United Group Rail Services Ltd v Rail Corporation NSW

Supreme Court of NSW|2008-11-28|Before: Rein J, Bollen J

CITATION : United Group Rail Services Ltd v Rail Corporation NSW [2008] NSWSC 1364

CATCHWORDS : Whether contractual dispute resolution clause void for uncertainty - Whether requirement to negotiate building dispute "in good faith" void for uncertainty - Whether provision(s) void for uncertainty are severable from contract

Trade Practices Act 1974 (Cth) LEGISLATION CITED : Civil Procedure Act 2005 Native Title Act 1993 (Cth)

TEXTS CITED : Lewison, The Interpretation of Contract (2007) (Sweet and Maxwell)

PARTIES : United Group Rail Services Limited (Plaintiff) Rail Corporation New South Wales (Defendant)

COUNSEL : Mr Pembroke SC (with Mr Liney) (Plaintiff) Mr Finch SC (with Mr G. Rich) (Defendant)

SOLICITORS : Mallesons Stephen Jaques (Plaintiff) Clayton Utz (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

Hearing: 27, 28 November 2008 Judgment: 17 December 2008

55095/08 United Rail Group Services Ltd v Rail Corporation NSW JUDGMENT 1 Rein J: The plaintiff, United Rail Group Services Limited ("United"), for whom Mr Pembroke SC with Mr Liney appears and a predecessor in title to the Rail Corporation New South Wales ("Rail Corp"), the State Rail Authority, entered into agreements whereby United would construct rail infrastructure for Railcorp. Mr S Finch SC with Mr G Rich appear for Railcorp. 2 There are two agreements, one known as contract no C02391 "Design and Build New Hunter Railcars" (which I shall refer to as "the Hunter Contract"), and one known as C03005 "Design and Build New Outer Suburban Cars" (which I shall refer to as "the OSCar Contract"). The Hunter Contract clause 35 of General Conditions is in the following terms:

"35 DISPUTE RESOLUTION 35.1 Notice of Dispute If a dispute or difference arises between the Contractor and the Principal or between the Contractor and the Principal's Representative in respect of any fact, matter or thing arising out of or in connection with the work under the Contract or the Contract, or either party's conduct before the Contract, the dispute or difference must be determined in accordance with the procedure in this Clause 35. Where such a dispute or difference arises, either party may give a notice in writing to the Principal's Representative and the other party specifying: (a) the dispute or difference; (b) particulars of the dispute or difference; and (c) the position which the party believes is correct. 35.2 Submission to Expert Determination If the dispute or difference is in relation to a Direction of the Principal's Representative under one of the Clauses referred to in Attachment "A", the dispute or difference must, if it is not resolved within 14 days after a notice is given under Clause 35.1, be submitted to expert determination to be conducted by: (a) the independent industry expert specified in Attachment "A"; or (b) where: (i) no such person is specified; or (ii) the independent industry expert specified in Attachment "A" or person appointed under this Clause 35.2: is unavailable; declines to act; does not respond within 14 days to a request by one or both parties for advice as to whether he or she is able to conduct the appraisal; or does not issue his or her decision within the time required by Clause 35.7, a person agreed between the Principal and the Contractor and failing agreement within 21 days then a person appointed by the President for the time being of the Institution of Engineers, Australia. 35.3 Not Arbitration An expert determination conducted under this Clause 35 is not an arbitration and the Adjudicator acts as an expert and not as an arbitrator. The Adjudicator may reach a decision from his or her own knowledge and expertise.

