DI SPUTE RESOLUTI ON IN CONSTRUCTIONMANAGEMENT Dispute final 29/10/02 3:45 PM Page iThis page intentionally left blank UNSWPRESSDISPUTE RESOLUTION INCONSTRUCTION MANAGEMENTI a n M E i l e n b e r gDispute final 29/10/02 3:45 PM Page iiiA UNSW Press bookPublished byUniversity of New South Wales Press LtdUniversity of New South WalesUNSW Sydney NSW 2052AUSTRALIAwww.unswpress.com.au Ian M Eilenberg 2003First published 2003This book is copyright. Apart from any fair dealing for the purpose of private study, research, criticism or review, as permitted under the Copyright Act, no part may bereproduced by any process without written permission. Inquiries should be addressed to the publisher.National Library of AustraliaCataloguing-in-Publication entry:Eilenberg, Ian M.Dispute resolution in construction management.Bibliography.Includes index.ISBN 0 86840 645 7.1. Construction industry Law and legislation. 2. Construction contracts. 3. Dispute resolution (Law). 4. Arbitration and award. I. Title.(Series: Construction Management series (Sydney, N.S.W.)).343.078624Text pagination Dana LundmarkCover design and photography Di QuickPrinter LigareDispute final 30/10/02 11:53 AM Page ivThis page intentionally left blank PREFACEIt is often said that one of the inevitable outcomes of a buildingcontract is that it will end up as a dispute. This is of course anover simplification and in reality, less than five per cent of build-ing contracts end up in a dispute, and even less in a formal dis-pute. Of those five per cent an even smaller percentage end up ina formal court order or arbitration award. Most are resolved at thedoor of the court. Yet the processes are there to resolve thesedisputes, when unfortunately they do arise. This book aims toprovide those involved in building contracts, whether the owneror the builder, or any other person involved, with an overview ofthe various systems available for the settling of disputes and alsosome of the methods being adopted, especially in the larger com-mercial contracts, for minimising the chance of disputes arising inthe first place.Chapter 1 considers the various steps that can be implementedto minimise the chances of major disputes occurring. If a formaldispute should arise, the steps suggested in this chapter will makethe preparation of your case that much easier.Chapter 2 introduces the reader to the psychology of the partic-ipants, with the aim of providing some insight into the people withwhom you have to deal in day-to-day life, as well as in the disputeenvironment. In the temple of Delphi there is a sign that says,know they self. In this case it is also a matter of knowing, or atleast understanding, the other person as well. This chapter providessome of the guidelines and information for doing just this.Chapter 3 considers the various court systems. The courts arestill an important means of resolving disputes, especially for thelarger and more complex legal matters. It is not vital for the read-ers of this book to know the intimate operations of the court sys-tems. However, a general understanding of what they are, howthey operate and their role in dispute resolution will assist thereader when a decision has to be made as to which form of reso-lution should be selected by the parties.Chapter 4 has been written from an international perspective,in keeping with the ever-increasing internationalisation of bothconstruction and the law. For this reason the chapter uses theModel Law on International Commercial Arbitration 1985 as publishedviDi s put e r es ol ut i on i n c ons t r uc t i on managementDispute final 29/10/02 3:45 PM Page viby the United Nations Commission on International Trade Law(UNCITRAL) as its base and then compares the legislation inother countries. The focus here is mainly on Australia and NewZealand, with a number of other countries being used as compar-isons. In both the court and arbitration legislation chapters, theinformation provided forms a basis for a more intensive study ofany specific countrys legislation covering these areas, should thereader wish. However, this information has universal application,as arbitration is now run (with some minor differences as a resultof the local culture) similarly around the world.Chapter 5 goes through the process of running an arbitrationhearing, including the preliminary and main hearings. It alsoreviews some alternative systems based on the main arbitrationprocess.Chapter 6 provides the reader with the key elements for suc-cessful negotiations. When, as will inevitably occur, the parties toa contract have a difference of opinion, good negotiation skillsmay be sufficient to resolve the difficulty, without the matterprogressing to a major dispute thus saving time, money andfrustration of the parties.Considerations in the use of third party neutral or assistednegotiation through mediation and conciliation forms the basis ofChapter 7. This chapter builds on the knowledge developed inChapter 6 and applies it to these processes, thus providing thereader with the skills necessary to arrive at the best possible solu-tion of the problem under dispute.Chapter 8 considers some of the processes that have beendeveloped in an attempt to avoid disputes in the first place, name-ly partnering and alliancing. These aim to save time and moneyand to best retain the working relationship between all the parties.Finally Chapter 9 examines some of the problems that havebeen identified in the relationships between the contractors(both domestic and commercial) and some of the ways thatthese may be improved. It also provides a brief look to thefuture and the direction in which dispute avoidance and resolu-tion may be heading.The book provides a resource list that includes a large numberof web sites to which the reader may refer, as well as usefultexts. Most of the legislation from around the world, includingmany articles on the subject, are now available electronically andare generally more current than many of the texts. I have listedthe resources by chapter so that they may be readily accessed assupplements to the book itself.vi iPr ef ac eDispute final 29/10/02 3:45 PM Page viiI hope that this book may in some small way lead to a betterunderstanding of the parties involved in the construction con-tract and, if unfortunately they should find themselves in a dis-pute, help to shorten the dispute and lead to a speedy andinexpensive resolution.This book would not have been possible without the assistanceof and support from my wife and my family, who I am surethought that the doctorate was an end, not realising what layahead. Without their patience this book would never have beencompleted. I would also like to thank Roz Varghese who has sup-ported and assisted me with much of this work.Finally I would like to express my thanks to John Elliot andStephanie Harding for their patience, perseverance and encour-agement, and to Cassie Futcher if it were not for her editingabilities this book would be even harder to read than the subjectalready makes it.Ian Eilenbergvi i iDi s put e r es ol ut i on i n c ons t r uc t i on managementDispute final 29/10/02 3:45 PM Page viii1Avoi di ng di s put esCHAPTER 1AVOIDING DISPUTESINTRODUCTIONThis book discusses the various systems that have been devel-oped to help resolve disputes as well as the systems that havebeen developed to minimise the possibilities of a dispute arising.It seems a logical starting point to suggest some of the steps thatmay be taken by builders to avoid getting into a dispute situationin the first place. For this reason this chapter provides anoverview of some of the basic procedures that all builders andothers involved in construction should take to minimise the pos-sibility of becoming involved in a dispute. It also aims to givethose parties the best chance of a successful outcome, should adispute eventuate.ANTICIPATED LEARNING OUTCOMESSome simple rules for minimising your risk of having a disputeHow to manage variations and work orders to minimise the chance of later disputesPricing of work to minimise documentation errorsMethods of good record keepingTOPICS COVERED IN THIS CHAPTERMajor areas that can lead to disputes in a building contractStandard contract clauses that require special considerationSpecially drafted contractsRelated contract documentsDefective workVariations or extra worksDelays and extensions of timeLatent conditionsPoor documentation and site diariesDispute final 29/10/02 3:45 PM Page 1MAIN AREAS CAUSING DISPUTESThere are many books available about the various areas of dispu-tation in the construction industry. Without looking at the legalbasis of some of these claims, the actual body of the claims canbe readily categorised. The most common of these, as identifiedor confirmed in research by the author, are: Contracts Defective work Variations or extra works Delays and extensions of time Latent conditions Failure to adequately document the works Failure to adequately document daily events.This chapter does not aim to cover the legal processes available,but rather a series of suggestions as to what steps can be taken tominimise the chance of ending up in a costly dispute.CONTRACTSStandard forms of contract The majority of construction contracts are in a standard formpublished by various organisations Master BuildersAssociation, Housing Industry Association, Royal AustralianInstitute of Architects, Property Council of Australia, StandardsAustralia, various State and Federal Governments and even banksand finance organisations sometime separately and sometimesas joint publications. These can be bought from the variousorganisations, with some now available from their websites.The language used in these contracts ranges from high legalesethrough to straightforward English using laymans terms. Thecontracts all cover the same basic information, if in differentways. Common areas in most contracts include: a commencement date a completion date or construction duration in either calendar or working days a method of dealing with changes to the time frame, for whatever reason methods of the builder making a claim for payment a time frame for the submission and payment of claims by the client methods for dealing with a failure of the client to pay methods for dealing with changes to the contract and variations to the work methods of pricing and paying for the addition or reduction in workload. 