Given that litigation can be a long endeavour, combined with the considerable costs involved, parties to construction contracts often look to rely upon contractual dispute resolution provisions to resolve their disputes and maintain commercial relationships.
However, the enforceability of these provisions is by no means clear and the courts approach to interpretation will largely depend on the nature of the dispute, the width of the clause and whether or not it is intended to operate in the context of the dispute in question.
The recent Queensland Civil and Administrative Tribunal decision in Contrast Constructions Pty Ltd v Allen & Taylor [2020] QCAT 194, examined issues in this area and highlighted the need to be aware of how and when dispute resolution clauses will apply.
The enforceability of a dispute resolution clause when the contract is on foot
The first consideration is whether the clause is sufficiently certain. In order to satisfy this, courts have stressed the need for parties to detail a clear process to be employed in the event of a dispute. A clause that leaves the course of action as being subject to further agreement of the parties (such as the parties may agree to a further course of action or may agree to proceed to mediation) is unlikely to be binding.
The second consideration is whether the wording of the clause provides for a mandatory process to be employed as a pre-condition to litigation. Despite the inherent jurisdiction of the courts to resolve disputes, the recent trend of authority has been in favour of holding parties to their contractual bargains, by granting a stay of proceedings pending the outcome of the dispute resolution process.
The court has a wide power to stay proceedings, and when considering whether to exercise its discretion, courts will have regard to the conduct of each party and specifically whether the party seeking to invoke the dispute resolution process has undertaken the necessary steps to comply with that process.
On this basis, if the contractual dispute resolution clause is sufficiently certain, drafted as a mandatory pre-condition to litigation and the party seeking to enforce the process has complied with the necessary steps, it is likely the courts will give effect to the contract and enforce the dispute resolution process.
