The primary role of dispute clauses in construction contracts are to provide the parties with certainty as to the agreed processes for resolving project disputes. Complex or convoluted dispute clauses potentially have the opposite effect. The clause itself may be the source of dispute because of uncertainty introduced by the drafting.
We recently considered an unamended dispute clause in the Master Builders Queensland Commercial Building Contract. The dispute clause is relatively complex and adopts a series of progressive steps, which ultimately funnel into litigation provided preconditions are met (i.e. earlier processes have either failed, or one party has failed to participate).
Arbitration is an option available (prior to litigation), expressed as an alternative to mediation and where arbitration is selected, to decide all matters referred. Below we examine potential arguments in respect of the interpretation of this dispute clause and suggest that there is sufficient uncertainty in the drafting to warrant amendment.
In Queensland, the Commercial Arbitration Act 2013 prescribes what constitutes an arbitration agreement and, where such an agreement is in place, the circumstances for mandatory referral by the Courts to arbitration. In this context, any proceeding improperly commenced in the Courts will be permanently stayed and the dispute referred to arbitration, perhaps with a cost consequence to the intiating party.
At first glance, the Master Builders dispute clause merely raises arbitration as a possibility, rather than referring any dispute to arbitration. However, as the dispute clause is more closely considered in full in the context of express preconditions to litigation, the path for access to litigation becomes more uncertain. Accordingly, it is arguable the dispute clause constitutes a binding arbitration agreement.
The express preconditions to litigation are extracted below:
Clause 28.5 - “Neither party may commence legal proceedings in relation to a dispute unless the parties have undertaken the processes set out in Clauses 28.1 to 28.4 and those processes have failed to resolve the dispute, or one of the parties attempted to follow these processes and the other party has failed to participate.”
In August 2022, the Queensland Court of Appeal in the case Lee v Lin considered a dispute clause in a migration agent’s professional services contract which referenced an agreement to refer disputes (not resolved within a fixed time) to arbitration for final settlement. The Court of Appeal (overturned the decision of the primary judge) and held the dispute clause was a binding arbitration agreement because, although other methods of dispute resolution were open, further agreement was required before those alternatives to arbitration could be accessed.
The Master Builders dispute clause clearly provides for the possibility of arbitration to decide the dispute. To this extent, the dispute clause mirrors the sense of finality discussed by the Qld Court of Appeal in Lee, and may be a binding arbitration agreement. On the other hand, because mediation is an alternative process to be selected (instead of arbitration), there is no clear reference of any dispute to arbitration.
The requirement for election of arbitration by the subsequent agreement of the parties is more aligned with the dispute clause considered by the NSW Court of Appeal decision in Jemena Gas Networks v AGL Energy, which was held not to be a binding arbitration agreement.
A complication remains however with the Master Builders dispute clause, namely that if the parties agree nothing and do nothing, the express preconditions in clause 28.5 exclude the parties from access to the Courts. Further, the dispute clause offers a sense of finality in connection with arbitration.
In that scenario, if the parties are excluded from access to the Courts by the failure to act, the only process remaining available offering a degree of finality is arbitration. In this context, despite no direct referral to arbitration, it indirectly lends itself to the possibility of a binding arbitration agreement.
Clearly these arguments raise a sufficient degree of uncertainty about the proper interpretation of this dispute clause (and whether or not it is an arbitration agreement) to warrant amendment to simplify the dispute clause and provide certainty to the parties (perhaps by adopting the default clause in AS4000-2025) and to avoid dispute over the clause itself.
Julian Troy is founder and director at Troy Legal. With over 23 years experience in construction law, Julian cuts to the real issues and provides simple and effective advice to construction businesses across SEQ and Australia.