2Di s put e r es ol ut i on i n c ons t r uc t i on managementDispute final 29/10/02 3:45 PM Page 2In addition to these, other items may include theprocess of dealing with a builder who fails to ade-quately advance the progress of the works andbankruptcy on the part of the builder or client. Format of the contractsMost contracts now have two distinct sections.The first part is the printed section containing thestandard clauses setting out the parameters of theobligations of both parties. The second part isblank with various clauses relating to the matter inthe main part of the contract. It is the second partthat is most important this is where the actualway that matters as listed above may be specified.It is failure to take care with this second sectionof the contract that often leads that which shouldbe a readily resolved problem, into a full legal dis-pute. This frequently comes about through aninadequacy to correctly fill in the various details.Adhering to the following requirements will helpavoid potential problems: Make at least two copies of the contract one for the clientand one for the contractor. Where financial institutions areinvolved that body may require a third copy. They should bedone at the same time. Situations where the builder hasfilled in one copy for the client and had it signed, and thengiven the client a copy that is different is not uncommon inthe domestic arena. Ensure that both parties sign the contract and have it witnessed. Again this should be done with all the partiespresent. Unsigned copies create unnecessary difficulties. Ensure the date is written into the contract. Leaving this out, or having different dates in different copies, makesdetermination of the completion date that much more difficult. Fill in all the relevant dates, especially if there are to bestaged handovers. Where provided, ensure that ALL the relevant documentsincluded in the contract are listed, for example drawings,specifications and where they exist and the status of the Billof Quantities. Where there is provision for additional items to beinserted, either include them or write not applicable(rather than n/a).3Avoi di ng di s put esDispute final 29/10/02 3:45 PM Page 3Finally, it is wise to have your lawyer check the various require-ments of the contract conditions, and explain to you the variousimplications and obligations that this contract will place on you,before filling in and signing the contract. It is too late if you findout later that the contract contains conditions you either did notunderstand or expect. The law will generally accept that if yousign the contract, subject to specific conditions, you agreed to andunderstood the contract that you signed.Specially drafted contracts Where a contract is specifically drafted for a project it is essentialthat the parties seek advice from their own lawyers. The recom-mended practice is to use lawyers who have a specialty in con-struction contracts.Other related contract documents As well as the main contract document, the full range of contrac-tual documents consists of: The contract itself The plans or drawings The specification The Bill of Quantities or Schedule of Rates and so on.Each document carries a potential dispute. However, if we ignorethe actual content for a moment, there are a couple of simplethings that can be done to minimise the possibility of disputation.Defective works It may seem obvious, but if a builder contracts for a project, thestandard of work required as set out in the contract documents orin other documents accepted by the construction industry must beprovided. The client has established these standards and has a con-tractual right to expect that the contractor will meet these. Mosttolerances and acceptable levels of work are specified in buildingcodes or standards. Indeed, it may be useful to consult theHandbook of Building Construction Tolerances: Extracts from BuildingProducts and Structures Standards (Standards Australia 1992), whichsummarises many of these and includes what is and what is notan acceptable deviation from the nominated requirement.Variations or extra works In this context I am referring to deliberate variations (or extras) tothe original contract as often requested by the client, but which4Di s put e r es ol ut i on i n c ons t r uc t i on managementDispute final 29/10/02 3:45 PM Page 4are also sometimes necessary to enable the works to be complet-ed on time. Builders need to be aware that by and large, work per-formed but not included in documentation may not form alegitimate variation. The law has long established that the builderis contracted to carry out the works and is responsible for its com-pletion (Sharpe v. San Paulo Brazilian Railway Co (1873) Ch App597 at 608). On the assumption of a legitimate variation a prudentbuilder will have the request or instruction in written form, and ifnot so given, will write out confirmation of that instruction. Theywill then price the work and have it accepted in writing prior toundertaking the work. Indeed, this is a condition precedent topayment in most residential building contracts in Australia.Delays and extensions of time Very few contracts for construction will be both commenced andcompleted on the exact day anticipated in the contract. This islargely a result of natural elements, including wet weather pre-venting work in the open and the subsequent problems such asaccess to the site, flooded footings and so on. It also includes theproblems of latent conditions discussed in the following section:the result of additional work, and of both industrial and contrac-tual disputes. Once a builder becomes aware that there will be or even may be a delay in the works, it is their responsibility tonotify the client (or their representative) in writing and to subse-quently ensure that the actual time is documented and submittedto the client as soon as the delay and its consequences are known.Latent conditions or the hidden snags Like hidden snags in water, latent conditions are those items thatcannot be seen on a normal inspection of the site or works andwould not normally be expected. These range from differing soilconditions water, rock and so on through to hidden wateror gas pipes in walls or even acid in old holding tanks. Once againthe essential action by the builder, when this situation is encoun-tered, is to notify the client in writing. In this case the builder mayneed to receive instructions as to what should be done, but in cir-cumstances where the builder cannot wait, clear documentationas to why and what has been done is essential.Failure to adequately document the worksArbitrators nominate inadequate documentation as a major causeof building disputes. A growing tendency is for the client to spendas little as possible in the preparation of the documentation, 5Avoi di ng di s put esDispute final 29/10/02 3:45 PM Page 5leaving more and more to the builder to resolve. It is widelyaccepted that the more extensive the detailing and documenta-tion, the less chance there is for misunderstanding of the clientsintentions and thus mistakes by the builder. The skill and knowl-edge of the technology of construction by the builder will alwaysbe required, as every detail cannot be economically (or even rea-sonably) included in the drawings or specification. It is also trueto say that if a given detail is open to interpretation, in most casesthere will be more than one interpretation possible. The simplest solution is to adequately document the works atthe start of the building process. This benefits all parties con-cerned: it lessens the chances of misinterpretation on the part ofthe builder and thus the need to impose a cost burden; and itincreases the chances of the client being given a more realistictime frame. There is not much that the builder can do with poordocumentation supplied on behalf of the client, except to pricethe work to cover the inevitable problems ahead. (This raises theissue of pricing to win or pricing to cover every eventuality andprobably not winning the work a real problem in the con-struction industry and one that needs to be resolved if disputesare to be minimised in the longer term. That issue is, however,beyond the scope of this book.) Clients also need to carefully con-sider the consequences of penny pinching.Documenting daily events or how you will learn to love your diaryMany disputes are related to the failure to establish facts. A goodsite diary where all relevant information is recorded is a primesource of facts when a matter is in dispute. Data should include arecord of all people working on the site, from direct labour to sub-contractors, as well as visitors to the site, work being undertakenand the recording of all instructions received and actions taken onthose instructions. It is recommended practice to store a copy at the head officefor future use if necessary. In this day and age, the use of com-puters and emails can replace the written page, but proof ofauthenticity is that much harder.6Di s put e r es ol ut i on i n c ons t r uc t i on managementDispute final 29/10/02 3:45 PM Page 6SUMMARYThe following is a brief summary of the steps that can be takento help reduce the chance of construction disputation. Always fill in the blanks in a contract, especially those regarding dates and finances Ensure that all variation instructions are confirmed in writing and the cost isdetermined and approved, where possible, prior to