How to draft an enforceable dispute resolution clause

When will a dispute resolution clause be enforceable? The Supreme Court recently grappled with this question in WTE Co-Generation v RCR Energy. The decision is a helpful guide on how to create a dispute resolution clause that achieves its aim. It also highlights the danger of commercial dispute resolution clauses that are effectively 'agreements to agree', which may be unenforceable due to a lack of precision.

Background

This case related to a contract for the supply of a co-generation facility, intended to be fired by paper mill residues, for a price of in excess of $20m. While the facility was constructed, the superintendent did not certify practical completion as being reached, ultimately resulting in the plaintiff issuing a notice to the defendant purporting to terminate the contract.

 

An application was made by the defendants that the proceeding be stayed until the parties had complied with a contractual resolution clause.

 

That clause provided that:

In the event that the parties have not resolved the dispute then within a further 7 days a senior executive representing each of the parties must meet to attempt to resolve the dispute or to agree on methods of doing so.

The defendants argued that there had been no compliance with clause 42, while the plaintiffs position was that the clause was uncertain and unenforceable.

 

The Decision

Justice Vickery found that the clause effectively amounted to an agreement to agree and was therefore not enforceable due to its inherent uncertainty.

 

Justice Vickery cited with approval the statement in the New South Wales Court of Appeal decision in Coal Cliff Collieries v Sijehama Pty Ltd that '…in some circumstances a promise to negotiate in good faith will be enforceable, depending on its precise terms…'.

 

Further, his Honour set out a number of principles to determine whether a stay should be granted where a contractual dispute resolution process is expressed to be a pre-condition of litigation, including:

1. That such clauses should be determined robustly to give them commercial effect by avoiding a 'narrow or pedantic approach in favour of a commercially sensible construction'.
2. Where express words are at issue that are broad and general, but nevertheless have sensible and ascribable meaning, the court should give effect to such provisions.
3. Public policy in promoting efficient dispute resolution, especially commercial dispute resolution, requires enforceable content be given to contractual dispute resolution clauses where possible.

Justice Vickery found the dispute resolution clause not to amount to a valid agreement to negotiate however, as it essentially amounted to an agreement to agree for the following reasons:

1. Once the operation of the clause was triggered, it required the parties to either meet together to resolve the dispute, or to agree on methods for doing so. These requirements fell short of prescribing a process to determine which option is to be pursued.
2. No method of resolving the dispute is prescribed by the clause. Rather, the clause expressly contemplates that the method for resolving the dispute is to depend on the parties' further agreement as to the methods to be employed.

His Honour outlined that, whilst a valid dispute resolution clause does not require a set of rules to be set out:

…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. It is not for the court to substitute its own mechanism where the parties have failed to agree upon it in their contract. To do so would involve the court in contractual drafting, which is a distinctly different exercise from contractual construction of imprecise terms.

 

If you are in the Victorian Government and wish to discuss the implications of this case further, please contact:

 

Antonio Mazzone

Managing Principal Solicitor

t 8684 0418

antonio.mazzone@vgso.vic.gov.au

 

Andrew Suddick

General Counsel

t 8684 0458

andrew.suddick@vgso.vic.gov.au

The ins and outs of good governance of public sector boards

No one doubts the importance of public sector boards having impeccable governance procedures, but what does this really involve?

The Victorian Ombudsman's recent report on the Review of the Governance of Public Sector Boards in Victoria (Report) provides a helpful guide.

It identifies two dimensions to governance arrangements of public sector boards:

• External governance, being the entity's relationship with Parliament, the responsible Minister and the relevant government department.
• Internal governance, being an entity's organisational structure, internal procedures and financial practices and policies.

External governance

External governance arrangements are generally set by the entity's enabling legislation and, depending on the form of the entity, public sector governance legislation such as the Public Administration Act 2004 (PAA); Financial Management Act 1994; Audit Act 1994; Information Privacy Act 2000; Independent Broad-based Anti-Corruption Commission Act 2011 and so forth.

Compliance with public sector governance legislation requires the public entity, the department and the responsible Minister to collaborate. This is because the legislation, although applying separately to the public entity and the Minister, imposes obligations on each.

The board of a public entity is accountable under the PAA to the responsible Minister who in turn is responsible to Parliament. Ministers need to be kept informed of the performance and operations of public entities within their portfolio and will rely on their departments for ready access to such information.