35.4 Procedure for Expert Determination The Adjudicator may: conduct an investigation which he or she considers necessary to resolve the dispute or difference; proceed in such manner as the Adjudicator thinks fit without being bound to observe the rules of natural justice or the rules of evidence; examine such documents, and interview such persons as he or she may require; and without limitation, make such directions for the conduct of the expert determination as he or she considers necessary. 35.5 Disclosure of Interest The Adjudicator must: disclose to the parties any interest he or she has in the outcome of the expert determination; and not communicate with one party to the expert determination without the knowledge of the other. 35.6 Costs Each party will bear its own costs in respect of the expert determination. 35.7 Conclusion of Expert Determination The determination of the Adjudicator must be issued to the parties within 28 days from the acceptance by the Adjudicator of his or her appointment, unless otherwise agreed between the parties. 35.8 Agreement with Adjudicator The parties must enter into an agreement with the Adjudicator on the terms in Attachment "J" or such other terms as may be agreed between the parties and the Adjudicator. 35.9 Determination The determination: (a) must be given in writing by the Adjudicator; (b) will be final and binding unless a party gives notice of appeal to the other party within 7 days of the determination; and (c) is to be given effect to by the parties unless and until it is reversed, overturned or otherwise changed under the procedure in the following Clauses 35.10 to 35.12. 35.10 Arbitration Agreement If: (a) a party gives the other a notice of appeal in accordance with Clause 35.9 against a determination of the Adjudicator; or (b) the dispute or difference does not relate to a Direction of the Principal's Representative under one of the Clauses referred to in Attachment "A", the dispute or difference must be determined by arbitration in accordance with the following Clauses. 35.11 Negotiation If: (a) a notice of appeal is given in accordance with Clause 35.9; or (b) the dispute or difference for which the notice under Clause 35.1 has been given does not relate to a Direction of the Principal's Representative under one of the Clauses referred to in Attachment "A", the dispute or difference is to be referred to a senior representative of each of the Principal and Contractor who must: (c) meet and undertake genuine and good faith negotiations with a view to resolving the dispute or difference; and (d) if they cannot resolve the dispute or difference within 14 days after the giving of the notice under Clause 35.1 or 35.9 (whichever is later), the matter at issue will be referred to the Australian Dispute Centre for mediation. 35.12 Arbitration If the senior representatives referred to in Clause 35.11 cannot resolve the dispute or difference or, where the matter is referred to mediation under Clause 35.11(d), the matter is not settled within 42 days after the giving of the notice under Clause 35.1 or Clause 35.9 (whichever is the later), or within such longer period of time as these representatives may agree in writing, the dispute or difference will be referred to arbitration. The arbitration will be conducted before a person to be: (a) agreed between the parties; or (b) failing agreement within: (i) 49 days after the giving of the notice under Clause 35.1 or Clause 35.9 (whichever is the later); or (ii) where the senior representatives referred to in Clause 35.11 have agreed upon a longer period of time prior to reference to arbitration, 7 days after the expiration of that period, appointed by the President for the time being of The Institute of Arbitrators and Mediators Australia. The Rules for the Conduct of Commercial Arbitration of The Institute of Arbitrators and Mediators Australia will apply to the arbitration. The arbitrator will have power to: (c) open up and review any Direction of the Principal's Representative and decision by the Adjudicator; and (d) grant all legal, equitable and statutory remedies. 35.13 Survive Termination This Clause 35 will survive the termination of the Contract. 35.14 Continuation of work under the Contract Despite the existence of a dispute or difference between the parties: (a) the Contractor must:

(i) continue to carry out the work under the Contract; and otherwise comply with its obligations under the Contract; and (b) the Principal must comply with its obligations under the Contract".

3 The OSCar Contract clause 35 is in almost identical terms the difference not being presently material, it was agreed. I shall refer to the Hunter Contract and the conclusions reached will apply equally to the OSCar Contract. 4 Disputes have arisen between the parties and steps taken under clause 35 of the Hunter Contract, but the plaintiff asserts that clause 35(11)(d) and clause 35(12) are void for uncertainty. 5 Railcorp accepts that 35(11)(d) is void for uncertainty but does not accept that 35(11)(c) is void. Railcorp argues that even though (d) is void, it is severable from the contract. It argues that, if contrary to its contentions (c) is also void, then (c) and (d) are severable. United rejects this approach, and says that the invalidity of (d) alone or in combination with (c) if its contentions in respect of (c) are upheld, renders 35(12) invalid/inoperable and that (c) and (d) cannot be severed. I shall refer to (c) as the negotiation clause and (d) as the mediation clause. 6 It will be observed that clause 35 creates a different regime depending on the nature of the dispute. If the dispute arises under any of the clauses specified in Attachment A to the contract the following regime applies: (1) notice in writing (2) submissions to expert (3) adjudication by expert (i.e. expert determination) (4) notice of appeal (5) referral to senior representatives to meet and negotiate (6) if not resolved, mediation (7) if not resolved, arbitration 7 If the dispute arises under any other provisions the regime is: (1) notice in writing (2)referral to senior representatives to meet and negotiate (3) if not resolved, mediation (4) if not resolved, arbitration.

8 Some of the disputes fall within Attachment A, and some do not. I shall refer to those that fall within Attachment A as "ED matters" and those which do not as "non ED matters" - the "ED" standing for expert determination. There has already been commenced a process of notifications both in respect of ED matters and non-ED matters and there have been nominations of Senior Representatives and meetings which failed to produce a resolution of the dispute.

9 United submits that the clause requiring senior representatives to meet and undertake genuine good faith negotiations is void for uncertainty. In Laing O'Rourke (BMC) Pty Ltd v Transport Infrastructure [2007] NSWSC 723, Hammerschlag J held that an almost identically worded clause was void for uncertainty. His Honour did go on to hold that that clause was severable. United submits that the matters which led Hammerschlag J to conclude that the "negotiation" clause was severable are not pertinent to this case.

