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ADR clauses need some process.


The Victorian Supreme Court in WTE Co-Generation & Anor v RCR Energy Pty Ltd & Anor [2013] VSC 314 has held that a dispute resolution clause that requires parties to “meet to attempt to resolve the dispute or to agree on methods of doing so” is too vague to be enforced.

That provision required a meeting with alternative objectives; either to resolve the dispute or to agree on some further process. The parties could perform their contractual obligations by discussing process without any attempt to resolve the real dispute. The process to be adopted depended entirely on the parties reaching some further concurrence.

Vickery J observed at [46] that “ a valid dispute resolution clause does not require a set of rules to be set out in advance which directs the parties how an agreement is to be achieved, if agreement is possible. But, as a minimum, what is necessary for a valid and enforceable dispute resolution clause, is to set out the process or model to be employed, and in a manner which does not leave this to further agreement”.

That decision reinforces the approach taken by Einstein J in Aiton Australia Pty Ltd v Transfield Pty Ltd [1999] NSWSC 996 that one feature of an enforceable dispute resolution clause is that it establishes a certain process. Although it need not be minutely structured, but should be capable of progressing without further debate about the model for the process.

That outcome can be compared with United Group Rail Services Ltd v Rail Corporation of New South Wales (2009) 74 NSWLR 636 where a dispute resolution clause required the parties to “meet and undertake genuine and good faith negotiations with a view to resolving the dispute or difference” . That process did not require further development. It was sufficient that the parties were constrained to approach negotiation with an honest and genuine commitment to resolving their disagreement.

One Comment leave one →
  1. 17/12/2013 8:34 am

    Reblogged this on South African Commercial Law Blog.

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