Back when I commenced construction lawyering in the late eighties as a legal and contracts officer at the Master Builders Association of Victoria, almost all residential building disputes were resolved by arbitration.

The building contracts were produced by the MBA, the HIA and the RAIA. All had arbitration clauses. Neither the Domestic Building Contracts Act nor the VCAT existed. There were no dedicated government controlled and funded dispute resolution theatres.

The arbitration process

Victorian residential building contracts had arbitration clauses. When a dispute or difference arose either party issued a notice of dispute to the nominating body. Sometimes, this was the Institute of Arbitrators. Some contracts dictated that the nominating body was one of the construction trade associations such as the MBA or the HIA. An arbitrator was appointed who was then empowered under the then Commercial Arbitration Act 1984 to assume carriage of the resolution and arbitration of the residential building disputes. In the eighties the arbitrators were the dispute resolution mandarins.

The arbitration system in residential was similar to arbitration in the contemporary commercial context. It was rare for residential building disputes to reach the courts as the arbitration clauses effectively operated as an embargo backed by statute on resort to courts.

Most arbitrators were retired engineers or builders. There was also a sprinkling of architects. Typical of arbitration proceedings, it was difficult to implicate third parties or co-defendants such as a engineers, designers and building surveyors by way of joinders in consolidated proceedings.

The actors in the arbitration were exclusively owners and builders as they were the only parties to the residential building contract – the contractual medium that enshrined the participant exclusivity in the arbitration clause. Typical of arbitration the disputants paid for the arbitrators and were completed to place monies on account in advance of key interlocutory junctures on a 50/50 basis. Arbitrators charged anywhere between $1500 and $3000 dollars per day depending on their experience. Some arbitration clauses dictated that two arbitrators were required to deliberate.

The mid-nineties and the sunsetting of arbitration and the dawn of the VCAT

In 1995, the DBCA was proclaimed and arbitration clauses in domestic building contracts were rendered illegal. The residential arbitration industry effectively disappeared overnight and the VCAT assumed that jurisdiction.

Dispute resolution changed, as:

• Arbitrators were no longer the dispute resolution mandarins, that jurisdiction was replaced by VCAT members
• The members were remunerated by the state
• The cost of dispute resolution was reduced on account of the appointment of state dispute resolution decision makers
• Multi party disputes could now be consolidated under the one cause of action
• Mandatory mediation was introduced in an attempt to front end negotiated dispute resolution outcomes
• Contracts could no longer contain harbour arbitration clauses.

Apart from the above there was little to distinguish the characteristics of the two types of dispute resolution theatre in that the interlocutory processes remained similar comprising:

• An originating motion
• A filing fee
• Statement of claim, defence, counterclaim and discovery
• Directions hearings
• The retention of advocates and expert witnesses
• And absent settlement the matters proceeded to hearing.

Key Takeout’s

In the early nineties the move away from arbitration was principally inspired by a desire to reduce the cost of residential dispute resolution and to speed up the dispute resolution process.

I am not aware of any research that sheds light on whether these aims were achieved (that is not to say that such studies do not exist). Accordingly, it is difficult to be certain whether or not the aims were achieved. What is certain, however, is that the establishment of a system where the State effectively underwrites the cost of the VCAT decision makers would have saved some cost for disputants, who are no longer required to pay for the deployment of the decision makers.

Secondly the fact that the VCAT permits disputants to join all implicated parties ensures that there can be a consolidated set of legal proceedings rather than separated concurrent legal proceedings involving different actors in another jurisdiction. Economies of scale suggest that efficiency gains will have been realised.

The VCAT introduction of mandatory mediation was also important  as disputants are compelled to negotiate at an early stage.

As to whether the VCAT process is faster than the arbitration system, the writer can’t say hence is loathe speculate. What the writer can volunteer is this, whenever he is retained to advise upon best practice dispute resolution systems in off shore law reform retainers where residential dispute resolution is traversed, the VCAT system that permits multi party dispute resolution and mandatory front end mediation is held up as a system worthy of consideration. The system however assumes the existence of a well-funded governmental institutional capability which is not always possible in some settings such as low income countries. Both systems however have their virtues which is borne out by the popularity of arbitration in many countries particularly in commercial and civic dispute constructs.

Professor Kim Lovegrove; Chair International building Quality Centre; Senior international Consultant World Bank; Adjunct professor university of Canberra; consultant Lovegrove and Cotton lawyers.