General Principles in Respect of Construction, Ambiguity and Uncertainty 10 A Court is required in construing a written contract, to endeavour to discover the intention of the parties from words used in the contract - a clause's meaning may be reached by other parts of the document: see Australian Broadcasting Commission v Australasian Performing Right Assn Ltd (1973) 129 CLR 99 per Gibb J (as he then was) at 109. The Court endeavours to ascertain what objectively was the meaning of the words used: Toll (FGCT) Pty Ltd (formerly Finemores GCT Pty Ltd) v Alphapharm Pty Ltd (2004) 219 CLR 165 [35] -[38]. 11 In Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429; (1968) 41 ALJR 348, in which the words "supplier's costs" were held not to be meaningless, Barwick CJ also said: "But a contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void for uncertainty. As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties, and of applying it. Lord Tomlin's words in this connexion in Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503, at p 512 ought to be kept in mind. So long as the language employed by the parties, to use Lord Wright's words in Scammell (G) & Nephew Ltd v Ouston (1941) AC 251 is not "so obscure and so incapable of any definite or precise meaning that the Court is unable to attribute to the parties any particular contractual intention", the contract cannot be held to be void or uncertain or meaningless. In the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements. Thus will uncertainty of meaning, as distinct from absence of meaning or of intention, be resolved".

Negotiation in "Good Faith" 12 The question of whether an agreement to negotiate in good faith is void for uncertainty is one which has lead to a division of opinion. An extensive and helpful review was undertaken by Einstein J in Aiton Australia Pty Ltd v Transfield Pty Ltd (1999) 153 FLR 236, with his Honour concluding, obiter, that a provision by parties to undertake to negotiate disputes under a building contract was not void for uncertainty. A contrary view was taken by Giles J in Hooper Bailie Associated v Natcon Group (1992) 28 NSWLR 194 and Elizabeth Bay Developments v Boral Building Services (1995) 36 NSWLR 709 (although his Honour regarded an agreement to conciliate as sufficiently certain) and by Hammerschlag J in Laing O'Rourke v Transport Infrastructure [2007] NSWSC 723. The approach of Einstein J accords with that taken by Kirby P in Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 (in whose judgment Waddell AJA concurred) and the views of Giles J and Hammerschlag J accord with the approach taken by Handley JA in Coal Cliff and the House of Lords in Walford v Miles [1992] 2 AC 128. 13 I think that there are three elements of the debate that are common ground: (1) an agreement to agree on contractual terms is void for uncertainty, Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1987) 149 CLR 600, 604; (2) an obligation of good faith in the performance of a contractual obligation has "content" and is not void for uncertainty, see Burger King Corp v Hungry Jacks Pty Ltd [2001] NSWCA 187, Alcatel Australia Pty Ltd v Scarcella (1998) 44 NSWLR 349, JF Keir Pty Ltd v Priority Management Systems Pty Ltd [2007] NSWSC 789; (3) an obligation to negotiate in good faith is of a type that would not be, or not be likely to be the subject of an order for specific performance: see Hooper p 210, Aiton [26], [28]. Whilst some of those who have taken the view that a requirement to negotiate in good faith is meaningless do so because they do not regard 'good faith' as having sufficient content, others identify the problem with the requirement as being that freedom of negotiation (and self interest) and good faith are antithetical to each other: Elizabeth Bay Developments p 209F per Giles J, and Laing O'Rourke per Hammerschlag J at [50].

