet the statutory requirements in the jurisdiction (such as the Act in Queensland) which support and regulate arbitrations. Where an arbitration agreement does not meet the requirements of the relevant legislation, but the parties have entered into a contract for the conduct of an arbitration in relation to a dispute between them, there may be a common law agreement for arbitration which is effective to establish an arbitration, but which will not be subject to that legislation: Lord v Lee (1868) LR 3 QB 404, 407-408. Expert determination is not regulated by statute, but the law has also recognised that parties to a contract are entitled to choose a process of expert determination to dispose of an issue that may arise under the contract: Heart Research Institute Ltd v Psiron Ltd [2002] NSWSC 646 at paragraphs [17]-[19].

[55] In Re Carus-Wilson & Greene (1886) 18 QBD 7, where one of the conditions of sale of land was for the purchaser to pay for the timber on the land at a valuation to be made by the valuers appointed by each party, but if they disagreed, by an umpire who was appointed by the valuers to make the valuation if the two valuers disagreed, Lord Esher MR stated at 9:

"If it appears from the terms of the agreement by which a matter is submitted to a person's decision, that the intention of the parties was that he should hold an inquiry in the nature of a judicial inquiry, and hear the respective cases of the parties, and decide upon evidence laid before him, then the case is one of an arbitration. The intention in such cases is that there shall be a judicial inquiry worked out in a judicial manner. On the other hand, there are cases in which a person is appointed to ascertain some matter for the purpose of preventing differences from arising, not of settling them when they have arisen, and where the case is not one of arbitration but of a mere valuation. There may be cases of an intermediate kind, where, though a person is appointed to settle disputes that have arisen, still it is not intended that he shall be bound to hear evidence or arguments. In such cases it may be often difficult to say whether he is intended to be an arbitrator or to exercise some function other than that of any arbitrator. Such cases must be determined each according to its particular circumstances."

[56] In that case the Court concluded that the umpire who was appointed when no dispute had arisen was appointed for the purpose of preventing any dispute by fixing the price of the timber and was not an arbitrator.

[57] An authoritative statement on whether there has been a reference to arbitration was made by Lord Wheatley in Arenson v Casson Beckman Rutley & Co [1977] AC 405, 428 ("Arenson") where the auditors of a company valued the shares of the company for the purpose of determining the sale price of an employee's shares on the termination of the employee's employment:

"The indicia are as follows: (a) there is a dispute or a difference between the parties which has been formulated in some way or another; (b) the dispute or difference has been remitted by the parties to the person to resolve in such a manner that he is called upon to exercise a judicial function; (c) where appropriate, the parties must have been provided with an opportunity to present evidence and/or submissions in support of their respective claims in the dispute; and (d) the parties have agreed to accept his decision."

[58] It is commonplace for rent review clauses in leases to require the issue of the revised rent to be referred to a valuer acting as an expert and not as an arbitrator. McHugh JA made the following observations on this practice in Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314, 336:

"It is true that the valuer is 'acting as an expert and not as an arbitrator'. But those words which have been commonly used in agreements since the Common Law Procedure Act 1854 serve the purpose of excluding the provisions of the Arbitration Act 1902. They avoid the necessity for the valuer to hear evidence and the parties and to determine judicially between them. They enable him to rely on his own investigations, skill and judgment: Re Dowdy (1885) 15 QBD 426 at 429, 430. Indeed they reinforce the view that the parties, as between themselves, rely on the honest and impartial skill and judgment of the valuer."

[59] In Palacath Ltd v Flanagan [1985] 2 All ER 161 the landlord sued the surveyor alleging negligence in determining the rent under a rent review clause in a lease. The preliminary issue was whether the surveyor was acting as an arbitrator and was therefore immune from action. There was an express provision in the lease that the surveyor was acting as an expert and not as an arbitrator. There was also an express provision in the relevant clause of the lease that the surveyor would consider any statement of reasons or valuation or reports submitted to him by the parties, but would not in any way be limited or fettered thereby and would be entitled to rely on his own judgment and opinion. Mars-Jones J concluded that the express provisions in the relevant lease made it impossible to conclude that the parties intended that the surveyor should act as an arbitrator in determining the revised rent. It was acknowledged that some of the procedures that were followed by the surveyor acting under the terms of the lease were typical of the judicial process, but the test that was posed (at 166) for determining the issue was in terms of what the surveyor was obliged to do, rather than how he carried out his function.

