Dispute Resolution in Australian Standard Contracts

Dispute Resolution in Australian Standard Contracts

At PGC Legal, our team has extensive experience practising in building, construction and infrastructure law. We can provide a full range of legal services to clients in the construction field, including principals, builders, architects, engineers and other consultants, as well as to individual homeowners and builders dealing in residential builds.

We assist both individuals and companies navigate various construction disputes. The procedure for resolving these disputes is often regulated, on an initial basis, by the relevant construction contract, and can differ depending on the contract model used, and whether the parties have negotiated a particular dispute resolution procedure at the contract negotiation stage.

This article discusses some common dispute resolution procedures found in Australian construction contracts, and summarises the advantages and disadvantages of each.

Standard dispute resolution procedures

In general, most contracts include one or more of the following dispute resolution procedures, sometimes in a tiered process where one process must be exhausted before another can be commenced.

  1. Executive negotiation

In Executive Negotiations, the parties agree that a senior representative from each will meet and attempt, often on a ‘good faith’ basis, to resolve the dispute before proceeding to any other more formal dispute resolution procedure.

The benefits of this process is that there is minimal cost to the parties, other than the participants’ time, who retain control of negotiations and may be able to reach a commercial resolution without an in depth consideration of their respective legal positions. However, depending on the parties involved and the difference in bargaining power, they may be unable to reach an agreed position without third party facilitation, which is available in other standard procedures discussed below.

Executive negotiation is often the default starting position for dispute resolution in the commonly used Australian commercial construction contracts suites, the AS2124–1992 and AS4000-1997 series.

  1. Mediation or Conciliation

Mediation or conciliation is a more formal process than executive negotiation. The parties meet before a third party, qualified mediator or conciliator, who facilitates the parties’ discussion and aim to ensure that each parties’ position is heard. The meeting occurs on a ‘without prejudice’ basis to encourage the parties to speak freely without concern that anything said will be relied on in evidence in any future legal proceeding. This can be beneficial in reaching an agreement, and while the information remains ‘without prejudice’, the parties will be aware of further facts that may arise in future legal proceedings. Further, any agreement reached at mediation or conciliation is typically binding and enforceable.

This process remains cheaper than any arbitration or litigation, as the main cost is the mediator or conciliator’s time. This is usually shared between the parties. Further, while a mediator or conciliator does not have any determinative function, they may summarise the different positions, and risks of not resolving a dispute through a mediation or conciliation process, such as the time, costs and risk of proceeding to any Court or arbitration process.

Conciliation is an initial default first step under the common residential build contract published by the Housing Industry Association (HIA).

  1. Superintendent referral

This process is commonly included as an early mandatory dispute resolution step in the AS400-1997 an AS2124-1992 series contracts.

Under this process, the parties each provide their project’s Superintendent with a notice outlining their position as to a dispute, and the Superintendent is then provided with a time limit to issue its decision as to the dispute.

While the parties lose control of the outcome using this procedure, this may be advantageous where both parties are firmly dug into very different positions. However, a Superintendent’s decision is usually not binding, and the parties will then have the option to proceed to another process such as arbitration or litigation. Conversely, parties may agree at the outset that any Superintendent decision is binding. A Superintendent’s decision typically comes at no cost to the parties, and may be time efficient as well as reliable, as most Superintendents under commercial contracts have extensive experience resolving common disputes. However, there is a risk that some may lack experience and expertise to determine disputes raising more specialised issues.

  1. Expert determination

Expert determination follows a similar procedure to Superintendent referral, with the main difference being that the parties agree to appoint an ‘expert’ in a particular field relevant to the dispute to determine it. It has similar advantages and disadvantages to Superintendent referral, except that an expert may produce a more reliable outcome, but for a cost to the parties (whereas the parties do not generally need to pay a Superintendent to reach a decision beyond his or her project fee).

Expert determination is only an optional default position in the ABIC suite of construction contracts which are promoted by the Master Builders Association and Australian Institute of Architects, and the HIA standard domestic contract. However, the parties may agree at negotiation stage to include expert determination as part of the contractual dispute resolution procedure, or may even later agree it is appropriate, while not specified in the relevant contract.

  1. Arbitration and Litigation

Arbitration and litigation are often seen as the ‘last resort’ measures to determine a dispute. Generally, litigation remains an option with respect to a dispute despite whatever dispute resolution mechanism is included in a contract, but arbitration is often a contractual mechanism. For example, arbitration is a standard ‘last resort’ under the AS4000-1997 and AS2124-1992 contract suites.

Each of these processes involves a form of trial of legal and factual issues before a decision-maker. For arbitration, the parties retain greater control in that they are required to agree the rules for conduct of the arbitration proceeding, however, in litigation the parties must follow the Court’s rules and any particular orders made as to proceeding.

Arbitration and litigation generally involve greater cost and time than procedures outlined above. However, arbitration may be less so than litigation, depending on whether the parties can easily agree the rules for the conduct of the arbitration proceedings, and what those rules are. Further, a Court’s decision is always binding, with avenues to appeal in higher Courts. Parties may agree before proceeding that a decision on arbitration is binding or not. Where it is not, there is greater risk that the dispute will continue to Court and the parties may be limited in the evidence they can adduce from the arbitration.

 The content of this article is general information only and does not constitute legal advice. If you have any questions about negotiating an appropriate dispute resolution procedure, or navigating a dispute through an existing contract, feel free to contact Brenton Priestley brenton.priestley@pgclegal.com.au, Partner, or Clairissa Hewitt clairissa.hewitt@pgclegal.com.au.