14 A distinction has been drawn by those who regard such provisions as enforceable between negotiation of a contractual term, and negotiation of a dispute arising out of a contract. Thus, it does not follow that the view that a provision requiring negotiation of disputes under the contract in good faith is unenforceable leads to the view that a promise to negotiate in good faith some future contract or contractual terms is binding. 15 With respect to those who have come to a different view, I am of the opinion that a provision requiring contractual disputes to be the subject of negotiation in good faith is binding and enforceable, and for the following reasons: (1) I regard the majority in Coal Cliff as supporting the proposition that an obligation to negotiate in good faith is not inherently uncertain, even though in that case the Court held that the particular clause was too vague and uncertain to be enforceable (2) I think that the view of Hayne JA (and Charles JA) in Con Kallergis Pty Ltd v Calshonie Pty Ltd (1998) 14 BCL 201 that: "Although there may be difficult questions of fact and degree about whether evidence of particular conduct reveals a lack of good faith or lack of honesty or reasonableness, the obligation to act in good faith or honestly or reasonably, is an obligation that is certain… see e.g. Meehan v Jones (at 589) per Mason J", and at p 212: "Where, as I assume may be the case here, "B" and "C" must negotiate ("B" because it is bound to "A" to do so and "C" because it is bound to "B" to do so) and there is a process for resolving any disagreement between "B" and "C" , I consider that the obligation "to negotiate" the price is certain" (emphasis added), supports that approach. (3) We are dealing here with a concluded contract, all of the terms of which have been determined. The outcome of disputes yet to arise (and which may never arise) cannot be agreed, but what can be agreed on is a process of determining disputes. As Mr Finch submitted, the dispute will be precisely delineated when it arises (and it must by its nature relate to obligations of one party or the other, under the contract). The range of outcomes is fairly limited. This is quite a different context to an agreement to consult in good faith to formulate terms of the contract in the future: see Coal Cliff , supra. (4) The parties have recognised that putting the dispute into the hands of senior representatives of each of the parties is an important part of the process of resolution. It makes sense that senior personnel are forced to "own" the dispute or take responsibility for endeavouring to resolve it. It is not difficult to imagine that very different considerations are at play when managing directors (for example) with their extensive experience and commercial understanding (of both time and cost) become involved and that such persons would have an appreciation of what good faith entails. (5) The negotiation phase is not contemplated as limitless in time, and is recognised as not necessarily leading to resolution as clause 35 provides for further steps: see the second passage from Con Kallergis set out in (2) above which touches on this aspect. (6) I accept that an obligation to negotiate in good faith does impose some fetter on the complete freedom that parties have in conducting themselves in the process of attempting resolution of a dispute, but I do not accept that such an obligation requires the parties to disregard or abandon their own interests. To agree to make reasonable endeavours to obtain a bank loan places a burden on the purchaser but it does not require the purchaser to obtain a loan at prohibitively high rates since the endeavours are qualified by the word "reasonable". Refusal to pay a claim on the basis of a spurious (and known to be spurious) pretext would, I think, demonstrate an absence of good faith. I do not see any reason why that type of conduct could not be contractually precluded. (7) Such a clause requires the party to endeavour genuinely to resolve a dispute. Failure to attend a mediation, sending someone without authority, constantly altering demands, a failure to state requirements for resolution could all be indicative of a failure to negotiate in good faith. I do not think it is necessary to itemise in advance all of the conduct which would constitute absence of good faith, any more than there is a need in the Trade Practices Act to detail what constitutes "misleading and deceptive conduct". S 27 of the Civil Procedure Act permits a Court to order that parties mediate in good faith. S 31 of the Native Title Act requires the negotiation parties to negotiate in good faith and see the discussion of this in Aiton [139] - [146]. (8) I have made reference to the distinction some have drawn between an agreement to perform an obligation under a contract in good faith and an agreement to negotiate in good faith. In the insurance field, the parties have imposed on them a duty of utmost good faith. This duty is certainly relevant in relation to formation of the contract particularly in the field of a duty of disclosure but it is by no means limited to pre-contract dealings, see CGU Insurance Ltd v AMP Financial Planning Pty Ltd [2007] HCA 36; (2007) 14 ANZ Ins Cas 61-739 [15], [257], [259], and so an insurer has a duty of utmost good faith in handling claims by the insured. There has been an issue as to whether utmost good faith extends beyond the commencement of litigation: Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd [2001] 1 Lloyd's Rep 389 and see Horbelt v SGIC , unreported decision of Bollen J, Supreme Court of South Australia, 26 June 1992, but that is not the issue here. (9) The obligation of utmost good faith imposed on both insured and insurer in making and handling claims is not said to be uncertain because the insured has a financial interest in receiving money for the damage and the insurer has a financial interest in not paying out the claim. In the case of a builder making claims for payment (or an owner claiming that work is defective) other than the replacement of 'utmost good faith' with 'good faith', arguably with a reduced level of obligation, there does not seem to be much difference. (10) Because I am of the view that 'good faith in negotiation' has content, I think that parties could legitimately gain comfort in extracting a promise from the other party that disputes will be the subject of good faith negotiations in attempt to resolve them. Construction contracts are notorious for generating extensive and costly disputes and it can be contemplated that there is alive in the commercial community a very real appreciation of how expensive litigation (whether conducted privately or in Court) can be. In contrast to a contract yet to be concluded, once a contract is under way and a dispute has arisen that dispute must (unless one or both of the parties have collapsed) be resolved between the parties by one mechanism or another - agreement, arbitration or judgment in a Court of law.

