AS 4300 Design & Construct: Dispute Resolution Mechanisms
Co-written by Stephen Smith,Managing Partner & Former Lovegrove Smith & Cotton Lawyer Stephen Williams
AS4300 are general contract conditions tailored for a design and construct building contract. They are published by Standards Australia and widely used in commercial construction projects.
This article looks at the dispute resolution mechanisms specified and available under AS4300.
As a precursor it is to be noted that AS4300 terms and conditions tend to be generally skewed in favour of the Principal as opposed to the Contractor.
Fundamentally, there are 2 alternative dispute resolution regimes; these are contained in Clauses 44 and 47. The content and operation of these regimes is explored below.
Clause 44 prescribes a process for either party to pursue the other where it is alleged that there is a substantial breach of the contract and where the innocent party considers that damages are not an adequate remedy. In other words, where the innocent party considers that the nature of the alleged breach is serious and one that calls for potentially ending the contract (rather than seeking damages alone) then the process to be invoked is that prescribed by Clause 44. AS4300 does not provide an exhaustive definition of what constitutes a substantial breach.
When invoking Clause 44 the innocent party must take particular care to fulfil all the requirements specified for inclusion in the show cause notice: see Clauses 44.3 & 44.8. Failure to comply with the said requirements may give rise to repudiation on the part of the innocent party.
If a party serviced with a notice does not ‘show reasonable cause’ the innocent party may take serious steps that will operate to have a significant impact upon the other party that can include termination of the contract.
What is ‘reasonable cause’ is to be assessed on an objective level.
In circumstances where a dispute arises under AS4300 and the innocent party does not find it appropriate (or advised by its legal advisors) to proceed under Clause 44 the dispute resolution mechanism to invoke is that prescribed in Clause 47.
Clause 47 covers disputes:
- arising under the or in connection with the contract;
- directions given by the Superintendent; and
- in tort;
- under statute;
- for restitution based on unjust enrichment;
- for rectification or frustration.
Under Clause 47 one party shall serve on the other and the Superintendent a Notice of Dispute by hand or certified mail. Notwithstanding this process is invoked the performance of the contract shall continue (i.e. works and time continue to run). Clause 47.2 provided 2 alternative procedures (Alternative 1 applies by default pursuant to Annexure A, Item 52). The parties are to confer as specified and if not resolved within a specified time the matter is deemed to be referred to Arbitration.
If the dispute escalates to arbitration, a nominated will hear and determine the matter. Arbitrations are governed by uniform state legislation that prescribes the manner and form as well as the process for reviewing an arbitrator’s award (which is limited).
Before entering into an AS4300 contract think very carefully about whether you want to commit yourself to arbitration to resolve the dispute. Understand that if you do, the parties will have to pay for the arbitrator which will be anywhere in between $3,000 to $6,000 a day which of course adds significantly to the costs of dispute resolution. Secondly it will be neigh on impossible to join third parties and other co-defendants in current legal proceedings. To investigate more fully the pros and cons of arbitration, click here and access Professor Kim Lovegrove’s booklet on strengths and weaknesses of arbitration.
After having considered carefully the merits of arbitration if the reader is of the mind to oust the jurisdiction of arbitration under the contract then the reader should engage a construction lawyer to generate the appropriate amendments to the contract.
Clause 47.4 provides that the dispute resolution process prescribed under Clause 47 does not affect a party’s right to institute proceeding or enforce rights in relation to:
- payment under the contract; or
- injunctive or urgent declaratory relief regarding a dispute under Clause 47 or any matter arising under the contract.
Prior to exercising ones rights and entitlements pursuant to the dispute resolution mechanisms under AS4300 it is highly recommended to consult a lawyer familiar with this contract and the options and consequences of the manner in which one may act in exercising ones rights to resolve any given dispute.
This is the first in a series of articles to be published on Australian Standard contract provisions.
The Lovegrove Smith & Cotton E-Library is a free online resource of articles, which puts a wealth of information at your finger tips. The articles in the E- Library have been written by lawyers and a number of them have been published in the Australian, The Age and the Herald Sun. Some of the articles date back to the 1990’s. To access click here.
© Lovegrove Smith & Cotton 2014