The recent case of SCC Plenty Road Pty Ltd v Construction Engineering (Aust) Pty Ltd  VSC 119 confirmed that mediation is not a ‘method of resolving disputes’ under the Building and Construction Industry Security of Payment Act 2000 (Vic) (Act).
The decision highlights the importance of including a method of finally determining a dispute in a construction contract’s dispute resolution clause. If a contract does not contain a binding method of resolving disputes, a Contractor will be entitled to claim disputed variations in adjudication applications under the Act.
As most commercial construction contracts refer a dispute to arbitration (an agreed method of resolving disputes), this decision will most likely have effect in relation to the construction of apartment developments where dispute resolution by arbitration is forbidden by the Domestic Building Contracts Act 1995 (Vic).
Under section 10A of the Act, an adjudicator generally cannot take into account a disputed variation to a construction contract with consideration exceeding $5 million in which the parties have agreed to a ‘method of resolving disputes’ under the contract.
The dispute arose out of a construction contract between SSC Plenty Road Pty Ltd (SCC), as Principal, and Construction Engineering (Aust) Pty Ltd (CE) as Contractor, to design and build a shopping centre in Reservoir for the sum of $35,554,985.
CE served a payment claim for progress payments in the amount of $4,460,815.06 and SCC responded with a payment schedule indicating that it proposed to pay $967,865.02. CE applied for an adjudication application seeking a determination.
In making his determination, the adjudicator held that the contract did not provide a method of resolving disputes, within the meaning of section 10A of the Act and as a result, he could take into account ‘disputed variations’ to the contract.
The adjudicator then determined that the amount of the progress payment was $2,172,837.57, in addition to the amount already paid under the payment schedule.
Does the contract contain a method for resolving disputes?
The contract contained a dispute resolution clause which provided for an executive conference and then mediation. If mediation was unsuccessful the parties were free to pursue their rights at law. The clause specifically stated that the process set out was a ‘method of resolving disputes’ for the purposes of the Act.
The Court found that while there was no doubt that the parties were obliged to comply with the dispute resolution clause, the clause did not provide a ‘method for resolving disputes’.
The Court stated that the meaning of ‘method of resolving disputes’ requires a method that will result in an actual resolution of the dispute, rather than just offering a forum for the discussion of the controversies between the parties, which may or may not lead to their resolution.
The case demonstrates the importance of effective dispute resolution clauses that provide for the actual resolution of the dispute.
If a clause is ineffective the contractor will be able to claim disputed variations in an adjudication application.