16 It follows that, in my view, the negotiation clause is valid and enforceable.

Severability 17 Since Clause 35.11(d), it is conceded, is void for uncertainty, the question arises as to whether that subclause is severable. If, contrary to the view I have expressed, clause 35.11(c) is void, then the question arises whether that and (d) are severable. 18 The test for severability depends on: "whether the operation of the contract apart from the impugned part was to be conditional on the efficacy of that part, or whether it was to take effect notwithstanding the failure of that part. That intention is to be ascertained from the construction of the contract as a whole": see Whitlock v Brew (No 1) [1967] VR 803, affirmed in Whitlock v Brew (No 2) (1968) 118 CLR 445 followed in Laing O'Rourke , supra. 19 There arose in the context of argument as to severability the question of how the impugned provisions are to be considered. Mr Pembroke submitted that for the purpose of ascertaining the intentions of the parties, the impugned provisions could not be ignored. He relied on Australis Media Holdings v Telstra (1998) 43 NSWLR 104, 115D-G, and McWaters v Day (1989) 168 CLR 289 at 299. 20 The defendant had no disagreement with this approach, and rejected the plaintiff's criticism that its position was inconsistent with those authorities. 21 The question raised in Australis dealt with at p 115, was whether unenforceable terms may be taken into account in considering whether to imply an obligation of cooperation. The Court of Appeal held that it could. In McWaters the High Court held that the Court, in order to ascertain the intention of the Parliament in enacting the remainder of the Act, could make reference to such provisions as had been found to be void: p 299. 22 The passage in Whitlock v Brew to which I have referred makes clear that the intention to be discerned is to be ascertained from the construction of the contract as a whole. 23 The passage in Whitlock v Brew which I have cited requires the Court to look at the contract as a whole and decide whether it was the intention of the parties that the operation of the contract, apart from the impugned part, was dependent on the efficacy of that impugned part, or whether it was to take effect notwithstanding the failure of that part. That task, by necessity, requires the Court to have regard to both the impugned and the unimpugned part. 24 It should be noted that Whitlock v Brew (and Fitzgerald v Masters (1956) 95 CLR 420 is to the same effect) posits a choice between a contract without the impugned clause, and no contract at all. United here does not contend that there is no contract, rather it contends that subclauses 35.11(c) and (d), and hence 35.12 cannot stand and hence that no part of clause 35 can stand. 25 That approach, whilst not within the formulation of Whitlock v Brew, has been accepted as a legitimate one: see Vitol BV v Compagnie Europeenne de Petroles [1988] 1 Lloyd's Rep. 574 at 576, per Saville J and see Lewison, The Interpretation of Contract (2007) (Sweet and Maxwell) para 8.1. It was the approach followed in Laing and I proceed on that basis. Lewison points out that if a clause (or part of a clause I would add) is declared void rather than the whole contract, the Court is to give effect to the remainder of the instrument as if the uncertain term had not been included in it: see Lewison, supra p 344.

26 Adjusting the focus then, I must ask was it the parties' intention that the provisions of clause 35 other than the negotiation and mediation clauses were conditional upon the existence of the negotiation and mediation clauses? 27 United also argued that quite apart from the severance issue, clause 35.11 and 35.12 were uncertain. United drew attention to the ambiguity between the opening words of clause 35.12 i.e. "If the senior representatives referred to in clause 35.11 cannot resolve the dispute or where the matter is referred to mediation under clause 35.11(d), the matter is not settled within 42 days after the giving of the notice under clause 35.1 or clause 35.9 (whichever is the later), or within such longer period of time as these representatives may agree in writing" and clause 35.11(d) which required disputes to be referred to mediation if not resolved within 14 days of referral to the senior representatives. I shall refer to the words quoted above as the disjunctive clause for ease of reference.

28 United submitted that since clause 35.11(d) provided for referral to mediation if the senior representatives could not agree, the provision of choice in 35.12 is confusing and creates an ambiguity. United argued that clause 35.12 had no operation because it required a referral to mediation and there was no longer a requirement for mediation given the invalidity of (d) so clause 35.12 had no operation.

29 Mr Pembroke at T21 said "The businessmen might be a little disappointed if having agreed on a process, negotiation then mediation, in a worst case arbitration, they leave the Court with an agreement which tells them everything has to go to arbitration". He also claimed that the existence of the arbitration provisions was unfortunate because it could see the parties locked in many disputes over a long period - some of them, it appeared, do not involve very much money. 30 United argued that the negotiation and mediation clauses were part of a stepped process and that, to use the words of Einstein J, the negotiation and mediation clauses "walked together" with the arbitration clause, and that the removal of negotiation and mediation meant that 35.12 could not stand.

31 I think that clauses 35.10, 35.11 and 35.12 contemplated (as subspecies of what I have set out in [6] and [7] above, and following failure of an expert determination to conclude the dispute) three possible outcomes: (1) resolution of a dispute by agreement of senior representatives; (2) referral and resolution by mediation; or (3) referral to arbitration. There was no description of how the referral to mediation would take place and unlike the arbitration clause, no means of importing from an incorporated regime rules that would fill the gaps.

32 Mr Finch submitted that the disjunctive clause described an option which could not take place because here the mediation clause was void, but that the disjunctive clause also had a purpose if the parties had not in fact cooperated with the process for referral to mediation and hence the clause was workable and presents no obstacle as a matter of construction to the requirement for arbitration.

