In brief - Supreme Court finds mediation not a "method for resolving disputes"

In SSC Plenty Road v Construction Engineering (Aust) & Anor [2015] VSC 631, the Victorian Supreme Court determined that a mediation provision in the contract did not constitute a suitable dispute resolution method for the purposes of the Building and Construction Industry Security of Payment Act 2002 (Vic) ("the Act") because it would not ensure a binding resolution of the dispute.

Act limits right to claim disputed variations where contract provides for a "method of resolving disputes"

The Act limits the circumstances in which a claimant can claim disputed variations in adjudication applications where the construction contract provides for "a method of resolving disputes".

If the contract provides for "a method of resolving disputes" and the contract value is more than $5,000,000, then the claimant is not able to claim disputed variations under the Act.

The Victorian Supreme Court has recently held that in order to constitute "a method for resolving disputes" for the purposes of the Act, dispute resolution provisions in a contract must provide for the engagement of a third party to determine the dispute, and for the third party's decision to be binding on the parties.

Provisions which require the parties to attend a mediation conference, but nothing further, are not enough.

Victorian Supreme Court sets aside adjudication decision awarding disputed variations

In SSC Plenty Road v Construction Engineering, SSC Plenty Road had engaged Construction Engineering to design and construct a shopping centre under a contract worth approximately $35 million.

The contract contained a dispute resolution clause which provided that if a dispute arose:
  • the parties' senior executives were required to meet to try to resolve the dispute
  • if the dispute could not be resolved at the meeting, the parties were required to attend a formal mediation conference
  • if the dispute could not be resolved at the mediation, the parties were entitled to pursue their rights at law
Construction Engineering made an adjudication application against SSC Plenty Road which included a claim for a number of variations which were disputed by SSC Plenty Road. The adjudicator awarded a significant portion of the disputed variations to Construction Engineering.

SSC Plenty Road challenged the validity of the adjudicator's decision in the Supreme Court on the basis that the contract provided for "a method of resolving disputes" and Construction Engineering was therefore not entitled to claim the disputed variations under the Act.

Mediation not "capable of resulting in a binding resolution of the dispute"

It was not disputed that if the contract did provide for "a method of resolving disputes", then Construction Engineering was not entitled to claim the disputed variations, and the adjudication decision would therefore be invalid.

However, the Court found that the dispute resolution clause in the contract did not constitute "a method of resolving disputes" for the purposes of the Act because it did not provide for a mandatory process which was "capable of resulting in a binding resolution of the dispute".

The Court found that mediation only provides an "opportunity for resolving disputes" and because the dispute will not be resolved unless the parties agree, it cannot be said to be "a method of resolving disputes".

The Court gave the dispute resolution clause in the Australian Standard 4905-2002 general conditions as an example of a provision which would satisfy the requirements of the Act, because it says that disputes are automatically referred to arbitration if they cannot be resolved.

What this means for you

If a contract does not contain dispute resolution provisions which provide for the engagement of a third party to determine the dispute, and for the third party's decision to be binding on the parties, then there will be no limit on the contractor's ability to claim disputed variations in adjudication applications under the Act.

Principals who wish to exclude the contractor's right to claim disputed variations under the Act should ensure that their contracts contain suitable dispute resolution provisions, which do more than simply refer disputes to mediation.

This article addresses Victorian legislation. Corresponding legislation in other states and territories may contain differing provisions.

This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2019.

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