Carlisle Homes Pty Ltd v Nexus Office Pty Ltd [2025] VSCA 304

What the court decided

In 2019 Carlisle Homes and Nexus Office entered into an agreement for lease under which Nexus agreed to lease to Carlisle part of a building in Mulgrave and to carry out works at the property [1]. On substantial completion of the works, Nexus's architect was to issue a certificate of practical completion, and its issue was one of the events that fixed the commencement date of the new lease [1].

Clause 9.3 required Nexus to procure the architect's certificate once the parties agreed that there was no further work or that it had been completed, or once the architect, "acting in good faith, professionally and without bias", certified that any further work had been completed or was not necessary for practical completion [12]. Clause 9.4 sent "[a]ny dispute as to the operation" of clause 9, and any dispute whether a certificate should or should not be issued, to the procedure in clause 28 [12]. Under clause 28 the dispute went to an expert, whose determination "is conclusive and binds both parties" [14].

The architect certified that the works had reached practical completion on 29 April 2021 [2]. Carlisle served a notice of dispute identifying 33 items of allegedly incomplete or defective work which it said meant practical completion had not been achieved, and Nexus replied contesting that [3]. The parties and the expert then entered into an expert determination deed, which required the expert to determine the matters listed in item 2 of its schedule [4], [16].

Question (a) in item 2 asked whether Nexus achieved practical completion on 29 April 2021 "in accordance with clause 9" of the agreement [16]. Question (d) asked whether the certificate should have been issued, and question (e) asked, if practical completion was not achieved on that date, whether and when it had since been achieved and the dates that followed [16]. The Court accepted Carlisle's submission that questions (a) to (d) replicated the notice of dispute, but said that did not decide what the expert had to determine [42], [62]. The deed was varied in October 2021 to bring a further notice of dispute into the process [4]. The variation provided that, if the expert determined that practical completion had occurred in accordance with the agreement's terms, Carlisle would not rely on any further matter or issue any further dispute notice about the item 2 matters or clause 9 [17].

The expert did not address the items of allegedly incomplete or defective work [5]. He determined that practical completion was achieved on 29 April 2021 because the certificate was issued properly in accordance with clause 9 [30]. His reasons included that he had no reason to doubt the architect's good faith, that the certificate stated it was issued under clause 9.3(b) and that it addressed the further work items [30], [86]. In a later letter he said that his determination triggered clause 2(b) of the variation deed, so questions (d) and (e) did not need to be answered [32].

The trial judge, Croft J, answered in the negative a preliminary question whether the expert had failed to determine the dispute defined in item 2, such that the parties were not bound [7]. His Honour held that the expert's task was not to replicate the architect's review of the physical state of the premises [34].

The Court of Appeal (McLeish and Orr JJA and Nichols AJA, in joint reasons) refused leave on a ground alleging inadequate reasons, because the Court would have to construe the deed for itself in any event [37]. It granted leave on the remaining grounds and allowed the appeal [9], [38].

The Court began with the agreement for lease [54]. Practical completion was an objective state of affairs, but its contractual consequences mainly depended on the architect's certificate [57]. Nexus argued that, once a certificate had issued, clause 9.4 allowed only a dispute about the architect's good faith, professionalism and lack of bias [58]. The Court rejected that argument because of the wide words of clause 9.4, which covered the architect's assessment whether practical completion had been achieved as part of the operation of clause 9 [58]. There was no textual foundation for the narrower reading, and the agreement did not give a certificate any binding or conclusive operation [59].

That did not decide the appeal, because the expert was not a party to the agreement for lease and was obliged to determine the dispute as defined in the deed [61], [62]. The critical question was therefore what dispute the parties had referred to the expert, which turned on the construction of the deed [63].

The Court gave four reasons for reading question (a) as asking whether practical completion had been achieved. First, it used the active voice, asking whether Nexus achieved practical completion rather than whether clause 9 had been complied with [65]. Secondly, question (d) separately asked whether the certificate ought to have been issued, and senior counsel for Nexus could not point to any work for question (d) to do on Nexus's construction [66]. Thirdly, question (e) presupposed that an earlier question might be answered by finding that practical completion was not achieved on that date, and question (a) was the only obvious candidate [67]. Fourthly, the words "in accordance with clause 9" could describe an inquiry into whether practical completion had been achieved [68].

The Court held it "inescapable" that question (a) asked whether Nexus had achieved practical completion when the architect inspected and assessed the works, and was not confined to whether a certificate had been issued in accordance with the clause 9 criteria [71].

The Court did not need to rely on the recitals to the deed, but said that the exercise reinforced its conclusion [72]. It noted that the authorities do not speak with one voice on whether ambiguity is needed before recitals may be used, and found it unnecessary to reconcile them [77], [78]. The notices of dispute and replies referred to in the recitals were the "genesis of the transaction", and documents referred to in a contract may be used to identify its commercial purpose or genesis without establishing ambiguity [82]. Those documents showed that the dispute was whether the further work had been completed and, if not, whether that prevented practical completion [83].

In the alternative, the Court said that, even if the original deed had been confined to the procedural requirements of clause 9, the variation deed contemplated that the expert might decide the wider question whether practical completion had been achieved [85].

The expert had confirmed that the architect followed the steps in clause 9, but did not assess whether the outcome was correct, which was what question (a) was about [87]. The error infected the whole determination, and the clause 2(b) undertaking in the variation deed was not triggered [88]. The determination did not fulfil its contractual purpose and did not bind the parties [88]. The Court held that the preliminary question should have been answered "yes" and said it would hear the parties on costs [89].

Why it matters

On this deed, a question whether the landlord achieved practical completion in accordance with the certification clause required the expert to decide whether practical completion was in fact achieved; confirming that the certifier had followed the contractual process was not enough [71], [87]. Because the expert answered that narrower question, his determination did not bind the parties [88].

Although it said it did not need to, the Court also looked at the notices of dispute and replies referred to in the deed's recitals, which confirmed its construction [72], [84]. It said that such documents may be used to identify a deed's genesis and commercial purpose without first finding ambiguity, while leaving the wider debate about recitals unresolved [78], [82].

As a drafting point, not one the Court made, those preparing an expert determination deed should state in the defined dispute whether the expert is to review the certifier's process or the underlying outcome. The decision turned on the words of this agreement and deed, so readers should consider the terms of their own documents before relying on it.

Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.