33 If there was no question of invalidity of 35.11(c) and (d) and the question was how to construe clause 35.12 together with clause 35.11 (c) and (d), I think that there is an ambiguity created, because clause 35.11(d) requires mediation and 35.12 literally seems to leave open referral to arbitration without referral to mediation. Thus for example if one party had wished to proceed directly to arbitration without mediation the question would have to be determined. I think the ambiguity would be readily resolved by treating the introduction of 35.12 as conjunctive so that it would require reference to arbitration if negotiation and mediation had failed but bearing in mind that referral to mediation does require some action on the part of both parties and that it is possible that one party will not cooperate, making mediation unworkable. The Court does, in cases of ambiguity, have power to construe clauses in a way that resolves the ambiguity: Fitzgerald v Masters supra, although the Court cannot disregard clear words or rewrite contractual provisions where this is no ambiguity: see Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd [2008] NSWCA 5. 34 The issue of invalidity of 35.11(c) and (d) however requires determination of whether those clauses are severable, and how the disjunctive clause in clause 35.12 is to be read. 35 The approach urged by Mr Finch, rather than explaining how the clauses were intended to be read together absent invalidity, moves to an interpretation of the clause that recognises the invalidity of 35.11(c) (and (d) for the purpose of this point). Another approach would be to consider whether, if 35.11(c) and (d) are void, the disjunctive clause is also void for uncertainty because it has no ambit of operation. If that were the approach the question of severability would entail consideration of whether the parties intended that the balance of clause 35 (but now excluding the disjunctive words) should remain effective, notwithstanding the removal of 35.11(c) and the disjunctive clause. If clause 35.12 is construed with 35 (c) and (d) ignored because void, the disjunctive clause is meaningless and can itself be ignored. 36 Although clause 35.12 as drafted needs to be considered as part of the process of determining whether the intention of the parties was to have arbitration as the last stage of dispute resolution even if there was no negotiation and mediation, if it is concluded that it was the intention of the parties to proceed to arbitration even if the negotiation and mediation were not required then, subject to dealing with the question of time for referral, I think clause 35 can be given meaning. 37 In my view it was not the intention of the parties that disputes would be referred to arbitration only if the negotiation and mediation clauses were valid and I take that view for the following reasons: (1) clause 2.14 of the Hunter Contract provides: "If at any time any provision of this Contract is or becomes illegal invalid or unenforceable in any respect under the law of any jurisdiction that will not affect or impair (a) the legality, validity or enforceability in that jurisdiction of any other provision of this Contract". (2) It is clear that the parties were agreed that their disputes which could not be settled would be determined by either expert determination if Annexure A clauses applied, or arbitration. In particular, clause 35.10 specifies "the dispute or difference must be determined by arbitration in accordance with the following clauses". (3) It is always open to parties to agree to a mediation process and the Court has power to order mediation even over the opposition of one or both parties: see s 26 of the Civil Procedure Act . Mediation is not inconsistent with arbitration nor is absence of mediation. (4) the parties had in place a regime for expert determination followed by a notice of appeal option and then referral to senior representatives for expert determination of ED matters and for referral to senior representatives in other cases of disputes (i.e. non-ED matters) neither of which provisions have been impugned (other than if clause 35.12 fails). (5) There is, I think, a certain irony in United's position. It attacks the negotiation clause (and the mediation clause) and then submits that because there is no effective negotiation clause or mediation clause, fundamental (and compulsory) pillars of the dispute resolution clauses have been removed, so arbitration cannot stand. If United wants to negotiate resolution of disputes it is free to attempt to do so at any time. If it wants the disputes mediated, there is no obstacle to it proposing such, and if Railcorp is amenable, for such a mediation to be held. Since the impugned elements of the dispute resolution claim involve consensual steps that can be initiated without any contractual requirement they are, I think, more readily classified as provisions which are severable than, for example, a process of expert determination. It attacked the mediation clause for uncertainty (see para 4 of submissions of 14 November 2008) and argued on the construction issue that there is an implied obligation to cooperate: see submissions handed up on 28 November 2008). Arbitration, which it criticised as potentially time-consuming and cumbersome was a part of the contract into which it had entered. (6) I think the fact that it is negotiation (between the senior representatives or by mediation) that will be ineffective is an important point of distinction between this case and Banabelle Electrical v State of NSW [2005] NSWSC 714. In State of NSW v Banabelle Electrical (2002) 54 NSWLR 503 (a decision of Einstein J) there was provision for agreement as to an expert for expert determination, failing which there was to be nomination "by the person prescribed in the Annexure". No person was in fact prescribed in the Annexure, and Einstein J held that the clause failed for uncertainty, and that a term that the party would cooperate on agreeing to an expert could not be implied because the parties had addressed the matter in the clause. In Banabelle Electrical v State of NSW , McDougall J regarded the absence of an expert determination "with all its advantages of speed, relative cheapness and informality" as fundamentally part of the dispute resolution process, which he held could not be excised without rendering the entire resolution clause invalid. 38 Mr Finch, relied on Hammerschlag J's decision in Laing on the severability point. 39 I need first to outline what was involved in that case. 40 Laing concerned a building contract between Laing as builder, and CRI as develop of a railway interchange. CRI had contracted with TIDC, a statutory authority, in a parallel contract on almost identical terms. Laing, TIDC, CRI and others with a financial interest had entered into an Independent Certifier Deed ("ICD") by which a third party agreed to provide independent certification of matters relevant to the contract. The building contract and the CRI contract had identical dispute resolution clauses but the ICD had a different regime. The building contract contained a clause 27(1) in the following terms: 41 "27.1 Notice of dispute (a) If a dispute or difference arises between: (i) the Developer and the CTI Infrastructure Works Contractor excluding that which will be decided under the Independent Certifier Deed or the TIDC Consent Deed ; or (ii) the Developer and the CTI Infrastructure Works Contractor's Representative, in respect of any fact, matter or thing arising out of, or in any way in connection with, the CTI Infrastructure Activities, the CTI Infrastructure Works or this deed, or either party's conduct before the date of this deed, the dispute or difference must be determined in accordance with the procedure in this clause 27. (b) Where such a dispute or difference arises, either party may give a notice in writing to the Developer's Representative and the other party specifying: (i) the dispute or difference; (ii) sufficient particulars of the party's reasons for being dissatisfied to enable the other party and the Developer's Representative to properly consider the matter; and (iii) the position which, the party believes, is correct. (c) If a party fails to provide sufficient particulars of the dispute or difference to enable the Developer's Representative and the other party to properly consider the matter, then within 15 Business Days after receipt of the notice the Developer's Representative may request the first party to provide further particulars of the dispute or difference".