[60] The respondent relies on Public Authorities Superannuation Board v Southern International Developments Corporation Pty Ltd (unreported, Supreme Court of New South Wales, Smart J, 17896 of 1987, 19 October 1987) as recognising that the parties can agree that an expert determine issues that involve questions of law. A clause in a deed between the owner and the developer of a shopping centre gave either party the right when they were in dispute to give notice requiring the dispute to be resolved by an independent consultant which either party could request the president of the Institute of Engineers Australia to nominate, in the absence of agreement of the parties upon an independent consultant. The clause specified that such independent consultant shall act as an expert and not as an arbitrator. The dispute arose under the clause in the deed that permitted the parties to agree on any item of "additional capital outlay". The owner disputed liability for the amount claimed by the developer under the clause on the basis that some of it was attributable to complying with the requirements of statutory authorities which the owner claimed was a cost for which the developer was otherwise liable under the deed. After an independent consulting engineer had been nominated in accordance with the dispute resolution clause the owner sought a declaration that the developer was not entitled to refer the matter which was the subject of its dispute notice to the independent consultant for determination. It was argued that it was inappropriate for such an expert to determine substantive and disputed questions of liability under the contract, rather than construction matters. The owner's arguments were based on interpretation of the dispute resolution clause of the contract and discretionary considerations. Smart J determined that the relevant clause covered disputes on both liability and quantum on matters relating to the construction of the centre. Even though it was acknowledged by Smart J that the expert would have to deal "with some difficult questions requiring a full and careful inquiry", the owner's application was unsuccessful.

[61] The issue in Capricorn Inks Pty Ltd v Lawter International (Australasia) Pty Ltd [1989] 1 Qd R 8 ("Capricorn") was whether accountants appointed to act as auditors to determine the quantum of losses suffered by an ink manufacturer as a result of the supply of defective chemicals were acting as experts or arbitrators. McPherson J at first instance (who held that what was expected of the accountants was an appraisal or assessment carried out by them as experts) referred to the incidents of an arbitration at 15-16:

"There is no doubt that on occasions courts have selected the existence of a dispute requiring resolution or determination as the feature distinguishing arbitration from appraisement or valuation, which is said to be a process which prevents or precludes disputes from arising: see Bos v Helsham (1866) L.R. 2 Ex. 72; Re Carus-Wilson & Greene (1886) 18 Q.B.D. 7. But the existence of a 'dispute', although a factor, is not necessarily a decisive factor in determining whether arbitration or appraisement is involved. It is quite possible for parties to become involved in a dispute about something, such as the value of premises or goods, which they agree to submit for appraisal without intending that an arbitration should follow. The distinction depends upon a range of factors of varying importance and weight depending on the circumstances; but generally what must be in contemplation is that there will be 'an inquiry in the nature of a judicial inquiry': see Re Carus-Wilson & Greene (1886) 18 Q.B.D. 7, 9, per Lord Esher M.R. His Lordship there went on to say that the intention must be that the arbitrator should 'hear the respective cases of the parties and decide upon evidence laid before him...'. That passage in the judgment has been applied in a number of subsequent cases... [A]s a general proposition it remains true that the proceeding is an arbitration if the parties intend that they should have the right to be heard if they so desire: Hammond v Wolt [1975] VicRp 10; [1975] V.R. 108, 112. It has been held to be misconduct for an arbitrator to take and act upon evidence in the absence of the parties... That cannot be so in the case of a mere appraisement or valuation."