Unless stated in the enabling legislation, departments do not currently have an automatic role in the accountability framework for public entity boards. Departments assist at the Ministers' direction.

The Public Administration Amendment (Public Sector Improvement) Bill 2013 currently before Parliament gives statutory recognition to the role of departments. The bill proposes that a department head is responsible for advising the Minister on matters relating to a public entity, including the discharge of responsibilities by the entity. The department head is also entrusted with the task of providing guidance to each relevant public entity on matters relating to public administration and governance.

The key to ensuring that each party - the entity, the Minister and the relevant department head is able to discharge their particular statutory responsibilities is to put in place workable governance arrangements that are understood and accepted by all.

Internal governance

The principal internal governance concern identified in the Report is the relationship between a public entity board and its CEO. An effective board-CEO relationship is essential for the operational governance of an entity. Separation between the roles of the CEO and the board assists the effective governance of boards. Insufficient accountability dilutes responsibility and poses a risk to good governance.

The Report highlights a number of accountability mechanisms which may regulate the relationship between the board and the CEO, and discusses ways in which conflicts of interest may be avoided.

Board Design

The composition of a board is crucial to its ability to govern effectively. The board member appointment process is a key area of governance risk.

The particular functions of an entity should determine the design of its board. Generally, a board should have a combination of generalist skills and skills specific to the sector in which the entity operates. An entity's enabling legislation may specify that the board must include members with particular skills and expertise.

The Report notes that it is desirable for the Chair of the board to be involved in the appointment process, as the Chair can assist in identifying the skills and experience required, and the mix of personalities most likely to make for a cohesive board. .

The Report also identifies the size of the board as a critical aspect of good governance. Large boards can be inefficient and unwieldy.. But on the other hand, a board's ability to effectively govern could be impaired if it is too small or is operating at a reduced capacity due to delays in vacancies being filled. The Report recommends that boards with more than nine members should be avoided unless the circumstances require a higher number of appointments.

Drawing from many years of practical experience, the VGSO's experts in corporate governance can assist you in establishing and implementing governance processes and support you to conduct the business of government consistently with public sector governance legislation. If you are in the Victorian Government and seek advice on corporate governance issues, please contact:

Udara Jayasinghe
Principal Solicitor
t 9947 1445
udara.jayasinghe@vgso.vic.gov.au

Carolyn Doyle
Principal Solicitor
t 9947 1403
carolyn.doyle@vgso.vic.gov.au

9 things you should know about the draft VPS Intellectual Property Guidelines

The Intellectual Property Guidelines for the Victorian Public Sector have been published as a working draft.

The Guidelines will support the Whole of Victorian Government Intellectual Property Policy Intent and Principles (IP Policy), created in August 2012. The IP Policy sets out broad principles on the State's ownership and management of its intellectual property and its use of third party intellectual property. The Guidelines, provide guidance on the specific steps government agencies should take to comply with the IP Policy.

The IP Policy and the Guidelines apply to all departments and public bodies of the State. ‘Public body’ includes State business corporations and statutory authorities.

The draft Guidelines are a 'must read' for departments and agencies, who will need to implement the processes outlined. They also provide links to useful resources and an indication of when specific legal advice may be required.

Here are 9 things you should know about the Guidelines:

1. Many requirements of the Guidelines will only apply to 'significant' IP - for example, where the IP is particularly valuable or important to the operations of the agency.
2. The Guidelines will require agencies to manage their own IP and be responsible for implementing the IP Policy. (This is different to the previous position where requests to make use of State owned copyright material required the Attorney General’s approval.) Agencies will also need to actively foster compliance and awareness of the IP Policy and Guidelines.
3. The Guidelines acknowledge that agencies may have specific IP provisions in their establishing legislation. For example, the Transport Integration Act 2010 (Vic) empowers the Secretary of the Department of Transport to acquire, hold, licence, exploit or dispose of IP. Agencies need to consider the interaction between the IP Policy and these provisions.
4. The Guidelines set out specific recording and reporting requirements
1. Maintaining an intellectual property register recording information about any significant IP of the agency, including the creator, its identifying details, any IP registrations, the start and end date of the IP protection, relevant contracts and any important ownership and licensing details.
2. Reporting IP infringements to DTF, as the responsible agency. (The Guidelines contain materials on circumstances where it will be appropriate for an agency to enforce State IP rights, and a substantial section highlighting law relevant to use by the State of third party IP).
5. The Guidelines set out how to address IP in government contracts. Not sure where to start? For IP under procurement contracts, Chapter 5 of the Guidelines provides for a default position whereby:
1. each party retains ownership of its background IP;
2. the contractor grants the agency a licence over its background IP and third party IP to the extent needed for the agency to enjoy the full benefit of the agreement; and
3. the contractor owns the project IP developed but grants the agency a licence over the project IP to the extent necessary to achieve the procurement purposes.
6. The Guidelines encourage agencies to develop template procurement contracts to reflect the IP Policy. DTF is currently working with the Victorian Government Purchasing Board to ensure consistency between the IP Policy and the VGPB requirements. (Chapter 6 deals with these issues for IP under funding and grant agreements.)
7. There is a substantial section on licensing and public release of materials where the State owns the relevant IP. The preferred form of licence for State copyright material is a Creative Commons licence (Australian version). Specific guidance is provided on the selection and use of the various types of Creative Commons licences for new and existing materials..
8. The Guidelines address the commercial dimensions of IP where there has been little guidance in the past, including:
1. the factors to consider to value IP;
2. when a State agency can commercialise its IP through licence or sale (the IP Policy has imposed significant restrictions on commercialisation, including requirements for authorisations, and the application of the Cost Recovery Guidelines);
3. when a State agency should reassign or dispose of its IP and how to do this in an open, accountable and competitive manner.
9. There is a full chapter on moral rights, and practical guidance as to when the State should seek moral rights consents from its employees and contractors, together with a template consent form.

For more information about the IP Policy or the draft Guidelines, please contact:
Isabel Parsons
Special Counsel
t 9947 1405
isabel.parsons@vgso.vic.gov.au

First Peoples exhibition at Melbourne Museum

Through the VGSO's work with the Victorian Aboriginal Heritage Council, VGSO solicitor Sophia Angelis was recently invited to the opening of the First Peoples exhibition at the Melbourne Museum.

The exhibition is a must-see. A shared project between Museum Victoria and the Victorian Aboriginal community, it celebrates the history, culture, achievements and survival of Victoria’s Aboriginal people.

The exhibition is the first time that these stories have been comprehensively told. It does so by interweaving cutting-edge multimedia displays with Aboriginal artifacts and contemporary artworks, making it a fascinating experience for all ages.

The highlight of the exhibition is the Creation Cinema, which transports the viewer to the time of Creation through the story of Bunjil the wedge-tailed eagle.

Then in the Deep Listening Space, you can hear from Victorian Aboriginal people aged from 8 to 72 speaking about their identity, community and culture.

The exhibition also features more than 600 historic and contemporary artifacts from one of the world’s premier collections of Australian Aboriginal cultural material

A group of 16 respected Aboriginal community members and elders from across Victoria came together to form a reference group for the exhibition. The group named themselves the Yulendj Group, based on a Kulin word for 'knowledge and intelligence'. The group acted as co-curators with the museum team, which no doubt contributed to the considerable depth of the exhibition.

The exhibition will remain permanently at the Museum.

The exhibition is one of the initiatives supported by the Victorian Aboriginal Heritage Council, a statutory body created in 2006 to ensure that Aboriginal people in Victoria play a central role in protecting and managing their heritage.

The Council is comprised of up to 11 traditional owners appointed by the Minister for Aboriginal Affairs. All members live in Victoria, and have extensive knowledge and experience of Aboriginal cultural heritage in Victoria.

The Council's functions are varied. They include:

• Deciding Registered Aboriginal Party applications. RAPs are organisations that hold decision making responsibilities for protecting Aboriginal cultural heritage in a specified geographical area.
• Promoting public awareness and understanding about Aboriginal cultural heritage
• Advising the Minister for Aboriginal Affairs on the protection and management of Aboriginal cultural heritage, including issues such as:
• The cultural heritage significance of any Aboriginal human remains, place or object; and
• Measures for the effective protection and management of Aboriginal cultural heritage in Victoria, including the management of culturally sensitive information.
• Advising the Secretary of the Department of Transport, Planning and Local Infrastructure on:
• Measures to establish standards and fee guidelines for sponsors to pay RAPs for their consultation when preparing cultural heritage management plans and assessments
• The exercise of the Secretary's powers in relation to cultural heritage permits, cultural heritage management plans and cultural heritage agreements.