"27.2 Meeting If a party gives a notice in writing to the Developer's Representative and the other party under clause 27.1, within 5 Business Days of: (a) the date of receipt by the Developer's Representative of the notice; or (b) where further particulars were required by the Developer's Representative under clause 27.1, the date of receipt by the Developer's Representative of the further particulars, the dispute or difference is to be referred to the persons described in Schedule 1 who must within 5 Business Days after the referral: (c) meet and undertake genuine and good faith negotiations with a view to resolving the dispute or difference; and (d) if they cannot resolve the dispute or difference, endeavour to agree upon a procedure to resolve the dispute or difference. 27.3 Expert determination If a dispute or difference is referred for resolution under clause 27.2 and is not resolved within 15 Business Days after the dispute or difference is referred to the persons described in Schedule 1, the dispute or difference must be submitted to an expert determination. (Emphasis added). 42 The ICD clause (13.2) was as follows: "13.2 Negotiation (c) If a dispute or difference is referred to the persons referred to in paragraph (a) (Representatives), then the Representatives (or the persons for the time being acting in those positions) must within 5 Business Days of the date on which the notice under paragraph (a) is received (or such later date as the Parties to the dispute or difference may agree): (i) meet and undertake genuine and good faith negotiations with a view to resolving the dispute or difference; and (ii) if they cannot resolve the dispute or difference, endeavour to agree upon a procedure to resolve the dispute or difference. (d) The joint decisions (if any) of the Representatives will be reduced to writing and will be contractually binding on the Parties to the dispute or difference" (emphasis added).