[62] In Triarno Pty Ltd v Triden Contractors Ltd (1992) 10 BCL 305 ("Triarno"), a building contract had been terminated upon terms set out in a deed which provided for the value of any claim made by the owner to be the subject of a determination from an independent expert. The deed made no express provisions for payment of the independent expert, the procedures to be followed by the expert in reaching the determination or the rights or obligations of the parties in relation to the expert's determination. No agreement regarding procedures and costs could be reached at a meeting between the parties and the independent experts who were appointed to carry out the expert determination. An application was made to the court to declare the rules and procedures for the conduct of an expert determination pursuant to the deed. Cole J drew a distinction between an arbitration for which the court had power under the relevant statute to make interlocutory orders and an expert determination for which the court had no jurisdiction to determine procedures and stated at 307:

"If the parties have not by their deed agreed the procedures to be followed upon an expert determination, that is not a void the court can fill. There is no reason to imply a term that the court will determine procedures. It is a matter for either agreement between the parties, or determination by the independent experts as to the procedures to be followed."

[63] Triarno was applied in Fletcher Constructions Australia Ltd v MPN Group Pty Ltd (unreported, Supreme Court of New South Wales, Rolfe J, 55028 of 1996, 14 July 1997) ("Fletcher"). In Fletcher the builder and the engineer were bound by an agreement under which the engineer provided structural engineering services in connection with a building project. The builder referred disputes which involved questions of liability and quantum including questions of law about the standard of care required of the engineer and which it considered had arisen in relation to the performance by the engineer of its services for expert determination. The builder relied on the clause in the agreement that provided for the resolution of disputes by expert determination. That clause was in a bare form and, apart from stipulating that the expert would act as an expert and not as an arbitrator and the expert's decision would be final and binding upon the parties, there were no provisions dealing with procedures for the expert determination. The engineer claimed that the dispute resolution clause was void for uncertainty. Rolfe J considered that Triarno was authority for the proposition that in the absence of agreement as to procedures for the expert determination, they are to be decided by the expert and applied that to hold that there was no uncertainty in the operation of the dispute resolution clause.

[64] Both parties referred to the decision of Chesterman J in Zeke Services Pty Ltd v Traffic Technologies Ltd [2005] QSC 135; [2005] 2 Qd R 563 ("Zeke Services"). In Zeke Services the first plaintiff entered into an agreement to sell its shares in Traffic Services Australia Holdings Pty Ltd to the first defendant. The second plaintiff was a director of Traffic Services Australia Holdings Pty Ltd and was also a party to the agreement. The second defendant was a director of the first defendant and guaranteed the first defendant's performance of the agreement. The agreement provided for the parties to refer any claim by the first defendant for breach of any of the warranties in the agreement that the parties failed to resolve to the Australian Institute of Chartered Accountants to appoint an independent expert to resolve the claim. A claim was made by the defendants in respect of a number of alleged breaches of warranties by the plaintiffs and the first defendant withheld part of the purchase price. The President of the professional body named in the agreement appointed an expert accountant in response to the defendants' request. The plaintiffs refused to cooperate in the expert determination of the claims. The plaintiffs sued the defendants for damages for breach of contract, part of which was for the balance of the purchase price. The defendants applied for a stay of the action on the ground that the agreement provided a mechanism for the resolution of disputes between the parties.

[65] Chesterman J expressed the view in Zeke Services (at paragraph [24]) that if a dispute is not of a kind which can be determined in an informal way by reference to the specific technical knowledge or the learning of the expert, it may be appropriate to refuse a stay. Chesterman J held (at paragraph [28]) that all but three of the defendants' complaints were suitable for expert determination by the accountant. One of the complaints was based on an alleged misrepresentation in respect of bad debts which involved questions of mixed fact and law which Chesterman J described as "more readily answered by a lawyer than an accountant" (at paragraph [30]). Similarly, Chesterman J concluded (at paragraph [31]) that the two complaints about fictitious employees could not be answered by an examination of the company's records and would involve fact finding which was not the expertise of an expert accountant.

[66] The conclusion of Chesterman J in Zeke Services (at paragraph [37]) was that, although there should be no stay with respect to those complaints that may be appropriately determined by the expert, to order a stay of the proceedings to allow the expert to determine some only of the complaints would be unsatisfactory; and as the court must determine some of the questions in dispute (namely the three complaints that were unsuitable for expert determination), it should determine them all. The defendants' application for the stay of the action was dismissed. This decision was not concerned, however, with whether the complaints were able to be the subject of expert determination, but whether the discretion to order a stay of the action that also covered those complaints should be exercised. That is why Zeke Services focussed on the suitability of the complaints for expert determination.

