In Australia, as in many other countries, the economic uncertainty affecting the Euro-zone countries has kept the disputation of commercial, finance and supply contracts at levels similar to those seen during the Global Financial Crisis (GFC). There are a number of recent and ongoing disputes that stem from the GFC, such as misrepresentation claims in respect of financial products. The workload and waiting lists of all major commercial courts in Australia has remained steady over the past year.

Perhaps predictably, disputes arising out of commercial contracts have tended to involve many complex and interrelated issues, extensive documentation and the need for technical and expert involvement in any dispute resolution. This has meant that such disputes are costly and time consuming and, as a result, have placed greater demands upon the court system. Also, disputes have arisen from the specific circumstances triggered by the economic downturn such as margin lending arrangements with stockbrokers or bankers on share portfolios when falling share prices triggered repayment obligations.

In Australia, the courts, lawyers, and commercial clients have for years sought to achieve cost-efficient and timely resolution of disputes. As a result Australia has often been at the cutting edge of developments in alternative dispute resolution. Some forms have been imposed by courts or government and others by agreement. There is no one solution and any party to a dispute arising from a commercial contract in Australia may avail itself of a number of different options for resolution of that dispute.

Most commercial contracts now contain dispute resolution clauses permitting the parties to escalate their dispute by stages and which are structured so that a party may not pursue its claim in court (except for injunctive court relief) until it has fulfilled each step of the process. A typical contract may:

  • Require parties to issue a notice of dispute in a timely fashion, setting out the nature and extent of the claim
  • Require good faith negotiations between senior executives of the parties
  • Require mediation or some other informal dispute resolution mechanism, for example, for the dispute to be heard by a dispute review board or hearing by a technical or legal expert (this step is often expressed as a precondition to litigation or arbitration)
  • Permit a party only then to proceed to litigation or arbitration.

The government recently enacted the Civil Dispute Resolution Act 2011 (Cth), which requires parties to take genuine steps to resolve a dispute (and set out those steps in a document) by the time a claim is filed in a court of federal jurisdiction. This encourages parties to engage in alternative dispute resolution before costs are incurred and become a factor in settlement decisions. At present, there is no similar legislation that applies to claims in the state jurisdictions.

The following is a summary of the main dispute resolution models and processes used for disputes in Australia.


Courts operate at both federal and state government levels in Australia. The separation of powers means that courts are independent of and separate to parliament and the executive government.

In most cases, the jurisdiction of a court is governed by the amount in dispute or, in the case of the Federal Courts, the subject matter of the dispute. In Australia, the highest level court in each state (usually called the Supreme Court) has inherent jurisdiction to resolve a dispute.

In some jurisdictions, industry specific tribunals or courts have power to hear disputes (for example, the Land and Environment Court in New South Wales and the Domestic Building List in the Victorian Civil and Administrative Tribunal).

Unless the parties specifically agree to refer a dispute to arbitration by means of a provision inserted in the commercial contract, a claim can only be pursued in a court. As a result, there is an increasing focus on parties to agree to arbitration or dispute resolution provisions at the time of contracting.

In Australia, the court system operates on an adversarial basis. This means that the parties involved in the proceeding retain advocates who seek to persuade an impartial judge of the merit of their position. They do this by examining witnesses and representatives of the parties and applying strict rules of evidence. This is in contrast with the inquisitorial system used in civil law systems in much of Europe.

Each court has its own rules applicable to the commencement, management and trial of a proceeding. The claim and all documents issued to articulate or rebut that claim (called pleadings) must be in a particular and specified form. A fee is payable to commence a proceeding. Although judges do not charge to hear a proceeding, some courts now impose a court hearing fee.

In many jurisdictions, specific lists have been established by the courts to manage specific disputes such as building, technology or insurance disputes. These lists are managed by a judge with experience in hearing such disputes, and are intended to enable prompt hearing of interlocutory or preliminary arguments, assist with the quick identification of the issues and enable a hearing date to be obtained at the earliest possible time. Proceedings are listed regularly, sometimes each month at directions hearings, which the parties are obliged to attend. At this time, the court will make inquiries on the progress of the proceeding and make any necessary orders for the management of the matter including its trial. Such preparatory steps include provision of particulars, cross-claims, discovery of documents and the preparation of statements of evidence. The purpose of these steps is to avoid ambush at trial and to ensure that each party knows the case against it and all the evidence upon which the other party will rely prior to a trial so, if appropriate, settlement discussions may occur.

These specialist lists may incorporate a number of special features to enable prompt and timely settlement of disputes, such as:

  • Referral to compulsory mediation (see below)
  • If appropriate, determination by the court of a preliminary point in order to dispose of the dispute or limit the issues in dispute
  • Referral to a special referee to consider key technical questions
  • Dividing the proceeding into an assessment of liability and then quantum (if the claim is successful). This last step is unusual but may occur where determining liability is straightforward and the issue of damages is complex or lengthy.

