Building disputes can be resolved in a variety of judicial and quasi-judicial forums, three of the most common being arbitration, courts and tribunals.

Often, the building contract will have a contractual provision that dictates which forum will be used to resolve a dispute. Unless there is an Act of Parliament that imposes the dispute resolution institution upon the parties to the contract, they will be at liberty to choose the dispute resolution pathway when they negotiate the dispute resolution procedure in the contract.

It is very important to get it right in the first place, and to get it right you have to understand the differences between the different dispute resolution institutions.

1. The Courts

There are courts of law of lower and higher jurisdiction which are generally demarcated by the financial quantum of the dispute. For instance, a Magistrates’ or a Local Court might have a financial jurisdictional limit of $100,000. The superior courts such as the Supreme Courts deal with higher levels of quantum; multimillion dollar matters are standard fare and the Courts of higher jurisdiction play a critical role in establishing binding legal precedents

Interlocutory proceedings

Typically, a case would be initiated by the filing of a statement of claim. There is a regulated time by which notices of appearance and defences have to be filed. There will be directions hearings presided over by judges or magistrates where orders for the filing of counter claims or replies will be forthcoming. In addition, there will be orders for the generation of lists of documents, orders for the inspection of same, the production of expert witness reports and witness statements, mediation and – where settlement cannot be engineered – a date for trial.

The above procedures are pretty much the same with respect to tribunal and arbitration interlocutory regimes. Furthermore, regardless of whether a building dispute is resolved by a court, a tribunal or an arbitrator, save for the cost of the arbitrator the costs are pretty much the same and the time taken to resolve the dispute is similar in every jurisdiction. I am basing this on what I have observed and experienced in nigh on 30 years of legal practice.

Key Advantages of Courts over Arbitration

Courts permit the parties to consolidate legal proceedings so that all parties and actors responsible for the building dispute are corralled in the same set of legal proceedings. Furthermore, the litigants don’t have to pay for the deployment of the judge or magistrate as these judicial officers typically enjoy permanent tenure in the service of the Crown.

Members of the bench always have legal qualifications and they gained their appointments by virtue of being held in high regard by influential members of the legal community. Many citizens find this reassuring in terms of the confidence they enjoy in knowing that the decision makers are regarded by and large as being the best available.

2. Tribunals

Tribunals are very similar to courts although the appellate jurisdictions for tribunal decisions that are considered wanting are Courts of higher jurisdiction such as the Supreme Courts. The interlocutory procedures are very similar, although unlike the courts the litigants don’t normally have to pay for the mediators, so there is an attendant cost saving. Tribunal members are often fixed-term contracted senior personnel and do not enjoy the permanent tenure of the bench.

Save for the no-cost mediation facility, there is no singularly compelling advantage of a tribunal over a court of law, yet tribunals have proliferated over the last decade or so and have assumed jurisdictions that had previously been the sole domain of the courts. A Minister of the Crown once told me that the reason for the burgeoning spread of tribunals was driven by economic rationalism. The Minister said tribunal members tend not to enjoy permanent tenure, and the remuneration and superannuation packages tend to be less than the Crown, which led to a lower aggregate cost for the delivery of a Crown service.

3. Arbitration

Arbitration from an interlocutory point operates much like a court or a tribunal in that the proceedings and the time frames for compliance are similar.

Arbitrators are nominated by the arbitration institutes and the arbitration regime is governed by Acts of Parliament that are dedicated to the discrete area of arbitration. Arbitrators are remunerated by the parties and money is paid for their services on account, in advance, on a 50/50 basis. Once the arbitration concludes and a determination is issued, it is binding just like a decision in a court of law or a tribunal. If there is an error in law, then appeal rights exist with courts of higher jurisdiction, such as Supreme Courts.

Arbitrators do not have to possess legal qualifications, but they have to be qualified arbitrators. Notwithstanding, they do not come cheap and will charge anywhere between $2,000 to $10,000 per day. Compare this with the courts and tribunals where the decision makers charge nothing. It follows that arbitration is considerably more expensive than the other forums.

Logistical Impediments

The biggest limitation with arbitration, however, concerns logistics. Arbitrators cannot compel all parties that are partially responsible for a building dispute to submit to arbitration if they are not parties to the building contract. This means that in circumstances where there are a number of actors responsible for a construction dispute, there will have to be parallel proceedings (i.e. proceedings in the arbitration and separate proceedings in a court of law.) This generates cumbersome, duplicatory and expensive proceedings and is probably the main reason for the falling out of favour of arbitration in recent years in domestic jurisdictions.

It is important to note that some jurisdictions have ousted the jurisdiction of arbitration by Acts of Parliament. This is the case in jurisdictions like the Australian states of Victoria and NSW, where arbitration is not permitted for the resolution of residential building disputes.

Contractual considerations

The jurisdiction of arbitration can only crystallise if the contract evidences an election on the part of the parties to the contract to resolve disputes by arbitration. Absent a contractual provision that affords that mandate, arbitration cannot be utilised as it requires the agreement of the parties to invoke its jurisdiction. It follows that if the parties to the building contract don’t want to utilise arbitration as the dispute resolution pathway, they can reflect that election in the fashioning of the dispute resolution pathway in the building contract. The parties may decide that any dispute of whatsoever nature be resolved in a court of law, or by mediation at first instance, failing which the matter is referred to a court of law.

Some Final Thoughts

Next time you are about to sign a building contract give consideration to the issue of how you want disputes to be resolved. Would you prefer mediation, the courts, a tribunal or arbitration? Before deciding, make sure you have regard to the potential costs and logistical constraints that may flow from the given election, because your election can shape the management of your dispute resolution destiny.