Is mediation a method for resolving disputes? The Victorian Supreme Court says, “No” – At least for the purposes of the Victorian Building and Construction Industry Security of Payment Act.
In a decision handed down just last month, Justice Vickery determined that a clause in a construction contract which provided for mediation (or indeed, any other non-binding dispute resolution procedure), was not a valid method of resolving disputes under the contract for the purpose of section 10A of the Building and Construction Industry Security of Payment Act 2000 (Vic) (the Act).
This somewhat surprising decision is likely to have a significant impact on the security of payment landscape in Victoria, as it opens the door to the adjudication of claims for variations other than those previously agreed by the parties, a process that was not widely envisaged (and indeed, actively sought to be avoided by parliament) prior to this determination.
In the case of SSC Plenty Road v Construction Engineering (Aust) & Anor  VSC 631, SSC Plenty Road engaged Construction Engineering to design and construct a shopping centre in Reservoir under a contract worth approximately $35 million. Relevantly, the Contract contained the following cascading procedure for resolving disputes:
- senior executives of the parties were required to meet and try and resolve the dispute
- if the conference was unsuccessful, the parties were required to mediate
- if the mediation was unsuccessful, the parties were free to rely on their rights at law.
In July 2015, Construction Engineering made a claim under the Act for payment for alleged variations to the work. SSC Plenty Road disputed Construction Engineering’s entitlement to these variations and claimed that they were not “claimable variations” for the purposes of the Act as, relevantly, the Contract was greater than $5,000,000 and contained a method of resolving disputes (indeed, the contract explicitly provided, “The parties acknowledge and agree that the process set out in [the dispute clause] is a method for resolving disputes under the Contract for the purposes of section 10A(3)(d) of the SOP Act” ).
In upholding the decision of the adjudicator (who disagreed with SSC Plenty’s argument and allowed the claim for disputed variations), Justice Vickery relied on a previous decision, Branlin Pty Ltd v Totaro  VSC 492 (which distinguished between a method of “resolving disputes” and a method which, “merely provides an opportunity for the parties to negotiate a resolution of their differences”), and decided that the clause in question was not a valid method of resolving disputes as it did not contain mandatory steps which would result in the production of a binding decision by a third party appointed for the resolution of the dispute.
While this decision ought to bring the Victorian Act more in line with the legislation operating in other states, it seems to fly in the face of the object of the Victorian Act (e.g., the second reading speech provided, “Disputed variations on large contracts, initiated by building owners and big contractors will be exempt from the scheme”). It is too early to know whether an appeal against this decision will be lodged, but for the foreseeable future, principals and large contractors should take care in drafting dispute resolutions clauses so that they can have certainty in relation to claims made under the Act.
Author: Jarod Sacks
Troy Lewis, Partner & National Head of Construction and Infrastructure
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