undertaking the work Price the work to ensure that documentation errors do not cost you in both realmoney and time wasted in arguments and disputes Keep good records of everything that occurs both on and off the site that hasany influence on that project.7Avoi di ng di s put esDispute final 29/10/02 3:45 PM Page 78Di s put e r es ol ut i on i n c ons t r uc t i on managementCHAPTER 2CONFLICT, DISPUTESAND PEOPLEINTRODUCTIONThis chapter considers the question of differences of opinionsbetween people and at what point these differences become dis-putes. It looks at both the people involved and briefly considersthe psychology behind the participants thoughts and actions inthe build up to a dispute. Some knowledge of people and whatmotivates them may assist in understanding what is really drivingthe other party, thus increasing the chances of reaching a mutuallysatisfactory solution to the problem.One word of caution should be made here. Most building con-tracts do not result in major disputation. My own research andthat of others in the building dispute field has shown that less thanfive per cent will end up in this situation. Many will have low lev-els of differences, but these will be resolved without recourse toany outside assistance. However, when disputes do occur in build-ing contracts, they tend to be relatively large by comparison to thecontract value. This chapter attempts to explain some of the rea-sons why people end up with these differences, (at whatever level)and which may lead to a formal dispute situation arising.ANTICIPATED LEARNING OUTCOMESAn understanding of the progressive nature of differences between contracting partiesA basic understanding of the psychology of the people who end up in building disputesTOPICS COVERED IN THIS CHAPTERThe psychology of the participants in a disputeDispute final 29/10/02 3:45 PM Page 89Conf l i c t , di s put es and peopl eBasic human needsFrustrationConflict between peopleBuilders and conflictsPerceptionCommunicationNon-verbal communicationEye contactSpatial relations and personal spaceMasking and gesturesListeningAlternative verbal communicationsSemanticsSO WHY DO PEOPLE DISAGREE"Most people entering into a contract for the purchase of a car,insurance, or a building (whether a house or a commercial/indus-trial property), do not do so thinking that they will end up with aformal dispute. As I discuss later, virtually all building contracts(and most other contracts) include a formal series of steps to betaken to resolve a dispute should it arise. An architect with whomI did a lot of work used to take the signed contract, place it in afile in his bottom drawer and say that he did not want to see itagain. Luckily for me, at least on my projects, he seldom did. Buteven the best working relationships can have differences of opin-ion, and in reality it would be most unusual if they did not. Figure 2.1 illustrates the levels that a difference of opinion cantake. Disagreements are the lowest level and in most cases thesedifferences can be resolved by both parties talking through thematter and by having the mutual aim to resolve the matter asquickly and as painlessly as possible.If not resolved, the matter may escalate to that of an argument,where the level of difference is such that the parties are not read-ily able to resolve the matter. The exchanges may become quiteheated and the recommended recourse is to seek further advice,either in the form of formal negotiation or mediation. With goodpreparation and consideration of the problem, the differencesmay be resolved. Dispute final 29/10/02 3:45 PM Page 9The third level is termed a dispute and this is primarily whereour present interest lies. At this level, the difference is such that itcannot be resolved without recourse to a formal system and out-side assistance. And whilst mediation may be a first step, it hasonly a small chance of success and an imposed solution will berequired, whether by a court of suitable jurisdiction, or by a jointlyappointed arbitrator.FI GURE 2.1 DI SAGREEMENT ESCALATI ON DI AGRAMConstruction is one field of endeavour that seems to have morethan its fair share of disputes. The document, No dispute:Strategies for improvement in the Australian building and con-struction industry opens with the comment: When inevitableshortfalls occur under claims administration, disputes willoccur (NPWC/NBCC 1990). Likewise, in the summary of theReport of the Australian Federation of Construction Contractors(AFCC) it states:Construction industry claims and disputes have now become an endemic part ofthe construction industry It was found that the problem of claims and dis-putes in the construction industry is a worldwide phenomenon (AFCC 1988).It is a sad reflection on the construction industry that not only dothese two reports state the inevitability of disputes arising, but10Di s put e r es ol ut i on i n c ons t r uc t i on managementVajo( d|sad(eererls. oller ove( corl(acls. lral carrol oe(eso|ved ov lre pa(l|es W|lroul (ecou(se lo a lo(ra| p(ocessHethod,QIRUPDO |l |l appea(s or a ou||d|rd cases ||sl. cou(ls rav (ele(lre ralle( lo( red|al|or o( expe(l dele(r|ral|or)RUPDO a su|lao|e |eve| cou(l: a(o|l(al|or 0|sputewre(e lre d|sad(eererl carrol oe so (ead||v (eso|ved ardd|scuss|ors oecore realedHethod,QIRUPDO rore ava||ao|e)RUPDO use ol ar |rdeperderl red|alo( o( corc|||alo(Argumentwre(e lre lWo pa(l|es exp(ess a d|lle(erce ol op|r|or. Tre ralle(|s usua||v (eso|ved lo lre rulua| sal|slacl|or ol a|| pa(l|esHethod,QIRUPDO lace-lo-lace d|scuss|ors)RUPDO lace-lo-lace redol|al|ors 0|sagreementDispute final 29/10/02 3:45 PM Page 10senior judges (Lord Pennock amongst them) and various solicitorshave also stated it.The question that has to be asked then is, why does the con-struction industry have so many disputes" Perhaps Lord Browne-Wilkinson gives the answer, at least in part, when he observes:The disputes frequently arise in the context of the contractor suing for the priceand being met by a claim for abatement of the price or cross-claims founded on an allegation that the performance of the contract can be defective (Cremean 1995).But as set out in the previous chapter, these are the actual causesof the dispute. I wish to address the underlying aspects of differ-ences and why people resort to disputation. I want to considerthe psychology of the participants.THE PSYCHOLOGY OF THE PARTICIPANTSIn trying to understand why disputes occur in building contracts, the key clearly lies with the fact that people are interacting in some way. Although manydisputes are based on arguments about technical or legal points, disagreementcontinues because the people involved in the argument can become intransi-gent (Murdock & Hughes 1992).Conflict, at whatever level, is a complex psychological issue. Itcould be assumed that people would normally avoid initiatingconflict (or disputation) unless first having a belief that theywould win a given dispute. Nor surely would they start a disputeif they knew that to resolve it would cost them time and proba-bly money. Yet this is often the case. Michael Ryan, a leadingsolicitor in the building dispute area, wrote in 1994 that peoplewill often engage in a formal dispute even when experts, usuallytheir legal advisers, tell them in the clearest terms that they willhave little, if any, chance of success.People seem to display the unerring psychological belief that inall instances of conflict they are right, and that their advisers notonly might be but probably are wrong particularly when theiradvisers do not agree with their own judgment of the situationand its expected outcome. This belief in self is often necessary,or almost elemental for a given personality, to preserve a personsown sense of well being. It is a sad fact that I have heard peoplesay, I dont care what you say, I believe that I am right and I amsure the Judge (Arbitrator) will agree with me. Any reasonableperson would, even when an independent assessment has clearlyshown that this is not the case.11Conf l i c t , di s put es and peopl eDispute final 29/10/02 3:45 PM Page 11In many respects, construction conflict can be likened to that ofthe conflict of war. Bueno de Mesquita in his treatise The WarTrap (1981) writes that the broadest and seemingly obvious gen-eralisation that emerges from the concept of war is the expecta-tion that conflicts will be initiated only when the initiatorbelieves the conflict will yield a beneficial outcome. This simplegeneralisation is based on the notion that people do what theybelieve is in their best interest, provided the means to deduce sev-eral counter intuitive propositions about the conflict is present.Basic human needsTo better understand the participants in a dispute situation, it ishelpful to have some idea of what elements make up a person;their needs, the things they consider important and that givethem a sense of purpose in life, what makes them feel threatened,and their self-perception.Perhaps Maslow (1954) provides the classic and best-knowndiscussion of human needs when he states that all humans,whether rationally or irrationally, consciously or subconsciously,behave as they do to satisfy various motivating forces. He nom-inates the essentials for survival as sustenance (food and drink),shelter (residence), procreation (sex) and general security(money). Figure 2.2 shows Maslows psychological pyramid. Hebelieves that the motivation of human beings depends funda-mentally on the extent of their ascent up this pyramid. Later writ-ers use similar terms. It is fair to say that for most writers on thesubject, all basic needs are generally aimed at the continuance ofthe human species, although in the satisfaction of these needs weare usually unaware consciously of what we are doing. This phe-nomenon is referred to as the primary drive. With respect to the individual person, various writers on thesubject have added such needs as