In commercial contracts, dispute resolution clauses are often seen as a safety net designed to keep parties out of court and resolve disagreements efficiently. But what happens when that safety net fails?
A recent decision in the Supreme Court of Victoria in Crown Sturt Pty Ltd v Infinity Southbank Pty Ltd (No 1) [2025] VSC 360 (Crown Strut v Infinity Southbank) [1], offers a timely reminder: not all dispute resolution clauses are created equal, and some may be unenforceable.
Crown Strut v Infinity Southbank at a glance
The case involved a failed joint venture to develop a develop a high-rise residential project in Southbank, Victoria. When the venture collapsed and the plaintiff entered provisional liquidation, a dispute arose over how the property should be dealt with. The plaintiff initiated proceedings seeking court orders to sell the property, while the defendant sought a stay of proceedings, asserting that the dispute should be resolved through the dispute resolution mechanism contained in the Landowners Participation Agreement between the parties.
The court refused to stay the proceedings, finding that the dispute resolution clause in question was insufficiently certain to be enforceable.
Why the Clause Failed
Clause 19 of the Landowners Participation Agreement was intended to resolve disputes through expert determination. However, the court found several critical issues with enforcing the clause:
- No procedural directions: There were no timelines, hearing procedures, or mechanisms for resolving disputes involving overlapping disciplines (e.g. legal, valuation, accounting).
- No method for appointing experts: The clause did not explain how a panel of experts would be selected or how disagreements about composition would be resolved.
- Incompatibility with liquidation: The clause required CEO’s to negotiate in good faith which is an impractical requirement where one party was in provisional liquidation.
What makes a Clause Enforceable
Australian courts have consistently held that dispute resolution clauses must be clear, complete, and capable of implementation. The key principles include:
- Condition Precedent
The clause should be expressed as a condition precedent to litigation or arbitration. This means that the parties must attempt the agreed dispute resolution process before initiating court proceedings. - Certainty and Completeness
A dispute resolution clause must set out a clear and certain process that does not break down if the parties fail to agree on some aspect of the process. For example, in WTE Co-Generation v RCR Energy Pty Ltd, the clause was found unenforceable because it left the method of resolving disputes to further agreement, which created inherent uncertainty [2]. Courts strive to give commercial effect to dispute resolution clauses but cannot rewrite or complete an incomplete agreement. - Defined Process
The clause must outline the process or model to be employed, such as mediation, arbitration, or expert determination. It should include administrative details, such as how the independent third party (e.g., mediator or arbitrator) will be selected and how their remuneration will be determined. This ensures that the process can proceed without further negotiation or agreement. For example, in Aiton Australia Pty Ltd v Transfield Pty Ltd, the lack of a mechanism for apportioning the mediator’s costs rendered the clause unenforceable [3]. - Good Faith Obligations
The clause may require parties to negotiate or participate in the process in good faith. Courts have recognised the importance of good faith in dispute resolution clauses, as seen in United Group Rail Services Ltd v Rail Corporation of New South Wales, where a clause requiring good faith negotiations was upheld [4]. - Broad Scope
The language of the clause should be sufficiently broad to cover all potential disputes, including those arising under the contract, in tort, or under statute. Phrases such as “arising out of, relating to, or in connection with” are often used to ensure broad applicability, as highlighted in Flint Ink NZ Ltd v Huhtamaki Australia Pty Ltd [5].
Why Follow Contractual Dispute Resolution Procedures?
Courts have broad discretion to stay proceedings under their inherent jurisdiction or in Victoria pursuant to r 23.01(1) of the Supreme Court (General Civil Procedure) Rules 2025 (Vic).
Courts are interested in respecting party autonomy and parties’ freedom to contract. They will be reluctant to force litigation outside of the parties’ agreed forum as it undermines commercial certainty. Therefore, contracted dispute resolution procedures are an important mechanism to minimise adversarial litigation and protect commercial relationships.
Dispute resolution clauses are more than just boilerplate; they are a strategic tool. But as the Crown Sturt v Infinity Southbank case shows, they must be drafted carefully to achieve the parties’ commercial purposes.
Footnotes
[1] Crown Sturt Pty Ltd v Infinity Southbank Pty Ltd (No 1) [2025] VSC 360.
[2] WTE Co-Generation & Anor v RCR Energy Pty Ltd & Anor [2013] VSC 314.
[3] Aiton Australia Pty Ltd v Transfield Pty Ltd [1999] NSWSC 996.
[4] United Group Rail Services Ltd v Rail Corp New South Wales [2008] NSWSC 1364
[5] Flint Ink NZ Ltd v Huhtamaki Australia Pty Ltd [2013] VSCA 381.