[67] It has become commonplace in building and commercial contracts for parties to set up a dispute resolution mechanism that is not limited to issues arising under the contract, but allows for an expert determination of disputes arising out of the performance of the contract. This was recognised in Straits Exploration Australia Pty Ltd v Murchison United NL [2005] WASCA 241; (2005) 31 WAR 187, 192-193 [14]:

"There is increasingly, as a matter of commercial practice, a tendency of parties to provide for the determination of some or all disputes by reference to an expert. There are a number of reasons for that course, including informality and speed; suitability of some types of disputes for determination by persons with particular expertise; privacy; and a desire to resolve disputes in a way which may be seen as reasonably consistent with the maintenance of ongoing commercial relationships. The law has long recognised that those are proper considerations to which the court should give appropriate weight, and that it is desirable therefore that parties who make such a bargain should be kept to it. The tendency of recent authority is clearly in favour of construing such contracts, where possible, in a way that will enable expert determination clauses to work as the parties appear to have intended, and to be relatively slow to declare such provisions void either for uncertainty or as an attempt to oust the jurisdiction of the court."

[68] One of the issues in Qld Power Trading Corp v Xstrata Qld Ltd [2005] QCA 477 was whether the procedure for a review of the price to be paid for natural gas under an agreement between a mining company and a consortium of producers for the acquisition of gas by the mining company for use in its mining operations from the producers was an arbitration for the purposes of the Act. Williams JA (with whom the other members of the court agreed) reached the conclusion at paragraph [16] that the exercise to be carried out under the agreement was an arbitration by reference to what the contents of the relevant clauses of the agreement obliged the arbitrators to do. Williams JA followed the approach expressed in Santos Ltd v Pipelines Authority of SA [1996] SASC 5578; (1996) 66 SASR 38, 48 that "the question is not whether the parties intended arbitration but whether there is a subject matter of arbitration, that is, a subject matter in the nature of judicial inquiry". That question had been formulated in Australian Mutual Provident Society v Overseas Telecommunications Commission (Australia) [1972] 2 NSWLR 806, 814. It was found by Williams JA that the inquiry which the arbitrators were obliged to undertake was in the nature of a judicial inquiry which confirmed the decision at first instance on this aspect. At first instance in Xstrata Queensland Ltd v Santos Ltd [2005] QSC 323 McMurdo J stated:

"[28] Of course, parties to a contract may agree that a dispute which can be decided in a judicial manner will instead be resolved in a non judicial manner; that it will be decided by an expert and not by an arbitrator. But where the subject matter of the dispute is such that it cannot be decided in a judicial manner, it cannot be the subject of an arbitration agreement, notwithstanding any attempt to dress it up as such with the terminology of arbitration and the procedure of litigation or even by the expressed intention that the Commercial Arbitration Act will apply.

[29] A dispute is not capable of decision in a judicial manner absent the existence of certain objective criteria which define how a decision for its resolution is to be reached. If the decision maker is free to apply his or her idiosyncratic view the decision making process cannot in substance be a judicial one. It is only if the decision maker is bound by certain measures, standards or criteria, which are known to the parties, that the process can resemble a judicial one. An arbitration requires the existence of a dispute which is to be resolved according to such defined criteria. In the application of those criteria, there could be more than one answer, such as more than one revised price. Yet that is no different from where, for example, the application of the relevant statute and common law can result in a range of proper awards of damages."

[69] The issue to be determined in APM Group (Aust) Pty Ltd v Galwin Pty Ltd [2006] VSC 325 ("APM Group") was whether an expert determination was binding on the parties pursuant to the completion agreement they entered into after disputes arose under the building contract. All unresolved disputes between the parties up to the date of the completion agreement were referred to the superintendent under the contract for expert determination. The relevant clause set out a timetable for the provision of claims, supporting documentation, responses and questions by the expert. The expert commenced performance of the functions under the dispute resolution clause. The expert was required to send questions to the parties progressively up to a specified date or such further date as determined by the expert in conjunction with the parties. On a couple of occasions the expert proposed extended dates. Eventually the owner advised the expert that it no longer agreed to the issues the subject of the completion agreement being referred to expert determination. The expert did not accept that the owner had the power to withdraw and issued its expert determination pursuant to the completion agreement.