response, security, recognition,stimulation, distributive justice, and a need for meaning, controland to be seen as rational. FrustrationIf for some reason there is interference in the achievement ofthese human needs, a person suffers frustration (Maslow 1954).Burton (1990) suggests that in modern industrial societies theapplication of positive law [a person shall do ] is beginning torequire such an extent of coercion, rather than reflecting any habitof obedience, that it and the authorities which impose it, arebeing challenged, especially in developed societies, such as those12Di s put e r es ol ut i on i n c ons t r uc t i on managementDispute final 29/10/02 3:45 PM Page 12in the so called civilised western society. In other words, peo-ple will no longer blindly follow authority but will question thisimposed order. Furthermore, the term frustration has been said to also refer tothe circumstances that result from the failure of a need or motiveto be satisfied. The internal state of emotional disturbance thataccompanies such events is termed psychological stress, ten-sion or anxiety. To realise their particular aims, people attempt to exercise con-trol over the events that affect their lives (Bandura 1997). Thehawk cannot influence when the prey will arrive, but will simplykeep seeking. People will motivate themselves by forming beliefsabout what they can do, anticipate likely outcomes, set goals andplan a course of action (Gleitman 1981). When a person considersthat they have lost control over these aims, they feel frustration. Human needs are being frustrated on a large scale in all modernsocieties. The more law and order is enforced to control frustra-tion, the more it occurs. In the building arena this administrativefrustration has been widely evident. In Queensland (and later inVictoria) for example, a building tribunal was established to heardisputes specifically related to residential construction in an13Conf l i c t , di s put es and peopl e8as|c prvs|ca| ard o|o|od|ca| reedsa|(. Wale(.lood. s|eep. sex. exc(el|or. prvs|ca| acl|v|lv ardro exl(eres ol lerpe(alu(ePhys|o|og|ca|Prvs|ca| ard psvcro|od|ca| secu(|lv. su(v|va|.avo|darce ol pa|r. see||rd ol corlo(l8afetyTre reed lo oe|ord|ove. allecl|or ardcorpar|orsr|p8oc|a|3e|l-(especl. p(esl|de. (ecodr|l|or ard slalus EgoTo oe Wral ore rusl oe 8e|f rea||sat|onFI GURE 2. 2MASLOW S PSYCHOLOGI CAL PYRAMI DDispute final 29/10/02 3:45 PM Page 13attempt to reduce the perceived problems of arbitration (excesscost and too legalistic). It seems that this tribunal in turn createdits own frustrations, by way of the time factors and the need fordocumentation it imposed for its own administration. The timedelays, bloated costs and ever-increasing complaints from theconsumers who were supposed to be being helped by the systemwere such that, in 1997, the Queensland Government disbandedthe tribunal, declaring it a failure. It was subsequently reformed toavoid the earlier problems and is still operating. Frustration is one of the problems that occur once a construc-tion dispute has arisen. The length of time it usually takes fromwhen a problem arises until it can be resolved will often lead tofrustration by the parties. Dispute resolution in California in theearly 1990s is a case in point: it was taking five years for the caseto be presented at the preliminary court hearing which washeld literally hours before the expiration of the five years to per-mit continuance. People involved in these matters often feel theresolution is out of their control, and it usually is, the matterbeing in the hands of their legal representatives and the arbitra-tors. Paradoxically, this frustration is aggravated by the contractsdrafted for building works that include systems for dealing witha problem once it has got to the stage where the parties cannotresolve it themselves. But there is, in most instances, no automat-ic circuit breaker, no way someone can come in and immediately(within hours) settle the problem, prior to the formal notificationof a problem.Conflict between people Maher (1964) defines conflict as any pattern of stimulation pre-sented to an organism which has the power to elicit two or moreincompatible responses, the strengths of which are functionallyequal. There is a body of literature that discusses the experi-ments that have been undertaken in this area starting from asearly as 1935, where three forms of conflict situations weredescribed (Lewin 1935). The first of these conflict situations isdescribed as one where people are torn between two desirablealternatives. This might be, for example, in the building contextwhere a person has a choice to build a new house now and moveout of the rented unit, or to save up for another year and buildan even better house.In other conflict situations people are forced to make a choicebetween two undesirable alternatives (in the building sense, anexample would be the client paying overtime or having the work14Di s put e r es ol ut i on i n c ons t r uc t i on managementDispute final 29/10/02 3:45 PM Page 14delayed). In the third situation people are both drawn to, andrepelled by, a particular goal at the same time (where the clientpays the builder for a variation when they actually believe thatthe work covered in that variation should be paid for by thebuilder, but the client just wants to make sure the work will getdone). This type of conflict also leads to frustration. The person in the above case the client may develop the perception thatthey have lost control, or that the builder has in fact wrested con-trol away from them. Conversely, this situation can also equallyapply to the builder. For example, when negotiating a price for anew house, a builder may have to take a lower price than he canreally afford, so as to ensure the cash flow and to stay in business.The builder is frustrated because the owner will not pay the realprice, yet the builder has little choice they can either take thelower price or lose the business. In this instance the builder maynot only feel that the owner has taken control of the situation, butmay also feel frustration knowing that the bank is also controllingthe action, not the builder himself.The perception of a conflict situation will differ depending onwhere the parties believe they stand in relation to that conflict(initiator or receiver). From their own point of view, when a per-son is involved in a conflict, they invariably think that they arebehaving quite rationally. Yet also it invariably follows thatwhere one party is in conflict with another, they will think thatthe other party is in the wrong. They cannot imagine how any-body could hold the opposing position. Further, the perceptionof where a person and/or group stands in the conflict, forinstance as an initiator or receiver, will also affect how they reactto that conflict.Builders and conflictWriters on a wide range of issues on construction note that conflict is a common occurrence for a wide variety of reasons. A number of academics in the area of construction remark that:The increased tension and associated stress that accompanies the occurrence ofa problem increases the potential for conflict within the project. The researchhas observed that unexpected problems often act as triggers to conflict episodes (Langford et al. 1995). It seems, however, that not only the builders suffer stress; there is also consid-erable dissatisfaction by clients of construction, and disputes and conflicts arewidespread as a result of severe problems with product quality and the highestrate of insolvency of any industry (Fenn & Speck 1992). 15Conf l i c t , di s put es and peopl eDispute final 29/10/02 3:45 PM Page 15It has been noted that questions of clarification in matters suchas work quality and time are bound to arise. These issues willrequire dialogue and the emergence of familiar constituents of thecommercial communications and the skills of management teamson each side to facilitate it. Other writers remark that conflict isto be expected as part of construction and that conflict betweencontracting companies may be seen as an inevitable by-product oforganisational activity (Cook 1979).It is necessary here to further examine circumstances that occurat the inception of a conflict. As mentioned by the many commen-tators discussed previously, it is not always the actual situation thatleads to conflict, but a perception by the parties that there is a situation that will lead to conflict. So what actually is perception"PerceptionWhenever two or more people meet, they invariably make anumber of almost immediate decisions about the other person orgroup. These decisions are based on preconceived opinions aboutthe type of person or people encountered within that group.Most of these judgments concern relatively superficial character-istics such as nationality, race, social class, occupation, age andphysical appearance.The building industry is no different. For example a builder,appearing for the first time at the home of a prospective client,arriving dressed in dirty torn off overalls, and with beer breathand dirty hair, is likely to be considered rough and evenunpleasant and probably thought to be poorly educated at thisfirst meeting. This will not do much to project the image of thebuilder as a professional as compared to an architect who arrivesat the same time in a clean, well-pressed suit, smelling of anexpensive aftershave. The above characters may be a clich, yet so is the saying, youcant judge a book by its cover. It follows that superficial charac-teristics may not be important in themselves and the initial per-functory perceptions may be totally wrong. The dishevelledbuilder may have come from a hard days work on a constructionsite where he had been toiling to ensure a project would be fin-ished on time (while studying externally for his Master ofBusiness Administration). The architect on the other hand may inreality be an alcoholic