Finding the intention in obscurity - When is a dispute resolution clause void for uncertainty?

Tesseract International Pty Ltd v Pascale Construction Pty Ltd [2021] SASCA 8

“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”1

Kennedys in Australia, acted for the Respondent (Pascale Construction Pty Ltd) in this matter which saw the Court of Appeal continue to move away from a rigid approach to issues of uncertainty in contractual interpretation. Instead, the Court of Appeal favoured a more progressive approach that centred on commercial efficacy and a desire to uphold reasonable commercial bargains.

The Courts are now more inclined to construe the terms of an agreement with an inclination to give effect to the intention of the parties, even if that intention has been obscurely expressed or is capable of more than one meaning.

Consistent with the ‘modern approach’, the Court of Appeal has upheld the first instance decision and found that a multi-tiered dispute resolution clause was not void for uncertainty, simply because there existed more than one meaning.

Background

The Appellant (Tesseract International Pty Ltd) entered into a contract with the Respondent (Pascale Construction Pty Ltd) for the review of tender documentation and provision of an engineering design for the construction of a Bunnings Warehouse at Windsor Gardens.

A dispute between the parties arose, with the Respondent alleging that the Appellant’s engineering design was defective, causing the Respondent to suffer loss and damage. The Respondent sought to resolve the dispute, turning to the dispute resolution provisions under the contract which involved the consecutive process of conciliation (clause 20) and failing that, arbitration (clause 21).

The Appellant contended that neither party could engage in the dispute resolution process because those clauses (20 & 21) were void for uncertainty. In December 2019, the Appellant issued Proceedings in the Supreme Court of South Australia seeking a declaration as such. The lower Court rejected those contentions and dismissed the proceedings.

The Appeal

The Appellant ultimately presented one ground of appeal, namely that the decision of the Court in the first instance failed to hold that the dispute resolution clauses were void for uncertainty. In that respect, the Appellant asserted that there was an inherent contradiction between a conciliation process (an informal process) and a process that is intended to be both ‘binding and determinative’. The Appellant argued that to interpret the references to the conciliation process being "binding", “would be to impermissibly distort the notion of a binding process, and to give it a meaning that is contrary to its accepted legal meaning”.

The Court of Appeal, per Doyle JA, found that reference to 'conciliation' in the drafting of clause 20 and in the context of a process which was said to be binding, did not give rise to uncertainty. In other words, it was not the labels that the parties had used, rather, the substance of what they had agreed to that governs the construction task. The contract in question provided for a two-step dispute resolution clause requiring conciliation and arbitration as a consecutive process.

Further, the Appellant contended that having two consecutive dispute resolution processes, both of which are intended to be determinative and binding, would render the latter meaningless. Such an arrangement might be said to give rise to the prospect of two binding determinations in respect of the one dispute.

Doyle JA held that there is no inherent difficulty with having two consecutive processes for dispute resolution within a single contract. It was clear from the structure and terms of the dispute resolution provisions that the conciliation process was intended to be binding, subject to arbitration. That is, if the parties were not prepared to accept the outcome of conciliation, they could elect to refer the matter to arbitration. Conversely, if the parties elected to adopt the outcome of conciliation, such outcome would become binding and determinative.

Ultimately, the Court of Appeal found that the dispute resolution clauses were not void for uncertainty and Doyle JA (Kelly P and Livesey JA agreeing) dismissed the appeal.

The Principles

  • Contractual provisions will not be void for uncertainty simply because the language allows for more than one possible meaning, or because the application of the provision can produce more than one result.
  • A provision will be uncertain only where "the language used [by the parties] was 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."
  • Subject to the provision being susceptible to a meaning, it will ultimately bear the meaning that is determined by the court upon the proper application of the principles of construction.

For more information please contact partner, James Melvin or associate, Aidan Abeni-Davis.

Footnote
1The Council of the Upper Hunter County District v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 at 436-437