While some courts will grant a trial date at the first directions hearing, in other courts it might take two years until a trial commences. The timing for a trial can depend upon the court's resources, the nature of the dispute and how long the trial is likely to run. In New South Wales especially, court delays can be lengthy.

In Australia, legal costs are said to "follow the event". This means that the party that successfully brings or defends a claim is likely to obtain a judgment that the other party pays its costs. The costs that are usually payable under such a judgment are usually "party/party" costs and amount to about 60% of the actual costs incurred by the successful party.

Other cost orders may be made. For example, if the successful party had earlier made an offer to settle the dispute on terms that were more favourable to the unsuccessful party than the judgment ultimately obtained, the successful party may obtain an order that part or all of its costs be paid on a "solicitor/client" or "indemnity" basis. Such an order might enable the successful party to recover up to 80% or 90% of its actual legal costs.

There is also an international perspective to the courts in Australia as they have powers to assist parties to foreign litigation. The Foreign Judgments Act 1991 (Cth) enables Australian registration of a foreign judgment from certain courts located in certain countries. This is useful if you obtain judgment in a foreign country but the judgment debtor only has the relevant monies or assets in Australia. Also, using the court powers under the Foreign Evidence Act 1994 (Cth) and similar state legislation, parties to foreign litigation can commence proceedings and obtain orders for the taking of evidence in Australia. This is useful if a case turns upon the evidence of a witness or documents resident in Australia.


In each state of Australia, legislation imposes a time period before the end of which proceedings must be issued for a claim or dispute. These time periods vary from state to state and depend upon the type of claim. A failure to issue proceedings before the relevant time period expires is likely to result in that claim becoming "time barred".

In most Australian states, actions in simple contract or tort must be brought within six years of either the date of breach (contract) or the date on which loss was incurred (tort).


Domestic arbitration is regulated in most states by recently enacted uniform arbitration legislation (known as the Uniform Commercial Arbitration Acts). These apply the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, which aligns Australian domestic arbitration practice with international arbitration practice and allows parties to benefit from a wealth of precedent on the matter. The Uniform Commercial Arbitration Acts by default make arbitrations confidential and since the awards handed down by an arbitrator are not published, arbitration is an attractive form of dispute resolution to parties such as government agencies or those involved in sensitive disputes.

Because the relevant court would otherwise have inherent jurisdiction over a dispute, parties must expressly agree (in their commercial contract) to use arbitration as the means of resolving their dispute in order for the Uniform Commercial Arbitration Acts to apply. This agreement usually takes the form of a clause in the contract setting out an agreement to arbitrate any dispute which arises under the contract. The Uniform Commercial Arbitration Acts provide a limited right of appeal to the courts.

The Uniform Commercial Arbitration Acts address the procedural framework of a commercial arbitration as follows:

  • Appointment of an arbitrator or composition of an arbitration tribunal, if it is not otherwise dealt with in the contract between the parties
  • Basis upon which an arbitrator may reach its decision
  • Enforcement of arbitral awards
  • Power of a party to stay legal proceedings if there is an arbitration
  • agreement in place (anti-suit proceedings)
  • Power of the parties to challenge an award (usually limited).

Domestic commercial arbitration is usually conducted on a very similar basis to litigation, with similar procedures, legal representation and costs, however there is significant scope for the parties to tailor an arbitration proceeding to their respective needs so as to inexpensively resolve their dispute in a manner that is fast and final. The Uniform Commercial Arbitration Acts allow parties to an arbitration access through injunctive relief (or interim measures) and court-issued subpoenas. The arbitrators selected are often solicitors, barristers or retired judges. In the construction industry, experienced engineers, architects and other building professionals with arbitration expertise are also often used. They charge a fee to hear the claim and prepare the award.

Currently, the Uniform Commercial Arbitration Acts have been passed in New South Wales, Victoria and South Australia. Other states are expected to adopt the legislation in the near future.


International commercial arbitration is governed by the International Arbitration Act 1974 (Cth) (IAA), which was modified in 2010 to adopt the 2006 amendments to the UNCITRAL Model Law (Australia is one of only 13 countries to do so) and the UNCITRAL Model Law now covers the field in respect of international commercial arbitrations - parties cannot contract out of it. The IAA also gives effect to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) and the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). The alignment of the IAA with the Uniform Commercial Arbitration Acts puts Australian practitioners in an ideal place to assist with international commercial arbitrations.

The types of commercial disputes that tend to use international commercial arbitration involve mining supply contracts, shipping contracts and technology contracts. There is also the ability for a party to commence international investor-state arbitrations under a bilateral investment treaty with Australia.