who consequently takes extra effort to con-ceal his weakness. Yet superficial characteristics often do elicitstereotypes in the perceiver. And perceptions are difficult tochange once they have been made. 16Di s put e r es ol ut i on i n c ons t r uc t i on managementDispute final 29/10/02 3:45 PM Page 16Although initial impressions may affect builder/client work-ing relationships, building projects necessarily take place overan extended period of time, and it could follow that the respec-tive relationships also change over that time. Relationshipsbetween contract parties tend to be different at the beginningof a project as compared to those that exist by the time a formal dispute has arisen.Most contracts begin with a sense of partnership and anatmosphere of co-operation. Too many relationships end up inan atmosphere of mutual distrust, if not hatred, and so rein-force the group perceptions discussed above (Cook 1979).There are a number of other areas that can be discussed underthe heading of conflict and I recommend further study if thereader has an interest in this area. One that we do need toaddress is communication.COMMUNICATIONMarch Hare: You should say what you mean.Alice: I do at least I mean what I say thats the same thing you know.Hatter: Its not the same thing a bit! Why, you might just as well say that I see what I eat is the same thing as I eat what I see (Carroll 1880).I have talked about conflict or differences of opinion at specificlevels in the relationships between people and many writers citea lack of communication as a major cause of this conflict.Communication is essential to the development and maintenanceof our daily life. Indeed, it is through communication with othersthat people learn about the world around them and learn how tobehave in the many situations that comprise modern living.Further, human speech is only one of many different ways thatthe abstract concept of communication can be realised in a prac-tical form (Deutsch 1973). In construction, communication can be considered as theprocess of transmitting information from one point to another.This may be between one individual and another, or between oneorganisation and another:Communications can be formal and informal. Formal communications tend tobe written, but in construction, the use of drawings is foremost. Drawings areconsidered the most appropriate method of communication for technical infor-mation: what the construction project consists of (Miller 1973).Lack of effective communication in the building industry is oftencited as the chief cause of disputes and costly litigation cases(McLagan 1991). Various writers have noted the poor level of17Conf l i c t , di s put es and peopl eDispute final 29/10/02 3:45 PM Page 17communication on construction sites, where it seems the mainform of communication is verbal (either by telephone or face-to-face). It follows that communications are deficient as, in manyinstances, these conversations are not confirmed in writing to theother party. It would seem logical that to ensure full understanding of acontention, a confirmation document sent from one party to theother should include the name of the parties privy to the conver-sation, the time and date of the conversation and the matters dis-cussed. This basic process is common in commercialconstruction, but sadly lacking in most domestic construction sit-uations. At the very least the important conversations should beentered into a diary (see Chapter 1).It is not just the informal conversations on the building sitesthat need to be confirmed. Formal communications, includingthose required under a building contract for the legal communi-cation of vital information must also be considered. The conse-quences of failing to undertake these formal requirements underthe contract are a major problem in the construction industry, inboth domestic and commercial sectors. One of the problems with verbal communication is simply,words. Ambiguity is one such example. The sentence: Mary andJohn saw the mountains while they were flying to California canbe interpreted two ways. The logical interpretation would bethat Mary and John were flying to California, but it could be justas readily interpreted that Mary and John saw the actual moun-tains flying to California. The reader knows from his/her concep-tual knowledge that mountains do not fly, therefore the lattermust be wrong. In this sense, the conceptual knowledge is not partof peoples linguistic knowledge, but plays an important role in theway we understand language in actual usage (Miller 1973).It follows that most of our misunderstandings of other peopleare not necessarily due to any inability to hear them, to under-stand their sentence, or to understand their words, although suchproblems do occur. It appears that the major source of difficultyin communication is that people often fail to understand thespeakers intention.NON-VERBAL COMMUNICATIONBody language (kinesics)During the course of communication we gain seven per cent ofour information from the actual words being used, thirteen per18Di s put e r es ol ut i on i n c ons t r uc t i on managementDispute final 29/10/02 3:45 PM Page 18cent from the tone of voice of the speaker and eighty per centfrom their body language (Markhem 1996). It seems there existsboth positive and negative body language. For example, a classicclosed body language is the arms folded across the chest, bodyerect and rigid and a general avoidance of eye contact. Therefore,in discussions where one party may say verbally that they agreewith what another person is saying, yet adopt the closed pos-ture, the chances are that there is no real agreement at all. In thiscontext it is interesting to note that a letter or a telephone con-versation or e-mail can only deliver the words, and perhaps, notthe full intent of a given communication. Lowen (1958) sums thisup when he notes that [n]o words are so clear as the language ofbody expression once one has learned to read it.Culturally it is useful to know the type of person with whomyou are dealing in a given situation. Australians do not generallygreet friends or business acquaintances with a hug and kiss on eachcheek. Yet this type of greeting is normal for many Europeans.Most Asians, however, would be greatly offended by overt publicaffection. And most Australians would be embarrassed.For many years there had been held a belief based on the workof Charles Darwin (1872) that facial expressions of emotion weresimilar amongst all humans, regardless of culture. And althoughin the 1950s this belief was countered by further research, fromthe 1970s onwards the Darwinian theory has again been accept-ed and reinstated.The research carried out by Darwin (and indeed subsequentresearch) identifies many commonalties in the facial expressionsof people. These include that all people are programmed to turnup the corners of the mouth when theyre happy; turn down thecorner of the mouth when theyre discontented; wrinkle the fore-head; lift the eyebrows; raise one side of their mouth and so on,according to what feeling is fed into the brain. There is a widerecognition of the importance of body language in projecting amessage between communicators (Lowen 1958). This recognitionhas led people in politically high places to adapt various body lan-guage generalities in an attempt to achieve that indefinable some-thing usually referred to as charisma. John F. Kennedy, formerPresident of America, was said to have been a master of non-verbal communication. Eye contactAnother example of a non-verbal form of communication is theway in which people project their eyes. The classic western novel19Conf l i c t , di s put es and peopl eDispute final 29/10/02 3:45 PM Page 19will contain the type of stock sentence: the cowpuncher sat on hishorse loosely and his fingers hovered above his gun while his eyes,ice cold, sent chills down the rustlers back. Conversely in lovestories, the heroines eyes melt while the heros eyes burn intohers. Physiologically the eye itself cannot express emotion. Ratherit is the face around the eye that conveys the emotion the facialsquint, the non-blinking stare, the raised eyebrow and so on. In Western culture direct eye contact during discussions isimportant: it is the equivalent of declaring that a person is pre-pared to communicate openly with the other party. It follows thata lack of eye contact is often taken as the opposite. Eye contact isalso taken as sign that the other party is paying attention to whatthe first person is saying, thus providing positive feedback.Interestingly, in other cultures direct eye contact is taken as aninsult, or a challenge to the interlocutors authority.The response of the eyes is even used by people in marketresearch to assess the success of advertising. One method adopt-ed in market research for a new advertisement is to carefullystudy the eyes while the commercial is being shown to the selectaudience, to detect just when there is any widening of the eye toindicate the unconscious, pleasant response to the commercial. Spatial relations and personal spaceParadoxically, it seems that when business people are using face-to-face verbal communication they are generally doing so on animpersonal level. Further to this finding, Edward Hall (1959), whostudied this odd phenomenon, found that Americans converseimpersonally at a distance of 1.2 metres. In Latin America theequivalent distance is 600900 millimetres. It follows that for aSouth American and a North American to converse effectively,finding a suitable distance would need careful consideration. Halldiscusses the further problem of using tables or desks in businesssituations, where South Americans have been known literally tojump over them to express their feelings. It appears that peoplesuse of space has a bearing on their ability to successfully relate toother people.In the context of the above example, there