[70] Hansen J in APM Group referred with approval to the statement made by Cole J in Triarno that the procedure applied by experts must be a matter for agreement between the parties or determination by the experts and the endorsement of that approach in Fletcher. Hansen J construed the provision permitting the expert to determine the extended date for sending the questions as requiring the expert to seek and take into account the views of the parties and that the fixing of the extended date did not depend upon tripartite agreement between the parties and the expert. Hansen J held at paragraph [55] that the initially express timeframes were not conditions, but were a machinery or procedural mechanism for the timely conduct of the process, but with an inbuilt allowance for time to be extended and, even if there had been a departure from the timeframes, such departure did not render the determination unenforceable, because it was not material. It was held that the owner could not unilaterally terminate the determination process and that therefore the expert did make his determination in accordance with his authority under the completion agreement and that the owner was bound by that determination.

[71] Arbitration is therefore a much more closely defined and regulated process than expert determination. The discussion of both processes in these authorities shows that the concept of expert determination has developed as a consensual method of resolution of issues or disputes arising under a contract which can be contrasted with and distinguished from arbitration. In some instances, however, the points of distinction between how an arbitration and an expert determination are carried out may not be significant. The description by the parties of the process is relevant, but not conclusive. There is no restriction on the nature of the disputes which the parties can agree will be the subject of expert determination, eg questions of law were involved in the expert determination considered in Fletcher. It depends on the terms of the relevant contractual provisions pursuant to which the expert determination is initiated.

[72] What is significant is that an arbitration entails the mandatory requirement that the arbitrator must act judicially. Experts are not bound to act judicially and it is inconsistent for an expert to do so where the expert is required to make use of the expert's own expertise. That does not preclude an expert from acting judicially, if that is how the expert chooses to act and, in the particular case, the expert is acting in a way that accords with the terms of the expert's appointment. Although it is usual for an expert to be chosen under the contractual method of appointment by reference to a particular expertise, it is not an essential characteristic of an expert determination that the expert is obliged to make use of the expert's expertise in making the expert determination, provided the expert acts in accordance with the terms of the appointment.

[73] Because arbitration has a statutory framework, but expert determination is governed by the terms of the contract between the parties and depends on the content of the contractual terms chosen by the parties, it is easier to identify the indicia of an arbitration, than the indicia of an expert determination. The analysis of what parties have agreed upon will usually be in terms of whether the process is or is not arbitration.

[74] The basic submissions of the parties on the law relating to expert determinations and arbitrations are similar. The parties, however, differ starkly on the characterisation of the events that have occurred in connection with the directions of the experts allowing cross-examination of the witnesses.

[75] Central to the applicant's contention that the parties and the experts reached an agreement to arbitrate that is evidenced in writing is the decision of the experts on 3 August 2006 that they would proceed with cross-examination of witnesses by the parties' representatives. For the evidence in writing of the respondent's agreement to this process of cross-examination, the applicant relies on the respondent's solicitors' letter dated 7 February 2006 which referred to their understanding of an agreement initiated by the applicant to modify the rules for expert determination to allow for the cross-examination of witnesses together with the acknowledgement in the respondent's written submissions dated 22 September 2006 that there was an acquiescence by the respondent to the applicant's proposal for cross-examination. Alternatively, the applicant relies on the respondent's solicitors' email of 14 August 2006 as written evidence of its agreement that there would be cross-examination of witnesses, as contemplated by the experts' decision of 3 August 2006. For the written evidence of the applicant's acceptance of the direction allowing cross-examination, the applicant relies on its solicitors' letter of 14 August 2006.

[76] The respondent contends that there was no agreement between the parties and the experts as to a change in process, but that in their decision of 3 August 2006 the experts made a determination as to the procedure they would adopt in carrying out their expert determination in relation to the category 1 disputes. The respondent contends that if there were any agreement between the parties and the experts about cross-examination, it was an agreement to leave the question to the discretion of the experts and the direction allowing cross-examination on 3 August 2006 was as a result of the exercise of that discretion. The respondent refers to the "collective view" of the parties and the experts that cross-examination might take place.