If you are in the Victorian Government and need advice on Aboriginal heritage issues, please contact:

Sophia Angelis
Solicitor
t 9947 1409
sophia.angelis@vgso.vic.gov.au

Sweet child o’ mine

Birth registration is important. It is the first step in the process of formal recognition of an individual by the state. But for some in the community, the process of registering a birth is difficult (and not just because filling out a three page form is tough for anyone on two hours sleep per night).

Whilst getting bubs to sleep is beyond the State Government’s control, it recently asked the Victorian Law Reform Commission to look into the process for birth registration.

The Commission heard from different sections of the community about their experiences of obtaining a birth certificate, including some adults whose birth was never registered. It examined whether the current process makes getting a certificate difficult, particularly for already marginalised groups.

The Commission handed down its report in November.

The report identified reasons for failing to register a birth or apply for a certificate, including:

• a lack of awareness of the requirement to register;
• a poor understanding of the importance of registration;
• the cost of obtaining a birth certificate; and
• other issues such as mental illness or family violence concerns.

In short, disadvantaged background is a common theme for late registration or non-registration of a birth.

The Commission made 26 recommendations, 23 of which relate to changes in procedure at the Births Deaths and Marriages Registry.

The recommendations include:

• Changing the way in which the particulars of birth notification are collected and how, and by whom, a birth can be registered.
• Changing procedure where family violence may be a barrier to the registration of a birth.
• Better facilitation of the birth registration process and access to birth certificates for cross-border Indigenous communities.
• Streamlining birth registration with applications for services by the Commonwealth.
• Broadening who may certify identity documents as well as the type of proof of identity documents the Registrar will accept to support an application.
• Clarifying the fee exemption policy.

Whilst the recommendations relate to the birth registration and birth certificate application process, the report is useful reading for any government officer designing a policy that balances the need for consistency (or certainty of public records) with the flexibility to ensure that a program can actually work across diverse groups in society.

Flexibility is a fundamental aspect of good government decision-making. Where there is discretion in a decision-making process, there should be a policy to ensure decisions are made consistently and fairly. But that policy must be sufficiently flexible to cover a range of circumstances. This report by the VLRC provides a good concrete example of how an agency can tailor its policies and guidelines to achieve flexibility without compromising on certainty or consistency in program implementation.

For more information about this report, designing flexible decision-making policies or working Gunners references into your professional writing, please contact:

Elsie Loh
Principal Solicitor
t 8684 0144 
elsie.loh@vgso.vic.gov.au

Managing serial complainants

Managing serial complainants is a challenge for all public administrators. Dealing with these complainants is resource and time intensive and can pose difficulties if a particular complainant is aggressive or abusive towards staff.

Administrators need to take care in the strategies they adopt to deal with complainants, especially if complainants' behaviour is symptomatic of any underlying disability.

In the recent VCAT decision of Slattery v Manningham City Council, a complainant successfully claimed that the Manningham City Council (Council) had directly discriminated against him on the ground of disability in banning him from all Council buildings, breaching s 44 of the Equal Opportunity Act 2010 (EO Act).

The case is significant because it is one of the first decisions to consider how the test for direct discrimination operates under the EO Act.

Since 1998, Mr Slattery had made thousands of written and verbal complaints to the Council in relation to matters Mr Slattery had identified as 'safety issues'. Many of Mr Slattery's complaints were derogatory or offensive towards Councillors or Council staff. Over a fifteen year period, there were a handful of physical altercations between Mr Slattery and Council staff members. Council estimated that it spent approximately $10,000 per year dealing with Mr Slattery's complaints. In April 2009, the Council imposed the ban on Mr Slattery.

Mr Slattery had a number of diagnosed disabilities, including post-traumatic stress disorder (PTSD), bipolar disorder and a brain injury following a stroke, however has not received treatment for any of these conditions for a number of years. Council had, at one stage, engaged the assistance of a psychiatrist, to formulate strategies for dealing with Mr Slattery.

Senior Member Nihill first considered what constituted unfavourable treatment within the definition of direct discrimination, and whether it was necessary to carry out a comparative analysis to determine if a person has been treated unfavourably because of a protected attribute (in this case, a disability).

SM Nihill's starting point was the Court of Appeal's decision in Aitken v State of Victoria, where the Court of Appeal accepted that the question as to whether a comparative analysis is required under the EO Act remains an unresolved question of law in Victoria.