can be made a com-parison with nature, where a herring gull pecks its neighbour if itgets too close. Human beings, thankfully, adopt different actions,but they apparently mean the same thing, or as Gleitman (1981)phrases it, you have entered my space. It is interesting that whilst commenting on the various vagariesof the animal kingdom, it has been said that the territorial nature20Di s put e r es ol ut i on i n c ons t r uc t i on managementDispute final 29/10/02 3:45 PM Page 20of man is genetic and impossible to get rid of (Fast 1970).Psychologists acknowledge that man has a sense of territory. Thegreat Australian dream has long been to own the quarter acreblock in the suburbs (Boyd 1952).Perhaps it follows that the businessman considers (often sub-consciously) that his desk is his territory. This seems to be sup-ported by anecdotal evidence that leaning over the desk to makea point to someone will, in most cases, make the owner of thedesk move back. In terms of Halls discussions of space, a far dis-tance is considered to be between 2 and 3.6 metres. It follows thatthe big boss will have a desk large enough to put him this dis-tance from his employees. The boss can remain safely seated atthis distance and look up at an employee without a loss of status. This matter of spatial relationships is likely to have significancewithin the construction industry. Other than the obvious officesituation (boss to employee) there is a more important area thephysical site where the building is being constructed. At thedomestic level, it could be construed that a builder undertakingconstruction of an extension to a house is in the greatest dangerof encroaching on the clients space, where the workplace is theclients home and their place of retreat. For instance, an extensionmight involve a kitchen where there is a very close encroachmenton the area owned by the cooking partner. It follows that whilstat the site, it is difficult for the people communicating (the builderand the client) to be at a far or safe distance. The very nature ofthe interaction, by sheer proximity, will have a tendency toencroach into the others space, perhaps initiating a threat to theother party (usually the owner). Yet it is true to say that the samethreat can potentially exist on any construction project, albeit ona different level. Discussing a new road may seem an impersonal scenario, butto the engineer and the person responsible for building the road,it may well have the same intimacy as a house extension for ahouse owner. Similarly, a new office block for a given client is avery personal undertaking for the company owner it may afterall be the culmination of a lifetime of work, or even a symbol ofsuccess, implying that the owner has made it in a competitivearena. Further, if the company is large and a representative isresponsible for the project, they will have a very personal reasonfor wanting the project to succeed their future employment,amongst other things. Either way any given building will havesignificance for the client, often significance not readily appre-hended by the builder (Boyd 1952). 21Conf l i c t , di s put es and peopl eDispute final 29/10/02 3:45 PM Page 21Boyd also contends that the client should, in some cases, beregarded not as a unitary concept (like a person) but as a complexsystem of interest groups; some congruent, some competing. It fol-lows that a large project will not only have significance for a singu-lar person or client, but rather that many splinter groups of clientswill have a corresponding interest in the success of the project. There are a number of classic experiments regarding humanreaction to the invasion of a given private space. One such exper-iment was undertaken by Nancy Russo (cited in Sommer 1969;Fast 1970), who used a library as her laboratory. On occasionswhen the library was mainly empty, Russo sat right next to isolat-ed people working by themselves. She observed a number ofdefensive gestures from subjects ranging from placing their booksor pencils as fences, to shifting their own seat further away, toeventually moving away altogether. Only one in eight personsactually asked Russo to move away. MaskingFor most people, the face we present to the world is rarely ourreal face (Russo cited in Sommer 1969; Fast 1970). It seems thatone of the faces we show to the public is in fact the very presen-tation of the way we manage our personal appearance. Thesesignals include the clothes we select and the hairdos we affect.Generally the principle is still one of conformity. Most people still expect senior business executives to wear aconservative suit and tie. Similarly, it seems our body language isalso expected to conform to certain norms. We smile through theday although we may actually feel angry and annoyed beneaththe smile. We smile at the customers, at our bosses, our employ-ees, children, neighbours and partners. Very few smiles have anyreal significance. They are simply the masks we wear.On some occasions, people may drop the expected mask. Inthe privacy of their car people often swear at other motorists whoannoy them, in a manner that they would never dare to show inpublic. Perhaps a public emergence of this private face explainsthe growing incidence of road rage. People also often drop themask when talking to people they regard to be inferiors, usuallyin the context of the social ladder, for instance servants and sec-retaries. Children are also often put in this category.It is interesting to note that in order to successfully negotiate, itis essential that people drop this mask and be as open and hon-est with each other as possible. But what often happens in anyrelationship is that language itself becomes a mask and is used asa means of clouding and confusing the relationship. 22Di s put e r es ol ut i on i n c ons t r uc t i on managementDispute final 29/10/02 3:45 PM Page 22It is also true that if the spoken language is stripped away sothat only the body language is left, the truth will find a way ofemerging (Lowen 1971). Yet in most relationships, it must also benoted that body language and spoken language are often depend-ent upon each other. Neither aspect of language by itself willcompletely give the full meaning of the person communicating.Nor, it follows, will the reception of only one aspect transmit thefull meaning of a communication to the receiver.GesturesA gesture is an expressive motion or action, usually made withthe hands and arms, but also with the head or even the wholebody (Miller 1973). In the Western world a handshake is anaccepted sign of welcome (a tradition said to originate in a personholding out the open hand, showing they come with no weapon).In Japan people prefer to bow, offering no direct contact. Othergestures show negative intent. Most Westerners, if seen pokingout their tongue, would be considered to be expressing an insultand yet, in the Maori culture, such a gesture is considered a signof challenge (known as the Haka).To listen or not to listenCommunication is a two-way activity. No successful communi-cation can occur if one party speaks, but the other party does nothear. The need for listening to the conversation of the otherparty is obvious, yet it is demonstrably difficult to listen well. Inconjunction with the visual clues of body language, words assistin the understanding of the message being communicated. It isgood practice for the person communicating to speak clearly andsimply, keeping in mind the above ideas. For total clarity it is thenuseful to ask the receiver to provide feedback to the originalspeaker, ensuring that the message has been correctly received.Effective feedback demands that the receiving party repeats whathas been said, thus confirming complete understanding.ALTERNATIVE VERBAL COMMUNICATIONWhilst most verbal communication is conducted by means ofwhat is generally termed language, being composed of rationalwords, other forms of audible communication exist (Whittaker1965). These forms include audible bodily noises such as gruntsand groans of pleasure to indicate agreement. Apart from variousnoises that may impart agreement or displeasure, we can also23Conf l i c t , di s put es and peopl eDispute final 29/10/02 3:45 PM Page 23communicate subtextual intentions simply by way of the mannerin which we speak. How we say something is often more impor-tant than what we say. For example, when asked if a personagrees with a statement, the reply could be, of course with a flatinflection indicating agreement, or of course with an upwardinflection actually indicating sarcasm and non-agreement. Thewritten words look the same, yet the verbal audible messagemay be quite different. Non-speech, or interrupted speech, can also give non-verbalhints as to what is really going on in the mind of the speaker.Sentences with a number of non-grammatical pauses may indi-cate an unsure comment, or a person collecting their thoughts,which may well be covering up a lack of knowledge about theissue at hand. For example, suppose a builder asks a client for anextension of time for wet weather, simply because they knowdelays have occurred as a result of rain, yet they are not sure ofthe exact dates. When asked directly for the dates by the client,the builders reply may be: Well I am not totally sure it waslast month early in the month probably the first week err the 3rd probably. Look Ill need to go back to the office andcheck. The message here is that the builder is not really sure, andin the mind of the client, may be trying it on. In reality thebuilder may simply not have prepared the claim properly. As aconsequence of the interrupted speech, however, the builder isgoing to have to work much harder to persuade the client of thevalidity of what is probably a legitimate claim.SEMANTICSThe most common form of verbal communication used byhumans is words. Semantics is the literal meaning of sentencesand their constituents. Yet