Background

The plaintiff, Carlisle Homes Pty Ltd (Tenant) and the defendant, Nexus Office Pty Ltd (Landlord) entered into an Agreement for Lease (AFL) for the premises located at 633-647 Springvale Road, Mulgrave (Property) on 28 March 2018. The purpose of the AFL was to transition the Tenant into the Property upon completion of its construction, which was being co-ordinated by the Landlord. Under the AFL, the lease was scheduled to commence after the Landlord had procured from its architect a certificate that ‘Practical Completion’ of the construction of the Property had been achieved (Certificate of Practical Completion). This included a list of further work items, including incomplete and defective works, which did not affect the architect’s finding that Practical Completion had been achieved.

Shortly after the Certificate of Practical Completion was issued, the Tenant issued a Notice of Dispute (NOD) to the Landlord under the AFL alleging that Practical Completion had not been achieved. The NOD relied on the presence of incomplete and defective works and therefore argued that the Certificate of Practical Completion should not have been issued. The Landlord replied to the NOD rejecting the claim (Dispute).

Under the AFL, the parties had agreed to have any dispute determined in accordance with an ‘Expert Determination Agreement’ (Agreement). The AFL provided that the expert determination was conclusive and binding on the parties. The expert was required to determine whether the Certificate of Practical Completion was validly issued in accordance with the terms of the AFL.

The expert determined that the Certificate of Practical Completion was issued properly in accordance with the terms of the AFL (Determination). The Tenant commenced these proceedings seeking to quash the Determination on the basis that the Determination did not comply with the terms of the Agreement.

Decision

The Tenant argued that the expert misconstrued the question for determination and had failed to take into consideration the alleged defects and incomplete works identified by the Tenant.

The Landlord argued that the Agreement only required the expert to determine whether Practical Completion was achieved in accordance with the terms of the AFL and did not require the expert to issue a determination in relation to the presence of defective or incomplete works, except to the extent that they affect the architect’s finding that Practical Completion had been achieved.

The Court agreed with the Landlord and held that the expert was only tasked with determining whether Practical Completion had occurred within the meaning of the terms of the AFL and not with reviewing the physical state of the Property. Furthermore, the Court held that since the expert was briefed on the alleged defective and incomplete works by both parties and the expert explained in its determination that it had considered the submissions from both parties and the list of further work items but that these did not prevent Practical Completion from being achieved (as defined under the AFL), the parties were bound by the Determination.

Conclusion

When agreeing to refer disputes to expert determination, parties should be careful to ensure the scope of the dispute that the parties are seeking to resolve is sufficiently identified by the terms of the relevant agreement. If there are doubts surrounding the sufficiency of the terms contained within an expert determination agreement, legal advice should be sought as soon as possible and where possible, prior to execution.

Further information / assistance regarding the issues raised in this article is available from the authors, Bill Papastergiadis, Melbourne Managing Partner, Partners, Nathan Cutts, Phillip Vassiliadis or your usual contact at Moray & Agnew.