What to Consider When Signing Contracts with Arbitration Clauses

What to Consider When Signing Contracts with Arbitration Clauses

16 Apr 2018

By Kim Lovegrove RML, FAIB, Senior Consultant and Mediator, Lovegrove & Cotton – Construction and Planning Lawyers

Throughout the world, arbitration is a very common form of dispute resolution, although in the antipodes it is less fashionable than it used to be.

Ordinarily, arbitration can only be invoked when there is an arbitration clause in a contract that states that any dispute of whatsoever nature to do with the contract must be resolved by arbitration or words to that effect. In the building industry, particularly within the commercial setting, arbitration clauses abound. In fact, they used to be the preferred dispute resolution for the residential sector in some Australian jurisdictions like Victoria until they were banned by acts of Parliament such as the Domestic Building Contracts Act 1995.

So what do you bargain for when you sign up such a contract if there is a well crafted and legally tight arbitration clause?

  • You will only be able to resolve the dispute at arbitration with an arbitrator.
  • You will not be able to resolve the dispute in any other jurisdiction unless there is an act of Parliament like the above Victorian Act that ousts the arbitration for a particular jurisdictional terrain.
  • An arbitrator will be appointed to resolve the dispute. Arbitrators have formal and robust qualifications in arbitration unlike mediators and adjudicators where the qualifications are somewhat underdone and often nonexistent.
  • The procedure to have the dispute resolved is reminiscent of the courts in that there will ordinarily be a statement of claim, statement of defence, reply to the defence, liberty to apply for further and better particulars.
  • There will also be an order for discovery where both parties, just like the courts, will be required to file a list of documents that canvasses all of the documents relating to the dispute and the contract.
  • If the matter isn’t resolved, it will ordinarily go to formal hearing and witness statements will be drawn up and filed prior to the hearing.
  • When the hearing commences, the procedure will again be very reminiscent of the courts in that barristers will normally be retained, the adversaries will ordinarily be called upon to give evidence along with the experts and relevant witnesses.
  • The dispute will ordinarily be governed by an act of Parliament germane to arbitration at least in a sovereign setting.

So how does arbitration differ from the courts?Arbitrators, unlike judges, are not tenured full-time employees of the Crown. Arbitrators are sometimes part-time in that they have other vocations such as law, engineering or mediation.

Arbitrators are not remunerated by the State, they are remunerated by the disputants who are required to place moneys on account in trust before the arbitrator is deployed. The parties have to top up the arbitrators’ fees for deployment in advance on a regular basis and these fees can be considerable as arbitrators may charge from $2,000 to $10,000 a day depending upon the size of the dispute.

With arbitration, it is nigh on impossible to join other parties, i.e. other defendants or third parties to the same dispute, the reason being the arbitration procedure ordinarily only entertains disputes between the parties that have signed up the contract. This is a problem, as typical garden variety building disputes involve a number of actors, be they the builder, the architect, the building official or a cast of sub contractors. As such, one cannot consolidate proceedings and this can lead to cumbersome and costly parallel proceedings.

With the courts and many tribunals, however, you can consolidate a dispute so that all parties in the loop come within the jurisdiction of the same dispute.

As regards the time to resolve a dispute, when one compares the courts to an arbitration, in my experience it’s pretty much of a muchness. If anything, arbitration would be a little bit faster in some cases.

Ultimately, if the dispute doesn’t settle, the arbitrator will hand down a written determination which will be binding unless there is a mistake on a point of law which ordinarily can be appealed.

Lovegrove & Cotton Lawyers to the building industry

For thirty years, Lovegrove & Cotton have represented builders, building surveyors and building practitioners in Melbourne, Canberra, Sydney and Queensland. Doyles Guide ranks Kim Lovegrove as one of the leading construction lawyers in Australia. Justin Cotton, likewise, is a leading Australian construction lawyer and widely respected in the building fraternity as evidenced by his recent elevation to Chairperson of the HIA Industrial Relations and Legal Services Committee, and member of the Regional Executive Committee, for HIA Victorian Chapter. Lovegrove & Cotton can help practitioners resolve any type of building dispute and are preeminent in the area of building practitioner advocacy. If you wish to engage the firm, feel free to contact us via our website or by emailing enquiries@lclawyers.com.au.