Troy Legal supports principles, owners, consultants, contractors, subcontractors, and suppliers in SEQ with contract reviews and contract advice. For tailored advice and guidance in relation to your construction contract, reach out to Troy Legal today. Call Julian on 0439 207 579
The primary role of dispute clauses in construction contracts are to provide the parties with certainty as to the agreed processes for resolving project disputes. Complex or convoluted dispute clauses potentially have the opposite effect. The clause itself may be the source of dispute because of uncertainty introduced by the drafting.
We recently considered an unamended dispute clause in the Master Builders Queensland Commercial Building Contract. The dispute clause is relatively complex and adopts a series of progressive steps, which ultimately funnel into litigation provided preconditions are met (i.e. earlier processes have either failed, or one party has failed to participate).
Arbitration is an option available (prior to litigation), expressed as an alternative to mediation and where arbitration is selected, to decide all matters referred. Below we examine potential arguments in respect of the interpretation of this dispute clause and suggest that there is sufficient uncertainty in the drafting to warrant amendment.
In Queensland, the Commercial Arbitration Act 2013 prescribes what constitutes an arbitration agreement and, where such an agreement is in place, the circumstances for mandatory referral by the Courts to arbitration. In this context, any proceeding improperly commenced in the Courts will be permanently stayed and the dispute referred to arbitration, perhaps with a cost consequence to the intiating party.
At first glance, the Master Builders dispute clause merely raises arbitration as a possibility, rather than referring any dispute to arbitration. However, as the dispute clause is more closely considered in full in the context of express preconditions to litigation, the path for access to litigation becomes more uncertain. Accordingly, it is arguable the dispute clause constitutes a binding arbitration agreement.
The express preconditions to litigation are extracted below:
Clause 28.5 - “Neither party may commence legal proceedings in relation to a dispute unless the parties have undertaken the processes set out in Clauses 28.1 to 28.4 and those processes have failed to resolve the dispute, or one of the parties attempted to follow these processes and the other party has failed to participate.”
In August 2022, the Queensland Court of Appeal in the case Lee v Lin considered a dispute clause in a migration agent’s professional services contract which referenced an agreement to refer disputes (not resolved within a fixed time) to arbitration for final settlement. The Court of Appeal (overturned the decision of the primary judge) and held the dispute clause was a binding arbitration agreement because, although other methods of dispute resolution were open, further agreement was required before those alternatives to arbitration could be accessed.
The Master Builders dispute clause clearly provides for the possibility of arbitration to decide the dispute. To this extent, the dispute clause mirrors the sense of finality discussed by the Qld Court of Appeal in Lee, and may be a binding arbitration agreement. On the other hand, because mediation is an alternative process to be selected (instead of arbitration), there is no clear reference of any dispute to arbitration.
The requirement for election of arbitration by the subsequent agreement of the parties is more aligned with the dispute clause considered by the NSW Court of Appeal decision in Jemena Gas Networks v AGL Energy, which was held not to be a binding arbitration agreement.
A complication remains however with the Master Builders dispute clause, namely that if the parties agree nothing and do nothing, the express preconditions in clause 28.5 exclude the parties from access to the Courts. Further, the dispute clause offers a sense of finality in connection with arbitration.
In that scenario, if the parties are excluded from access to the Courts by the failure to act, the only process remaining available offering a degree of finality is arbitration. In this context, despite no direct referral to arbitration, it indirectly lends itself to the possibility of a binding arbitration agreement.
Clearly these arguments raise a sufficient degree of uncertainty about the proper interpretation of this dispute clause (and whether or not it is an arbitration agreement) to warrant amendment to simplify the dispute clause and provide certainty to the parties (perhaps by adopting the default clause in AS4000-2025) and to avoid dispute over the clause itself.
Julian Troy is founder and director at Troy Legal. With over 23 years experience in construction law, Julian cuts to the real issues and provides simple and effective advice to construction businesses across SEQ and Australia.
Troy Legal supports principles, owners, consultants, contractors, subcontractors, and suppliers in SEQ with contract reviews and contract advice. For tailored advice and guidance in relation to your construction contract, reach out to Troy Legal today. Call Julian on 0439 207 579
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