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THE RESOLUTION OF BUILDING CONTRACT
DISPUTES BEFORE I.A.A.
BRIAN GALLAGHER
In 1970, Donald Golding, who was then Secretary of the Master Builders
Association of Victoria, published his book “Arbitration on Building Contract
Disputes”. This was 5 years before the formation of The Institute of Arbitrators
Australia and it was the first reference book on Arbitration published in
Australia. At the time Don Golding was Secretary of the Master Builders
Association of Victoria and it is interesting to note that Don acknowledges the
assistance given to him by J. P. Adams of Weigall & Crowther.
Reading this book 45 years after publication provides an interesting insight into
the Victorian Building Industry at that time, the importance of Arbitration in the
determination of Building Contract Disputes and the manner in which
Arbitration was conducted in the period after the Second World War.
Both the Royal Australian Institute of Architects and the Master Builders
Federation of Australia have links to institutions established in the 19th century
and they had for many years published a standard form of Building contract.
Edition 4 of this Contract was published in November 1958. This contained an
Arbitration Clause which in November 1966 stated that if the amount claimed
or the dispute exceeded $3,000.00 the dispute was to be submitted to two
Arbitrators, one of whom was to be a member of the Royal Australian Institute
of Architects and the other a member of the Master Builders’ Association.
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If the dispute was less than $3,000.00 the dispute was referred to one Arbitrator
who was either a member of the RAIA or MBA. This led to the interesting
situation where it was seen as desirable to be the party who issued the Notice of
Dispute and therefore selected the organisation which nominated the Arbitrator.
As a matter of interest the price of a new Holden at that time was about
$3,000.00 which is about $40,000.00 at today’s prices.
Very few of the Architect and Builder Arbitrators who accepted appointment in
the 1950s and 60s had any legal training. Their interpretation of the Law was
based on what they thought was fair and reasonable and they probably had no
idea that there was such a thing as “The Rules of Evidence”. Notwithstanding
this these Arbitrators were usually technically competent and their
determination was more often than not accepted by the parties as providing a
fair resolution to the matters in dispute. Most of the Arbitrators of that era
accepted appointment because they believed they had a duty to uphold proper
building standards and ethical conduct.
It is of interest to note that both representatives of the Architects Institute and
Master Builders agreed that there was a need to update Edition 4 of the Lump
Sum Contact, however negotiates stalled when the Master Builders Association
of Victoria claimed that they were entitled to some of the profits made on the
sale of the Contract because they held joint copyright with the Architects.
This was a serious matter and it was due to be heard in the High Court in
September 1963. One problem was that the Architects had spent the money
and both parties seem determined to have the matter decided by the Court.
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Finally Keith G. Hooker who was the lead negotiator for the Master Builders
proposed an elegant solution. Edition 5 would be jointly negotiated and would
contain a provision that 2 copies of the document must be signed. This would
immediately double sales and this would enable both groups to receive an
income.
The RAIA / MBFA Lump Sum Building Contract only covered those buildings
where the Architect was both the designer and the contract administrator. What
then happened where an Architect was not involved and the only parties to the
building contract were the Owner & the Builder ?
A very large proportion of the new houses constructed after the second world
war were financed by the Commonwealth Bank of Australia or the State
Savings Banks. These banks employed Architects and Building Inspectors to
look after the interests of their clients, the Building Owner. They required the
use of their standard from of Building Contract and the Builder was not entitled
to receive payment unless the works had been inspected and approved by the
Bank’s Inspector. The Bank’s contract also contained a provision for Disputes
and Differences to be referred to Arbitration.
Builders very quickly discovered that if they did not adopt “suggestions” made
by the Bank’s Inspector, future contacts were difficult to obtain where that
particular bank was providing the finance.
Not long after the end of the Second World War, a group of small builders and
sub-contractors formed a group known as the Builders and Allied Trades
Association (BATA). This group was supported by various suppliers and
manufacturers of equipment, such as Hot Water Units etc.
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Members of BATA believed the Master Builders Association did not adequately
represent their interests and they claimed the MBA was not very interested in
building simple houses for working men & women. This group became the
Housing Industry Association (HIA).
HIA promoted the use of their Standard Form of Building Contact which
contained a provision for Disputes & Differences to be referred an Arbitrator
nominated by the President of HIA or his nominee. This contact was not dissimilar to the MBAV Housing Contract which was intended for use where an
Architect was not involved and the Arbitrator was nominated by the President
of the MBAV or his nominee.
The construction of Civil Engineering Projects (Roads & Bridges) were carried
out under the control of Government Authorities and their various Standard
Forms of Contract were strongly influenced by Professional Engineers and
included provision for Disputes & Differences to be Determined by reference to
Arbitration.
As a consequence only a relatively small proportion of building disputes were
referred to the Courts for Determination. Of course there were also those
disputes where the winner was decided by who could shout the loudest.
Don Golding’s book was therefore very useful for Architects, Builders and
Engineers who would possibly be nominated as Arbitrators. For the first time
guidance was provided as to whether they should accept nomination and if so
how did they accept appointment, what happened at the preliminary conference
and how they should generally conduct themselves.
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Owners, Builders & their Lawyers where informed in easily understood
language, how they should prepare an Notice of Dispute, and what they could
expect to happen after this was served. And for the first time there was some
reasonable expectation as to what would happen during and at the end of the
Arbitration.
Whilst I consider that Don Golding had a profound influence on Arbitration in
the early 1970s, it cannot be denied that there were problems on the horizon.
There were claims that the Arbitrators were biased, particularly where Builders
were appointed the Arbitrator in Housing Contract Disputes and it must be
admitted that the competence of some Arbitrators was doubtful. It was also
claimed that the cost of having a dispute determined by an Arbitrator was
excessive.
In Victoria, it became more common for Solicitors & Barristers to be instructed
to represent the parties in Arbitration proceedings than had been the case a
decade earlier and they raised issues relating a failure by some Arbitrators to
abide by the Rules of Natural Justice. They were also concerned that the
Victorian Arbitration Act 1958, did not require the Arbitrator(s) to give reasons
for their decisions and that Arbitrators generally awarded costs against the party
they considered to be “at fault” rather than mimic Court rulings.
In addition there were rumours that if the construction industry did not act to
resolve these problems, the Government would intervene. This resulted in the
representatives of the Institute of Architects, Master Builders Associations,
Institution of Engineers and several well-known lawyers, establishing in 1975,
The Institute of Arbitrators Australia.
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In those early years, the Institute ran courses to educate practising and potential
Arbitrators and representatives of the parties, in the mysteries of Arbitration.
They established the rules for the Grading of Arbitrators according to their
qualifications and experience and commenced work that resulted, with the
assistance of other interested parties, in the Uniform Arbitration Act.
On 1 April 1985, Victoria was the first of the States & Territories of Australia to
implement the new uniform legislation, the Victorian Commercial Arbitration
Act 1984. Subsequently, this legislation (or legislation in very similar terms)
was enacted in every State and Territory.
And so, there is no doubt that The Institute of Arbitrators Australia in its first
decade after formation had a major influence on the determination of disputes
and difference by reference to Arbitration in Australia.
Brian Gallagher