A new mandatory conciliation process is coming for domestic building disputes in Victoria which will impact design practitioners and architects.

It appears the new dispute resolution provisions will commence on July 1, 2017, including the new conciliation mechanism.

It was envisaged that the conciliation will be run through a new body to be set up in conjunction with Consumer Affairs Victoria. This new body will be known as Domestic Building Disputes Resolution Victoria, or DBDRV.

Given that architects can obviously be a party to a domestic building dispute, they could theoretically be involved in such conciliations, both where they are directly involved and also where they are drawn into a dispute initially centered on the owner and builder. It is likely that an srchitect will also be entitled to apply for the conciliation of the dispute through DBDRV.

But if the conciliation results in no settlement, what happens next and what would that mean for any architect involved? Furthermore, what steps (if any) should architects be taking now to prepare for this new legislation, known as the Building Legislation Amendment (Consumer Protection) Act 2016.

Given the prevailing view that architects, building surveyors and subcontractors will also be included in the mandatory conciliation process, an architect would need to be mindful of participating in that process reasonably and in good faith.  Where a party refuses to participate or does not do so in good faith, then they risk a costs order in a subsequent VCAT proceeding if the conciliation does not result in a settlement of the dispute.

If the dispute is not settled through conciliation, DBDRV will have the power to issue what will be known as Dispute Resolution Orders (DROs. The DRO will be able to be issued to either a builder or an owner, and can require a builder to rectify defective building work or complete the works, and/or order an owner to make payment for works performed.

It seems that as this is a form of adjudication, the DRO would only be prepared once an expert inspector (to be known as an “assessor”) has visited the site and prepared a report on the state of the works and any aspect of the building dispute.

As the expert assessors may be building consultants, building surveyors or architects, there may be scope for architectural services to be employed by the DBDRV.

The parties to the dispute may then have a limited time frame to comment on the report given by the assessor to DBDRV, before any decision is made on whether or not to serve a DRO.

This seems problematic in and of itself, because if the assessor is not confined to commenting on technical aspects of the works, we are essentially asking them to comment on contractual matters such as variations and payments, which could be matters of disputed evidence and more suitable for legal adjudication rather than technical.

Given that the DRO power will be focused on the builder’s work, it seems at best unclear currently as to whether a DRO could be served on other practitioners, such as architects or building surveyors. This may be a question that will need to be answered definitively after the system commences next year and possibly even through the court system.

However, one can imagine that there may be many instances where there is an aspect of design error in owner claims about defects, and where an architect has administered the building contract, there may be question marks over the administration function. Therefore, even if an architect is not involved or mentioned in a DRO, they could be drawn into the dispute surrounding the making of that order, particularly if it is challenged at VCAT.

A party that has been served with a DRO will be able to apply to VCAT for a review of the order or reasons for the decision within 20 days of receipt of the order. There will only be limited grounds to review the DRO, for example because it is wrong about the works to be rectified or completed, or the remedy or time frame to rectify is unreasonable.

If a DRO is not complied with by the party served with the same, there will be a mechanism whereby the ‘innocent’ party can terminate the building contract and apply to VCAT for damages. Furthermore, in this situation DBDRV would issue a ‘breach notice’ and if the defaulting party is the builder, this will enable the Victorian Building Authority to conduct an inquiry into and discipline the builder.

Once the matter is before the VCAT on review, presumably then other construction practitioners can be joined if there is doubt about causation or issues of proportionate liability. At this point, presumably an architect could be joined to the VCAT case even though it is a review of an order that did not at first directly name or involve the architect.

Also, if a building contract is terminated because a DRO was not complied with, and the ‘innocent’ party applied to VCAT for damages, an architect could also be joined to that wider contractual/civil proceeding if there are aspects of potential architect liability.

One expects the most common basis for this would be claims of negligent design work, with either the builder seeking to apportion blame to the architect (most commonly) or direct claims of negligence from owners.

VCAT will be empowered to take into account the contents and reasons of any DRO in any subsequent VCAT proceeding. This would include any assessor’s report about the causes of any defective or incomplete work and the preferred rectification/completion method.

While it is uncertain that DROs will be able to name or be served on design practitioners (including architects), the potential for architects to be drawn into the conflict web are as follows:

  • it seems likely (but not yet certain) that architects will be involved in or requested to participate in the mandatory conciliation process (prior to DROs issuing)
  • architects could be referred to in any assessment report prior to a DRO and it is expected there would be references to design errors if they are found to exist
  • architects could be joined to any subsequent VCAT proceedings, either on review of a DRO or in the wider civil proceedings if a building contract is terminated after a DRO is breached.

Design practitioners, including architects, may need legal advice in due course on whether or not they should participate in the conciliation process when asked to do so, after July 1, 2017.

If it becomes apparent that the conciliation process is also compulsory for architects (as seems likely), then an architect should be legally represented to ensure there is no future disadvantage in later legal proceedings.

There may be increased costs involved in dispute resolution for architects once the new regime takes effect, depending on how widely used the conciliation process is and how often DBDRV elects to serve DROs (particularly where there is multi-party responsibility).

There may be the need for architects to advise their professional indemnity insurers at an early stage once it appears they could be drawn into dispute matters, and potentially fee retainer agreements should be modified to allow for increased time and cost in participating in dispute resolution.

In the end, time will tell on how this new regime actually works in practice and the frequency and uptake of the DROs, how frequently they will be appealed to the Tribunal, and the extent of architect involvement in conciliation.