Following a discussion of helpful case law, interpretation legislation and extrinsic material, SM Nihill concluded that the definition of direct discrimination in the EO Act does not require a comparator (a conclusion also reached in the recent VCAT decision on Victoria Police's beard policy). Rather, what is required is an analysis of the impact of treatment on the person complaining of it. This analysis may be informed by the treatment afforded to others, however, such a consideration is not required under section 8 of the EO Act.

SM Nihill formed the view that Council's maintenance of the ban, preventing Mr Slattery from accessing services in any building owned, occupied or managed by Council, particularly after Mr Slattery requested that the ban be lifted in November 2012, constituted unfavourable treatment.

SM Nihill next went on to consider whether the unfavourable treatment of Mr Slattery was because he had a protected attribute.

The Tribunal heard psychiatric evidence from Dr Farnbach, who had been Mr Slattery's treating psychiatrist. Dr Farnbach gave evidence that as a result of his PTSD and impulse control disorder, Mr Slattery experienced a strong and urgent compulsion to make reports to Council, particularly about public safety and about 'people doing the right thing'. After reports were made, Mr Slattery would experience relief.

SM Nihill concluded, on the basis of Dr Farnbach's evidence that Mr Slattery's tendency to complain compulsively is a symptom of his disabilities, and therefore fell within the definition of disability contained in s 4 of the EO Act.

Given, that Mr Slattery's behaviour in compulsively complaining to the Council, was a result of his disability, and that one of the reasons that Council had imposed the ban was to 'manage' Mr Slattery, SM Nihill concluded that Mr Slattery's disability was a substantial reason for the Council's unfavourable treatment of Mr Slattery, and therefore that Mr Slattery had been the subject of direct discrimination by the Council.

The Council was unsuccessful in arguing that an exception under ss 75 or 86 of the EO Act applied (that is, that it was necessary to impose the ban on Mr Slattery to protect the health and safety of Councillors, Council staff and the wider public).

The question of remedies was left to be discussed by the parties in a compulsory conference.

If you are in the Victorian Government and would like advice on the EO Act or this case, please contact:

Penina Berkovic
Principal Solicitor
t 8684 0226
penina.berkovic@vgso.vic.gov.au

Bruce Chen
Senior Solicitor
t 8684 0425
bruce.chen@vgso.vic.gov.au

High Court tells lawyers to play fair

Play fair and double-check what you send to the other side are the two lessons for litigators coming out of the recent High Court decision of ERA Group v Armstrong.

In the course of discovery in a commercial dispute involving some 60,000 documents, the ERA Group’s solicitors mistakenly provided Armstrong’s solicitors with documents that were confidential and subject to client legal privilege. 

Oops. 

ERA Group’s solicitors then sought return of the material and an undertaking from Armstrong’s solicitors not to use the privileged material in the litigation.  But Armstrong’s solicitors refused to return the documents, arguing that the privilege attaching to the documents had been waived.

The trial judge found for the ERA Group and ordered return of the documents.  But the Court of Appeal sided with Armstrong.  The High Court overturned that decision with a very clear message about lawyers’ professional and ethical obligations to support the proper administration of justice. 

In doing so, it noted that mistakes are more likely to occur in discovery in ‘heavy litigation conducted by large teams of lawyers of varying experience and the indiscriminate use of photocopying’ so the good faith of the parties is paramount in such matters.

The Court noted that the new Australian Solicitor’s Conduct Rules (not yet incorporated in Victoria) require a solicitor to return material which is known or reasonably suspected to be confidential, where the solicitor is aware that its disclosure was inadvertent.

The Court suggested "such a rule should not be necessary," as "in the not too distant past it was understood that acting in this way obviates unnecessary and costly interlocutory applications…  It is an example of professional, ethical obligations of legal practitioners supporting the objectives of the proper administration of justice.”

It is a fundamental principle of legal professional practice that, as lawyers, our duty to the court trumps all of our other duties.  Fortunately, such behavior is rare in government lawyers as they must also follow the Model Litigant Guidelines.  These require government litigants to (amongst other things):

• act fairly in litigation
• not cause unnecessary delay
• keep litigation costs to a minimum.

But this reminder by the High Court to think twice about adopting a win-at-all-costs approach is still a useful read for government lawyers, even just for the reminder to do one last proofread before hitting ‘send’…

If you are in the Victorian Government and would like advice on the ethical obligations applicable to government litigants, please contact:

Andrew Suddick
General Counsel (Litigation)
t 8684 0458
andrew.suddick@vgso.vic.gov.au