Australia: Residential Focus - 14 February 2018: Part 1 - Dispute resolution clause

Last Updated: 19 February 2018
Article by Christine Jones and Eleanor Grounds
Most Read Contributor in Australia, September 2018

In Roberts v Morphett Constructions Pty Ltd [2018] NSWCATAP 33, the New South Wales Civil and Administrative Tribunal (Tribunal) dismissed an appeal by an owner claiming that the builder was unable to terminate a building contract due to failure to comply with the dispute resolution clause.

Facts

The owner raised allegations of defective works and work was suspended in January 2016 while a consultant's report was obtained. Work recommenced in February. In March a mediation was arranged with an inspector from Fair Trading NSW who issued a rectification order.

On 4 April 2016 the builder issued a progress claim, which the owner responded to by a notice listing the disputed items. The builder then issued a formal notice alleging breach of contract due to the owner's failure to pay the progress claim as well as other amounts claimed by the builder. The notice stated payment was required within 10 business days otherwise the builder would terminate the contract. The owner failed to pay, and the builder issued a further notice terminating the contract.

Decision at first instance

The owner and the builder each commenced proceedings in the Tribunal; the owner claiming the cost of rectification of the alleged defects and the builder claiming the unpaid cost of the works. The Tribunal ordered the owner to pay the builder $112,592 and the builder to pay the owner $12,157, finding that the builder had validly terminated the contract and was entitled to the amount claimed.

The owner brought an appeal on a number of grounds, including that the Tribunal had erred in finding that the builder had been entitled to terminate the contract. The owner argued that the builder was not entitled to terminate the contract as it had not complied with the dispute resolution clause.

Dispute resolution clause

Relevantly, clause 27 of the contract (dispute resolution clause) provided:

27. If the owner or contractor considers that a dispute has arisen in relation to any matter covered by this contract, either during the progress of the work, after completion of the work or after the contract has been terminated, that person must promptly give to the other party written notice of the items in dispute.
If the dispute is not resolved informally following such notification, the parties may confer with a mutually agreed third party whose role will be to assist in the resolution of the dispute by mediation or expert appraisal of the work.
If the parties do not agree to confer with the third party to assist in the resolution of the dispute, or if the dispute is not resolved following the assistance of such a third party, the owner may notify Fair Trading that a building dispute exists and seek the assistance of Fair Trading to resolve any dispute.
Even if a dispute has arisen the parties must, unless acting in accordance with an express provision of this contract, continue to perform their obligations under the contract so that the work is completed satisfactorily within the agreed time.

Decision on appeal

The Tribunal dismissed the appeal, finding that the dispute resolution clause did not provide a clear mechanism for the resolution of a dispute. The Tribunal held:

[The dispute resolution clause] cannot be said to require any substantive act on the part of the party receiving notice of dispute. The clause clearly does not require the parties to proceed to mediation or make notification to Fair Trading. Even if [the dispute resolution clause] is construed as imposing upon the parties a requirement that the parties attempt to resolve the dispute informally following notification of a dispute, it is impossible to give any substance to that requirement.

Furthermore, the Tribunal found that the parties had engaged in informal negotiations attempting to resolve the dispute prior to the notice being issued and there was no reason why any further obligation should have been imposed upon the parties.

Finally, the Tribunal found that there was no certainty that abiding by the dispute resolution clause would resolve the dispute. The dispute may have remained unresolved and may have required litigation in court or the Tribunal. As such, there was no prerequisite that the dispute resolution clause be followed before the builder could claim remedies for the owner's failure to pay the progress claim.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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Authors
Christine Jones
Eleanor Grounds
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