the meaning of words is not clear-cut,as we have already discovered. The English language, and theaccepted meaning of words, is constantly changing. For example,the Oxford Dictionary says that the word footstep in 1535 wasthe distance traversed by the foot in stepping. In 1683 its addedmeaning was: a bearing to sustain the foot of a vertical shaft orspindle (Oxford 1987). Ambiguity, as has also been discussedpreviously, is also a problem with the English language. I tookthe photo can mean I stole the photo, or I engaged myself inthe process of photographing a subject. Semantics cover a widerange of these verbalised intricacies, including meaningfulness,synonymy, redundancy and so forth.24Di s put e r es ol ut i on i n c ons t r uc t i on managementDispute final 29/10/02 3:45 PM Page 24SUMMARYDisputes are not restricted to the construction industry, but mayoccur whenever two people have to work together. Ones actionsmay be controlled by the actions of another person just as anoth-er may evaluate ones performance. These and other interdepen-dencies make conflict inevitable. On this basis there is always thepotential for conflict and what is needed is the establishment of asystem or systems, which will minimise the possibility of dis-agreements escalating into full disputes.This is the case also in the United States. Writing in the DARTNewsletter, Jack Barden says that: during the past fifty yearsmuch of the United States construction environment has degrad-ed from one of a positive relationship to a contest consumedin fault finding and defensiveness which results in litigation(Barden 1996).In order to resolve disputes in a manner that does not resort toviolence (as was once the norm from wars to duals) it has beennecessary to develop systems that will help those parties oncethey find themselves in a dispute, to resolve these differences.Hence, resolution systems can be classified into two major cate-gories: formal hearings that result in an imposed and legally enforceable ruling, includ-ing the courts, government tribunals and arbitration. The distinguishing featureof these systems is that an Act of Government established them. informal systems that in themselves create no legally enforceable result. Theseinclude a vast variety of methods but include negotiation, mediation, mini-trials,partnering and dispute boards.Throughout this book various systems will be reviewed, withcomments on the system as to its role in the resolution of build-ing disputes. The latter two in the last point above may be betterconsidered as prevention, rather than resolution systems, but arenow included as part of the total package of dispute resolutionwithin the construction industry.25Conf l i c t , di s put es and peopl e Dispute final 29/10/02 3:45 PM Page 25CHAPTER 3THE COURT SYSTEMThis chapter considers the various court systems. The courts arestill an important means of resolving disputes, especially for thelarger and more complex legal matters. It is not vital for the read-ers of this book to know the intimate operations of the court sys-tems. However, a general understanding of what they are, howthey operate and their role in dispute resolution, will assist thereader when a decision has to be made as to which form of reso-lution should be selected by the parties. In many cases one partywill initiate the court hearing leaving the other party no choicebut to at least respond to the notice. As far as building disputesare concerned, the principles remain similar. It is not the aim ofthis chapter to teach the student about the law, which should bedone elsewhere.ANTICIPATED LEARNING OUTCOMESA general understanding of the various levels of the courtsA general understanding of the way the court systems operateTOPICS COVERED IN THIS CHAPTERAn overview of the Australian and New Zealand court systemA brief look at the international courts Building cases listsSpecialist court annexed systemsINTRODUCTIONThe court systems of Australia and New Zealand are based directlyon the English court systems as a result of the founding of thecolonies from Britain. For similar reasons, the court systems ofcountries that were colonies including Canada, India, Pakistan,26Di s put e r es ol ut i on i n c ons t r uc t i on managementDispute final 29/10/02 3:45 PM Page 26Singapore, South Africa and the United States of America arefairly similar, if not the same as the British system. We are not interested in criminal law here and will not considerthat side of the law, as few builders end up in that jurisdiction although some people would like to see more there! Buildingdisputes are generally contract related and come under what isknown as Civil Courts (Civil Wrongs). This includes breaches ofcontract, which in our case is specifically building related con-tracts. The punishment is not imprisonment, but usually mone-tary damages and in some cases physical reparation. It is useful to understand some common terms used in civil matters:Plaintiff the person who brings the action or sues the other partyClaimant basically the same but a term commonly used in arbitration and so forth.Defendant the person who is being sued by the Plaintiff or Claimant.Judgement this is the judges decision. If it is successful, it will be for the plaintiff. If the action fails, then it is usually said that theplaintiff failed rather than the defendant won, although of course that is the net result.Directions Hearing a preliminary meeting with the judge (or nominee) to set the schedule for the hearing what documents will be used, dates for exchange of document and so forth. The purpose of a directions hearing is to make any orders or directions which are necessary for the expeditious and fair hearing and determination of a proceeding including the reclassification of the proceeding (Victorian Civil and Administrative Tribunal 1998). Discovery disclosure of all the documents relating to a case, made before the hearing commences and on which the parties wish to rely.The losing party to the action is usually said to be liable orguilty. In a building case, the losing party may become liable topay the outstanding progress payment plus interest, or carry outrepairs to faulty work and so forth.The courts that deal with civil matters are generally referred toas Courts of Civil Jurisdiction. The English court system has threebasic levels with the highest court being the House of Lords. InAustralia and New Zealand it is the High Court of each countryand in the United States, the Supreme Court. The main active court in England is the High Court. This isdivided into three sections: the Queens Bench, The Chanceryand the Family Division. Civil cases are before a single judge, generally without a jury. The next level in England is the27The c our t s ys t emDispute final 29/10/02 3:45 PM Page 27Magistrates Court, which hears the smaller value cases. Appealscan be taken to the High Court or right through to the House ofLords; indeed a failed appeal in the High Court can also be takento the House of Lords as a result of historic precedence, notnecessarily common sense. However you need a lot of money toundertake this procedure. In Australia and New Zealand, the systems are similar, in thatthere is a basic level Magistrates Court, a second level referred toas the County or District Court and the High Court. Thus, at anational level the court system is three tiered. Included in thehierarchy however is the Supreme Court, a state based system.Figure 3.1 reproduces the Australian hierarchy.The following looks at the New Zealand and Australian courtsin general only. The sections here are listed in descending order.For specific details reference should be made to the various webpages listed at the end of the book. There are a large number of28Di s put e r es ol ut i on i n c ons t r uc t i on managementHag|strates 6ourtVorela(v ||r|l S250000eod(apr|c ||r|ls6ounty or 0|str|ct 6ourtVorela(v ||r|l S20000030uRCE \a(drese 199Z8upreme 6ourt3|rd|e judde8upreme 6ourtCou(l ol Appea|Cou(l ol C(|r|ra| Appea|Adm|n|strat|veAppea|s Tr|buna|0omest|c u||d|ng6ontracts Tr|buna|h|gh 6ourtCou(l ol Lasl Reso(lFI GURE 3.1 THE COURT HI ERARCHY I N AUSTRALI ADispute final 29/10/02 3:45 PM Page 28other jurisdictions, which may be separate, or come under one ofthe three main levels. These are not covered here, as they do nothandle building matters. To provide a comparison, information isalso supplied regarding the relative American courts.Before we look at each court within this hierarchy, it is useful tounderstand two areas to which I will refer in these sections.BUILDING CASES LISTSUnder many Supreme Courts and County or District Courts theremay be a number of tribunals and what are commonly referred toas lists related to a specific area of law or commercial activity.One such is the building list, which is:Any proceedings in which the claim of one party against any other party arisesout of or is in any way concerned with any agreement expressed or impliedinvolving (whether exclusively or not) the performance of work of any descrip-tion in connection with or incidental to any building or structure actual or pro-posed with any construction project of any kind whatsoever (Civil ProcedureVictoria 1996 p. 17).The list of building cases is compiled by the Registrar, and con-trolled by a judge nominated by the Chief Judge of the relevantjurisdiction. The method of placing a case on the list is to applyto the judge (by completing the appropriate form and filingthrough the Registrar) to have the proceedings listed as a buildingcase, subject to showing that the matter does meet the criteria.At the directions hearing, the judge in charge of the list is giventhe option (in most jurisdictions using this system) of placing anycase thought desirable (on the grounds of expedition, economy,convenience or otherwise) onto the list either with or without arequest from any party. The court may use mediation