[77] The issues that are thrown up on this application by the submissions of the parties include:

(a) whether the experts under the rules or by subsequent agreement with the parties had power to make directions allowing cross-examination of witnesses;

(b) whether the making of directions by the experts allowing cross-examination of witnesses had any effect on the nature of the reference;

(c) whether the parties had agreed with the experts to arbitrate the categories 1 to 6 disputes;

(d) if there were an agreement to arbitrate under the Commercial Arbitration Act 1990 ("the Act") in relation to the disputes referred to the experts, whether that reference should be consolidated with the Waves 1 and 2 arbitration before Mr Fischer.

The applicant has not based its application on a case that expert determination is not an appropriate process for the resolution of the categories 1 to 6 disputes.

Whether the experts had power to make directions allowing cross-examination of witnesses

[78] It is not in issue that at the outset Mr Orange and Mr Callaghan were appointed as experts under the building contract to determine the categories 1 to 6 disputes and the nature of the reference did not change upon Mr Ryan's appointment to replace Mr Orange.

[79] Although the experts determined the basis on which they decided on 3 August 2006 they had the authority to make arrangements for the cross-examination of witnesses in relation to the category 1 disputes, this application is not (and cannot be) an appeal from their decision on this aspect, but is concerned with any effect of that decision on the nature of the reference to the experts. Irrespective of the basis on which the experts reached their decision to give directions on the cross-examination of witnesses, it is relevant as a starting point to consider whether the rules permitted cross-examination of witnesses as part of the process undertaken by the experts in reaching their expert determination.

[80] Unlike the respective dispute resolution clauses in Triarno and Fletcher, in this matter the rules set out in some detail the procedure to be followed by the experts. It is therefore relevant to consider what the parties intended by rule 8 which stipulates that the "Process" may be modified only by agreement of the parties and the experts, unless otherwise stated. One construction is that "Process" refers to the fundamental nature of the process of expert determination. Another construction is that "Process" encompasses all the procedures set out in the rules for the expert determination. As the rules relate only to the process of expert determination, the latter construction gives rule 8 scope for operation and must be the correct one.

[81] This means that, except to the extent that the rules permit the process for the expert determination to be modified without the agreement of the parties and the experts, any alteration to the process from that which is otherwise provided for in the rules must be done only by agreement of the parties and the experts. It is inconsistent with the detailed procedure for the conduct of the expert determination set out in the rules and the express provision of rule 8 to find that the experts have the power to modify the procedures to be followed for the expert determination, in the absence of agreement between the parties and the experts. The statements to opposite effect in Triarno and Fletcher can therefore be distinguished.

[82] There is no express procedure under the rules for cross-examination by one party of the witnesses whose statements are relied on by the other party. Unlike the Act which facilitates the examination of witnesses for the purpose of an arbitration by the authority given to the court in s 17 to issue a subpoena requiring a person to attend for examination before the arbitrator and by the authority given to the arbitrator in s 19 to receive evidence on oath or affirmation, the rules do not confer any means by which the experts may summon witnesses for cross-examination. The rules do provide, however, for the experts to "require from either party further information as the Expert sees fit" (rule 2) or to act "on the basis of information received" (rule 6(d)). The applicant submits that the word "information" has been used by the parties to distinguish it from evidence tested by cross-examination and to keep the process within the bounds of expert determination. Those words about requiring or receiving information should be given their ordinary meaning. Without any modification to the rules or other agreement between the parties and the experts, it was open to the experts to obtain information relevant to their task by requiring a party to make its witnesses available for questioning by the experts or seeking information from the witnesses. The experts are not assisted by any coercive powers under the rules, so that if the party could not persuade the witness to cooperate, the experts may be unsuccessful in questioning that witness. It is difficult to see why questioning by the experts under the rules of a witness to elicit information would not extend to questions put forward by the other party for the experts to consider asking the witnesses. Although the experts have no power to administer an oath or affirmation, that is not essential for questioning which has as its purpose the eliciting of information by the experts for the purpose of assisting them in making their determination. By permitting the experts to question witnesses in order to elicit information, the rules therefore gave the experts a means to test evidence to some extent.

