Articles

By Professor Kim Lovegrove MSE RML, Chairman of the IBQC, Founder of Lovegrove & Cotton – Construction and Planning Lawyers

The Eighties and the Arbitration Era

The writer commenced construction lawyering in the late eighties as a legal and contracts officer at the Master Builders Association of Victoria. In the late eighties, nearly all residential building disputes were resolved by arbitration. The building contracts were produced by the MBA, the HIA and the RAIA and all had arbitration clauses. Neither the Domestic Building Contracts Act 1995 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, which sometimes was the Institute of Arbitrators but 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 was very similar to arbitration in the contemporary commercial context. It was very rare for residential building disputes to find their way into the Courts as the arbitration clauses effectively operated as an embargo backed by statute on resort to courts.

The majority of arbitrators were retired engineers, builders and there were a sprinkling of architects. Typical of arbitration proceedings, it was nearly impossible to implicate third parties or co-defendants such as 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. Typical of arbitration, the disputants paid for the arbitrators and were compelled 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 sun-setting of arbitration and the dawn of the VCAT

In 1995, the Domestic Building Contracts Act (‘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.

The fabric of dispute resolution changed profoundly 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 somewhat 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; and
• 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 theatres 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.

The writer is 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. However, one can, with confidence, conclude that the establishment of a system where the State effectively underwrites the cost of the VCAT decision makers would have translated into some cost savings to disputants; for, in the modern day setting, disputants are not required to directly 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 and absent the need for separated concurrent legal proceedings involving different actors in another jurisdiction. Economies of scale would tend to suggest that there are efficiency gains to be had.

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

As to whether the VCAT process is faster than the arbitration system is unclear. 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.