A recent case involving a dispute between a builder and homeowners after they entered into a Masters Builders Association Home Building Contract (Contract) has highlighted some important considerations in respect of dispute resolution processes in building and construction contracts.
The Court upheld the validity of a clause in the Contract which allowed disputes between the parties to be decided by an independent third-party decision-maker. The consequence of this is to narrow the grounds for successfully appealing a third-party decision.
In many cases, alternative dispute resolution is preferred by parties to a contract, to allow them to resolve their dispute without the need to go to court.
Background
In the case of Build It Carpentry & Joinery Pty Ltd v John King & Anor [2021] ACTMC 1, a dispute arose between the builder and homeowner about payment for work done by the builder because of variations and additional works. The dispute was referred to an independent third-party decision maker (the TPDM), as provided for by the Contract.
The TPDM found in favour of the builder. The homeowners took the matter to Court arguing that the clause which allowed disputes to be resolved by a TPDM was not valid.
The key issue before the Court was the validity and enforceability of the TPDM’s decision.
One argument put forward by the homeowners was that the TPDM had made an error while interpreting a clause of the Contract. On this basis, the homeowners argued that the determination had not been made according to the law and was invalid.
Expert Determination
The Court relied on Foote & Anor v Barton Property Partnership No 2 [2014] ACTSC 330 at [76] which states that:
“Expert determination is a process established by contract where an independent expert decides an issue or issues that exist between parties. The authority for the process is derived from the contract between the parties. The contract will often declare the outcome of the expert determination process to be final, binding and conclusive between the parties…”
“Because it is open, subject to statute and questions of public policy, to parties to bind themselves to a dispute resolution process, courts will recognise and give effect to decisions of experts in the same way that they recognise and give effect to contracts. Because of the source of power for the expert determination process, where an expert has made a determination under a contract, the question for a court is not whether the determination is correct but instead whether the expert determination was made in accordance with the contract. This means that there is potential for an expert determination to be clearly wrong but still be in accordance with the contract.” (Emphasis added).
Incorrect determination of contractual provisions
The homeowners argued a determination which is based on an incorrect interpretation of a contractual provision is not a determination ‘in accordance with the Contract.’
The Court stated its role in reviewing a dispute determined by a TPDM is not the same as a superior court reviewing the decision of a lower court. It does not remit the matter back to the TPDM in the way a superior court may remit a matter back to a lower court to re-make the decision according to law.
The Court stated that remitting the matter back to a TPDM would be a commercial inconvenience and may grant a far greater right of appeal than that available in the case of arbitration. If the right to appeal is granted this would defeat the two commercial objects of expert determination, being swiftness and finality of outcome.
Learnings
This case emphasises the inclination of the Court’s to give effect to, and the finality of, third-party decision-making processes provided for in a contract. Once a determination is made according to this process, the grounds of successfully appealing the decision are narrow. This process has the benefit of being swift and final. Builders and homeowners should therefore consider whether they want alternative dispute resolution processes in home building contracts.
Are you building, renovating or entering into a contract that should have a dispute resolution process included? Reach out to Griffin Legal where our experienced commercial lawyers can provide practical advice and innovative solutions to ensure your rights are protected via suitable dispute resolution processes in your contracts.
