WTE Co-Generation & Anor v RCR Energy Pty Ltd & Anor: dispute resolution clause - agreement to agree?

In August 2013, Standards Australia issued an alert urging users of standard contracts to seek legal advice on the dispute resolution clause before entering into any standard form contracts.

That alert was issued because the Supreme Court of Victoria decided, in WTE Co-Generation & Anor v RCR Energy Pty Ltd & Anor [2013] VSC 314, that a dispute resolution clause in the following terms was unenforceable:

“… 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.” [emphasis added]

The Court held that the above clause constituted “an agreement to agree” because the above highlighted part of the clause left the method of resolving dispute to a further agreement.

It is implicit in the Court’s decision that if the clause merely required that the parties meet to attempt to resolve the dispute, that the clause would be enforceable. The additional alternative option to meet to agree on methods of resolving the dispute however rendered the clause unenforceable.

All parties to contracts that seek to rely on a dispute resolution clause should seek legal advice to make sure that the clause is enforceable or if it is not enforceable, seek legal advice as to how to amend it.

The above decision has a significant impact on the building and construction industry because many commonly used standard building contracts such as AS4000-1997, AS4300-1995 and AS2124-1992 contain a dispute resolution clause similar to the one above.