No Christmas Bonus for Glenvill Homes

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Monday, February 3rd, 2014
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A recent case in the Supreme Court of Victoria demonstrated the increasing roles of experts in determining commercial disputes between parties to a contract.

In this instance, Melbourne-based building firm Glenvill sought to challenge the interlocutory ruling of the expert, which had excluded extra claims the company wished to make to add to its claim for escalation costs against North North Melbourne.

The role of the expert in this case involved the calculation of escalation costs; Glenvill claimed $195,000 and North North Melbourne counterclaimed for $56,000.

The expert denied Glenvill’s application to add further claims as the additional claims were not agreed to by North North Melbourne and were outside the terms of the agreement that had already been made by the parties.

The Court restated the traditional stance that the position of an expert is different to that of an arbitrator and the expert is not bound to afford procedural fairness. While having to act honestly and in good faith, there can be no objection to an expert’s procedure in reaching his decision if it complies with the contract that authorises him to determine the dispute.

The Court held that there was no duty on the expert to avoid the appearance of bias but only that he had to avoid actual bias.

It noted that where parties appoint an expert they usually do so because they agree to place reliance on the expert’s skill and judgment and implicitly agree to accept to be bound by the determination. In a typical case, provided the decision is made honestly and in good faith, the parties will not be able to reopen it and will be bound by the result. However, if the expert asks the wrong questions or misconceives his function, the determination will be exposed to being set aside.

Glenvill asked the Court to interpret the agreement so as to achieve a proper commercial result of resolving all claims in one determination. The Court noted the applicable principle that one must construe agreements to accord with ‘business common sense or commercial reality’ and ‘the object being to discover and give effect to the contractual obligations that reasonable persons in the position of the parties would objectively have intended from the document.’

The language used in a contract is generally given its natural ordinary meaning in light of the contract as a whole, but where it is ambiguous, surrounding circumstances may be taken into account. These include the matrix of mutually known facts, the background, object, context and commercial purpose of the transaction.

The Court held that the problem solving of the expert is usually intended to be applied in a manner that is untrammelled by overly restrictive procedural considerations, so that specialist skills and insights of the expert can be fully applied to the issues in an expeditious and cost effective manner with appropriate finality.

It found that the parties had agreed early in the process that they would not challenge the jurisdiction of the expert except for manifest error. The Court found no evidence of manifest error and the application by Glenvill was refused. Glenvill was then left to battle on in the expert determination unaided by any assistance from the Court.

The case demonstrates the importance of ensuring that an expert is properly briefed at the start with all issues to be determined by him and the process that he is to follow is clearly set out in the contractual arrangements between the parties.

As experts have a growing role in determining disputes in construction and other contracts that would otherwise take months or years to resolve in court, parties need to be aware of advantages and disadvantages of an expert appointment. Careful drafting of the expert appointment clauses is also needed to avoid later chaos.

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