[83] The possibility of cross-examination (at least on the part of the applicant) had been raised by the meeting held on 17 September 2004 and confirmed in the applicant's submissions that were incorporated in the Scott schedule relating to the category 1 disputes. I have indicated above that the parties agreed with the experts at the meeting on 1 April 2005 that, at least in relation to the category 1 disputes, if the experts required oral evidence on the issues, the parties would be able to make submissions as to the process for taking oral evidence and the parties would accept the experts' decision on how oral evidence should be taken. Relevant exchanges between the parties about cross-examination took place at the meeting on 10 October 2005 resulting in the directions of the experts for such cross-examination of witnesses. The parties and the experts had therefore agreed on an expansion of the process otherwise permitted by the rules for testing evidence.

Effect of experts' directions allowing cross-examination

[84] Neither party has found any decision which deals with the situation where the manner in which an expert determination has been conducted has altered the nature of the reference in such a way as to preclude it continuing as an expert determination or to change the reference to an arbitration instead of an expert determination. Theoretically, however, one can envisage that the nature of a reference could in the course of the conduct of the reference change to such a degree that it transforms from an expert determination to an arbitration, provided the formal requirements to institute either a common law arbitration or an arbitration under the Act are met in relation to the change in the reference. The applicant refers to comments found in texts and articles which suggest that the nature of a reference can change. In John Kendall, Expert Determination (3rd ed, London Sweet & Maxwell 2001) at paragraph 17.7.3, there is a discussion on whether an expert is prohibited from following the litigation practice of a formal hearing with witnesses available to be cross-examined:

"The position of an expert depends first on whether the parties have any specific requirements. Subject to that, an expert is not prohibited from following these litigation-style procedures, but would be unwise to do so because the reference may subsequently be held to have been an arbitration and in any event take longer and be more costly."

[85] The applicant's submissions focus on the effect on the nature of the reference of the directions given by the experts on 3 August 2006 permitting cross-examination of witnesses by the parties. The applicant challenges whether the task undertaken by the experts to provide an expert determination can continue to be treated as an expert determination where there are issues of fact involving the credit of witnesses to be resolved. The applicant submits that the subject matter of the agreement between the parties for expert determination, as varied to accommodate cross-examination of witnesses, is in the nature of a judicial inquiry and therefore has transformed into an arbitration or cannot continue as an expert determination.

[86] Section 13 of the building contract contemplates that a dispute arising under the building contract may be suitable for both arbitration and expert determination. If the dispute is not resolved within the period provided for after the notice of dispute has been given, in default of an election by the party which gave the notice of dispute to have the dispute determined by expert determination, the dispute resolution method that applies under section 13.2.2 is arbitration. It is only disputes that have arisen under the building contract that can be referred for determination by expert determination. The subject matter for expert determination could therefore easily be the subject matter of an arbitration. There is nothing in section 13 of the building contract that limits the nature of the dispute that can be the subject of an election by a party in favour of expert determination. There is also nothing in section 13 of the building contract that precludes a dispute that may raise credit issues in respect of witnesses whose evidence is relevant to disputed facts from being the subject of the expert determination. The rules (without any modification) enabled some degree of testing of evidence by the experts as part of the process of obtaining information to assist them in the expert determination.

[87] Although the experts intended dealing with the preliminary issues related to the identification of the terms of the building contract before proceeding to determine the category 1 disputes, both had also been appointed to determine the category 2 disputes which entailed disputes over valuations in respect of works undertaken at the development. The expertise of Mr Callaghan will be particularly relevant to the category 2 disputes.

[88] The variation of the process which was agreed upon by the parties and the experts at the meeting on 1 April 2005 gave the experts the discretion to allow cross-examination of witnesses by the parties (at least in relation to the category 1 disputes). Cross-examination of witnesses by the parties was not a mandatory part of the process as originally provided for in the rules or even as a result of the variation made on 1 April 2005. It was a procedure that the experts decided to follow in accordance with the power given to them by the parties, rather than being bound to follow. The category 2 disputes that are before the experts may not necessarily involve cross-examination of witnesses and may involve the experts placing reliance on Mr Callaghan's expertise in dealing with those disputes.