43 Laing's position was that it was not required to involve itself in the expert determination and arbitration provisions of the building contract. The ICD had no such requirements and if negotiation failed then Laing could, on its approach, proceed to litigation. 44 Hammerschlag J held that the negotiation in good faith provisions (27.2(c)) and agreements to agree provisions (27.2(c) of both the building contract and the ICD 13.2(c)(i) and (ii) were void for uncertainty. He held that the "carve out" provision of s 27 had no operation, because a decision of a Court did not fall within clause 13.2, and nothing would be decided under clause 13.2 of the ICD. 45 His Honour identified the problem with clause 27.3 as being that the trigger for expert determination was a failed referral, and rejecting the application of a clause similar to 2.14 of the Hunter Contract, went on to say: "75 However, there is nothing uncertain about cl 27.1, or in their own right, about the expert determination and arbitration provisions in cll 27.3 and following. 76 The plaintiff's principal proposition against severance of cl 27.2 from the balance is that cl 27 must be looked at as a whole and cannot be selectively activated. It puts that the procedure is mandatory. It further puts that it is artificial and not what the parties agreed that the trigger for the engagement of cl 27.3 should merely be referral followed by non-resolution of the dispute for whatever reason. 77 The trigger for expert determination is, it puts, threefold: firstly referral, secondly attendance at the meeting, and thirdly, that the dispute or difference is not resolved under cl 27.2. The third necessary step is that the parties meet and negotiate and if they cannot resolve or agree then and only then can the matter be referred to expert determination in cl 27.3. It is not enough to have referral alone. To separate cll 27.2(a) and (b) from cll 27.2(c) and (d) is to remake the parties' agreement. I was referred to the decision of Einstein J in State of New South Wales & Ors v Banabelle Electrical Pty Limited & Ors (2002) 54 NSWLR 503 at 517 where His Honour articulated in alternative ways the circumstances when severance is not possible. 78 The exercise, however, remains one of ascertaining the intention of the parties from the construction of the contract as a whole, and whether that intention is that the remainder, after severance, is still to operate. … 84 It could not have been the intention of the parties that they would be left without the expert determination and arbitration mechanisms because, for whatever reason, agreement could not be reached after referral. Such a result would also not accord with the traditional doctrine that a court should seek to uphold, rather than destroy commercial bargains: Meehan v Jones (1982) 149 CLR 571 at 589; Trawl Industries of Australia Pty Limited v Effem Foods Pty Limited t/a "Uncle Bens of Australia" (1992) 27 NSWLR 326 at 332. 85 The Contracts specifically contemplate referral and failure to agree. 86 Even though cll 27.2(c) and (d) are not enforceable directly or indirectly, if referral as a matter of fact occurs and there is no agreement for whatever reason, the condition precedent to expert determination will have been satisfied. 87 In this fashion, the expert determination and arbitration provisions are in my view capable of operating even though cl 27.2 itself is unenforceable. 88 There is force in the defendants' submission that the expert determination and arbitration provisions are contemplated by the parties to play a critical role in the operation of the Contracts. That role is not undermined or substantively affected by the fact that the negotiation provisions in cl 27 are incapable of enforcement. Indeed, as I have said, the Contracts themselves contemplate the failure of the negotiation process". 46 The arguments set out in [76] and [77] of Laing are very similar to those advanced by United here. 47 Given that Hammerschlag J held that clause 27.3 of the building contract remained operative, notwithstanding that that clause provided that referral of a dispute or different under clause 27.2 was a "trigger" and could not occur because 27.2(c) and (d) were invalid, and concluded that "the expert determination provisions are still capable of doing their work in the same way they would have done it had there been no provision for attempted consensual resolution beforehand" at [79], I think that this decision reflects an approach that supports Railcorp. I respectfully agree with his Honour's approach in [84] that the Court in accordance with general principles should seek to uphold dispute resolution clauses of this kind (see more generally on the expansiveness of the Court's approach: Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444, and Mamidoil-Jetoil Greek Petroleum Co. SA v Okta Crude Oil Refinery AD [2001] 2 Lloyd's Rep 76) 48 Having said that, the task is for me to discern the intention of the parties from this contract and for the reasons I have given I am persuaded that subclauses (d), and (c) if void, are severable. There is no impediment to referral to the senior representatives. If the parties could not agree, whether after good faith negotiation, if required or not, or mediation if required, then I think that it was the intention of the parties that the matter be referred to arbitration. 49 In my view, 35.11 is severable (and 35.11(c) as well if it is void for uncertainty), for the reasons I have given. I must now construe clause 35.12 having regard to the fact that clause 35.11(d) (and, I shall assume, (c) as well) have not been included. 50 Conscious of the importance of giving effect to the agreement of the parties, particularly in an executed contract (and in this context, a contract where the parties already have availed themselves of clause 35), I need to give an interpretation to clause 35.12 which reflects as best I can discern the intention of the parties. I think that the appropriate approach is to ignore the disjunctive clause and treat clause 35.12 as requiring referral to arbitration if the senior representatives have not been able to resolve the dispute. It can be inferred that unless the senior representatives agreed otherwise, referral is to take place after a reasonable period - one can gain an indication of what the parties considered reasonable by reference to the limits which appear but I think objectively a 42-day period for the later of a period from the notice under clause 35.1 or the notice under clause 35.9, if the matter went to expert determination, is reasonable. I am conscious that the 42-day period allowed for in clause 35.12 contemplated contractual negotiation and mediation, but treating the contract as silent on contractual negotiation and mediation it would be consistent with that express and failed intention to allow a 42-day period for non-contractual (i.e. voluntary) negotiation and mediation. 51 It follows that in my view, existing disputes that have not been resolved by the senior representatives should be referred to arbitration. 52 I will hear the parties on the issue of costs and invited the parties to bring in appropriate short minutes of order. **********

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Trade Practices Act 1974(Cth)

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