There are a number of important features under the international commercial arbitration framework in Australia, namely:

  • The adoption of the New York Convention gives parties certainty in knowing that any foreign arbitral award they are granted will permit them to enforce that award in Australia, and stay judicial proceedings issued in Australia if they are brought in breach of an arbitration agreement. Awards can also be enforced in any of the 150-odd member countries where the target party has assets.
  • The adoption of the UNCITRAL Model Law with 2006 amendments gives foreign parties a familiar procedural law for the arbitration and gives parties input to create their own arbitration process for the fast and/or efficient conduct of their arbitration. It also allows parties to draw upon the body of international precedent that deals with the UNCITRAL Model Law.
  • The adoption of the ICSID Convention permits arbitration of an investment dispute between a country and a national of another country.

Sydney and Melbourne operate as centres for international arbitration, with Sydney recently opening the Australian International Disputes Centre, which is the specialist venue for international commercial arbitration. The Australian Centre for International Commercial Arbitration (ACICA) is a provider of international arbitration services and is the default appointing authority under the IAA. ACICA also has its own set of arbitration rules (which parties may agree upon in the arbitration agreement), which are based on the 1976 UNCITRAL Arbitration Rules. Other providers used by Australian parties are the International Court of Arbitration, the London Court of International Arbitration and the Singapore International Arbitration Centre.

International commercial arbitrations can be run using a similar procedure to domestic commercial arbitrations, using the following features:

  • "Stop clock" procedures where the parties must make their submissions and lead evidence from witnesses within a specific time frame, for example two days
  • Quicker and less complicated exchange of pleadings and document disclosure stages
  • The incorporation of terms of reference, which are agreed following the appointment of the arbitrator or arbitrators.

These and other procedures make international commercial arbitration a fast and efficient method of resolving crossborder disputes and a real alternative to litigation.


Mediation is a form of alternative dispute resolution. It requires the participation of a third party (a mediator), whose role is to assist the parties to a dispute to reach agreement on the resolution of that dispute. A mediator does this by seeking to align the parties' interests where possible, identifying the possible outcomes of the litigation or arbitration, and examining what options might be available to the parties to settle the dispute.

A mediator does not make a binding determination on the dispute, although he or she may make observations on the strength or weakness of the parties' respective positions. Mediation is usually conducted on a confidential basis. In Australia, mediators tend to be senior barristers, solicitors or retired judges.

A mediation:

  • Allows each party to test the strength of its case on a neutral third party
  • Gives the parties a forum to articulate their claim in an informal environment
  • Gives an opportunity for discussions to occur between a level of management higher than the "coal face"
  • Permits the parties to explore means of resolution that are not simply reliant on payment of money or performance of work
  • Can help to preserve a commercial relationship before the parties' positions become entrenched at trial or arbitration
  • Is consensual in nature. If both parties sincerely want to mediate their dispute, then the prospects of settlement are probably higher.

In Australia, there has been a marked trend towards court-ordered mediation over the last decade. This trend has developed in response to pressure on court resources and is particularly acute in the context of major, multi-party disputes.

While this trend flies in the face of a consensual approach and may result in the forced participation by parties in the mediation process, statistics produced by the courts show that a high proportion of disputes settle at mediation.

Mediation has been so successful that many commercial contracts now contain a clause requiring the parties to mediate their dispute prior to taking any formal steps in litigation or arbitration.


Since 2004, all states and territories have enacted proportionate liability legislation relating to economic loss or property loss claims arising from negligence or tort, and for damages arising out of misleading and deceptive conduct. Proportionate liability replaces the common law doctrine of joint and several liability. The doctrine of several liability had the effect that a claimant could recover all its loss and damage from one respondent part, even if that party was not responsible for all the relevant loss and damage. On the other hand, proportionate liability allows liability to be apportioned between "concurrent wrongdoers" according to their respective responsibility for the loss or damage.

The proportionate liability legislation is important because many major disputes involve more than two parties. A claimant needs to understand the effect of the legislation on its prospects for full recovery of its loss and damage, particularly if there are varying levels of liquidity or insurance arrangements between all the defendants.

The legislation impacts on many issues in a project, from the indemnity and warranty clauses through to the dispute resolution clause, to how and if a decision to join other parties into a proceeding is made if a dispute arises.

There are significant differences in the way proportionate liability applies in each jurisdiction. Specifically, the ability of parties to "contract out" of proportionate liability varies across jurisdictions. The relevant legislation in Victoria, South Australia, the Australian Capital Territory and the Northern Territory does not expressly allow for contracting out. Contracting out is expressly disallowed under Queensland legislation. In contrast, Western Australian legislation expressly allows contracting out. New South Wales and Tasmanian legislation have similar provisions to the Western Australian legislation, and this has been generally understood to allow contracting out (although this issue remains contentious amongst lawyers and is yet to be fully tested by the courts).

A decision to "contract out" of the legislation can have a significant impact on a party's insurance arrangements. Contracting out may mean that the cover for a claim is limited or non-existent.

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