[89] There is no doubt that the process proposed by the experts for determination of the preliminary issues and the category 1 disputes is very close to the procedure that would apply in an arbitration. The circumstances in which it has come about is as a result of the implementation of the process under the rules by the parties and the experts, as modified by the parties and the experts in accordance with the rules and the exercise of the discretion the parties conferred on the experts to allow cross-examination of witnesses. The expert determination of the category 1 disputes with cross-examination of witnesses has not become a judicial inquiry, but remains an expert determination that will continue as an expert determination by the experts, at least for the category 2 disputes. The making of directions by the experts allowing cross-examination of witnesses (without any obligation to make those directions) did not alter the nature of the reference to the experts from expert determination to arbitration or bring the expert determination to an end.

[90] In view of the conclusion that I have reached that there has not been the transformation of the expert determination into an arbitration as contended for by the applicant, there is not the subject matter for an agreement to arbitrate in respect of the category 1 disputes. This is because the applicant's characterisation of communications as constituting an agreement to arbitrate is based on the misconception that cross-examination of witnesses by the parties cannot take place for an expert determination.

[91] There is no suggestion by the applicant that the parties together with the experts have consciously reached an agreement to change the nature of the reference applying to the categories 1 to 6 disputes from expert determination to arbitration. The applicant relies on the substance of what it contends has occurred during the course of the expert determination as justifying the conclusion that as a question of law the parties have agreed to release the experts from their obligations to provide the expert determination of the disputes referred to them and instead entered into an agreement to arbitrate with the experts.

[92] The respondent's acknowledgment of the change in procedure to allow for cross-examination of witnesses by the parties made in the letter of 7 February 2006 and the submissions of 22 September 2006 which the applicant relies on to show that there was an agreement to arbitrate were made in recognition by the respondent of what it understood the parties had agreed about the process of cross-examination such as at the meeting with the experts on 1 April 2005 and discussed with the experts on 10 October 2005, resulting in the directions of the experts on 24 October 2005 and, ultimately, the directions allowing cross-examination on 3 August 2006. These statements on behalf of the respondent were made in the context of the ongoing expert determination. The same comment applies to the respondent's solicitors' letter of 14 August 2006 which accepted the experts' directions of 3 August 2006. The experts made their directions allowing cross-examination of witnesses by the parties for the purpose of the expert determination and not as a step in obtaining a release from their obligations to provide the expert determination.

[93] In fact, the written acceptance of the procedure for cross-examination on the part of the applicant which the applicant relies on was made in the applicant's solicitors' letter dated 14 August 2006 to the experts indicating that the applicant was content to proceed with the procedure outlined in the experts' decision dated 3 August 2006. It was opportunistic on the part of the applicant to claim that its acceptance of those directions made on 3 August 2006 was an agreement on its part to release the experts from their obligation to proceed with the expert determination of the disputes and was sufficient to show that the applicant was party to an agreement to arbitrate with the respondent and the experts.

[94] Such a fundamental change in the role of the experts or an agreement between the parties to change the nature of the reference is completely at odds with the express provision in section 13.4.2.4 of the building contract that the experts will not act as arbitrators.

[95] As I have concluded that there was no agreement between the parties and the experts (whether in writing or orally) for the experts to arbitrate the category 1 disputes, it is not necessary to consider the issue of consolidation with the Waves 1 and 2 arbitration before Mr Fischer.

[96] To date the expert determination of the category 1 disputes has not proceeded as the parties had envisaged when they made provision in the building contract for expert determination of disputes. The fact that the parties have failed in obtaining the benefits usually associated with expert determination of speed, informality and finality does not allow the parties to abandon the process. The parties are bound by the building contract to pursue the expert determination of the categories 1 to 6 disputes, unless they can reach agreement on how their disputes can otherwise be progressed.

[97] It follows from my rejection of the applicant's claims that the expert determination of the category 1 disputes transformed into an arbitration, the expert determination came to an end or that there was an agreement to arbitrate that the application must be dismissed. As the applicant has been unsuccessful in obtaining the relief sought in the amended originating application, it should pay the respondent's costs of the application to be assessed. Before making the order for costs, however, I will hear any submissions that the parties wish to make.