within thecourt system, with or without consent of all parties. The functionof the mediator will be to consult with the parties in an endeav-our to reach a speedy resolution of their difference. Irrespective ofwhether or not any such resolution is reached, the mediator is notrequired to make any report to the judge and, unless all partiesotherwise agree in writing, all communications between all par-ties in the course of the mediation will be taken to be communi-cations made without prejudice. The parties must pay the fees forthe mediator in equal parts. The advantage of this process is thatmany of the cases are settled without the expense of a full courthearing and those which still have to go to the court have areduced waiting time. See Chapter 7 for a more detailed discus-sion of the mediation process.29The c our t s ys t emDispute final 29/10/02 3:45 PM Page 29REFERENCE OUTAnother useful tool for the court is to send the matter out to aspecialist. The court may give directions for the conduct of thereference and can give the referee a wide range of powers neces-sary for him/her to obtain the information and/or arrange witnessto attend and give evidence as required. Once the court hasreceived the report from the referee, the court can ask for addi-tional information or an explanation of some part of the report,may send the whole matter back for further consideration or toanother special referee for an opinion, or vary the report them-selves. The court is free to adopt or reject the report as justice mayrequire. Where the reference out is to a mediator, no report ismade to the court, except to state that it took place and it is nowfinished successfully or otherwise. The court may also havethe right to send the matter to arbitration, possibly on a specificpart of the matter being heard.AUSTRALIAThe High Court The High Court is the highest in the Australian judicial system. Itwas established in 1901 under Section 71 of the Constitution. Thefunctions of the High Court are to interpret and apply the law ofAustralia; to decide cases of special federal significance includingchallenges to the constitutional validity of laws and to hearappeals by special leave from Federal, State and Territory courts(Federal Government, Canberra, , viewed June 2002). The High Court is situated inCanberra, but also has registries in Sydney and Melbourne andbranches in each of the other main cities around Australia. It isthe court of final appeal and is generally related to constitutionalmatters. However there are a number of other divisions, the maintwo being: Federal Magistrates Service. Its jurisdiction includes family law and child sup-port, as well as administrative, bankruptcy, and consumer protection law. Family Court of Australia. It contains information on divorce, family law, forms,legislation and judgments.The High Court deals with the interpretation of theConstitution. It may be asked to reconsider previous decisions andmatters involving the very principles of the law. In these cases thecourt will sit as a full bench comprising all seven Justices. It can30Di s put e r es ol ut i on i n c ons t r uc t i on managementDispute final 29/10/02 3:45 PM Page 30also give a final determination in an appeal against the rulings of astate Supreme Court usually heard by at least two Justices, sit-ting as a full bench. The subject matter can cover the whole of theAustralian law from arbitration, company law and criminal law, totax law, property, trade practices and so forth.There is no automatic right to appeal to the High Court andparties who wish an appeal to be heard must first have a prelim-inary hearing and show that there are special reasons why anappeal should be heard. There is no further appeal to a decisionof the High Court and all its decisions are binding on all othercourts throughout Australia.NEW ZEALANDUnlike Australia, New Zealand can still make appeals to the PrivyCouncil from the High Court or Court of Appeal of New Zealand.For civil actions, there is an open right of appeal in cases involv-ing more that $5000. For cases involving lesser sums, and in crim-inal cases, the leave of the court is required.Court of AppealThe highest court in New Zealand is the Court Of Appeal, basedin Wellington. It deals with appeals of both a criminal and civilnature emanating from matters heard in the High Court, andcriminal matters from indictment in the District Court (see fol-lowing sections for more details on these courts). It also has theability to hear appeals sent from the District Court to the HighCourt, if thought to be of sufficient significance. If leave is grant-ed by the High Court, it may also hear appeals against pre-trialrulings in criminal matters. It can also hear appeals from theEmployment Court.UNITED STATESSupreme CourtThe American equivalent to Australias High Court is theSupreme Court. It was founded under the American Constitutionand started its existence in February 1790. Under Article III, s. 2,the jurisdiction of the court: shall extend to all Cases, in Law and Equity, arising under this Constitution, theLaws of the United States, and Treaties made, or which shall be made, undertheir Authority 31The c our t s ys t emDispute final 29/10/02 3:45 PM Page 31AUSTRALIAThe Supreme CourtThe Supreme Courts are the highest courts within the statesthemselves. Each state has their own legislation controlling thecourt operation, although in most respects this legislation is verysimilar. Major civil cases are heard by this court; most of these(including building cases) are heard by a judge only. An appealmay be made from lower courts to what is technically called anappellant court which is the Supreme Court sitting under adifferent name. In most cases the appeal will be on the legal issuesof a case, rather than matters of fact. The Supreme Court may hear any case, but usually presidesover cases above a certain monetary limit, determined by the leg-islation in each state. Table 3.1 details these limits further. Majorconstruction and engineering disputes that are likely to result in asettlement above these limits are usually heard before theSupreme Court. The District or County Courts hear cases withlikely settlements below these limits. In Victoria and Queenslandlegislation has been enacted which has required residential hous-ing disputes to be heard by a Domestic Building Tribunal no mat-ter what the settlement value.As I have previously mentioned, many of the Supreme Courtshave a special building list under the jurisdiction of an appointedjudge. At the directions hearing the Judge heading up the list has thepower to remit building cases out for hearing by a person mostlikely to achieve a resolution of the matter (see Referencing Outsection above). The person is usually a qualified mediator or arbi-trator familiar with the construction industry. The advantage is thatthe initial hearing should be heard fairly quickly as against the prob-able time delays likely to be encountered in achieving a hearing inthe court before the judge. Delays of two years and more have beenknown and in the early 1990s for example, delays of five years inobtaining a hearing were common in California. Courts favour thissystem because it reduces the court lists and has proved to be verysuccessful in those jurisdictions that have adopted the system.The advantage of referencing out is that many of the technicalmatters can be decided or resolved without the expense of a fullcourt hearing. The court-appointed referee is invariably an expertin the technical matter in dispute. By being more familiar with theindustry, the referee is better able to make a finding of fact inrelation to the technical matters in dispute. The referee reportsback to the court, which then determines the legal issues arisingin the case from the findings of fact. 32Di s put e r es ol ut i on i n c ons t r uc t i on managementDispute final 29/10/02 3:45 PM Page 32NEW ZEALAND High Court Until 1980 New Zealands High Court was referred to as theSupreme Court. Despite the name change it remains similar toAustralias Supreme Courts. It is based in Auckland, but hasbranches in Hamilton, Wellington and Christchurch, and its juris-diction extends to thirteen other centres throughout NewZealand. It deals with major crimes and civil claims where settle-ments are expected to exceed NZ$200 000.The High Court may hear appeals from various tribunals andlower courts, including the District Court. It too has a buildingcases list for faster resolution on commercial issues and under-takes a regular review of its rules and procedures. Recent changeshave provided an Office of Master of the High Court to allowmany matters to be dealt with expeditiously.UNITED STATESAs in Australia, each American state is responsible for the imple-mentation and interpretation of the local law. In New York Statethe highest court is the Appellate Court. The main court is againknown as the Supreme Court and has general original jurisdictionin law and equity and the appellate jurisdiction. It is also the courtof last resort, being the Court of Appeal. Within the City of NewYork the Supreme Court has exclusive jurisdiction over crimesprosecuted by indictment, although the legislature in New YorkState may give the city wide court of criminal jurisdiction includ-ing over crimes and offences by or against minors or betweenspouses or between parent and child or between members of thesame family (NYS United Court System, , viewed May 2002). In addition, thereis the Court of Claims, which deals with claims against the Stateor by the State against another party; and the Family Court andSurrogates Court with jurisdiction over wills, probate, adminis-tration of estates, guardianship over minors and related matters.AUSTRALIACounty or District Courts The next level of the court structure in most states (with theexception of Tasmania which has only two levels) is the CountyCourt (also known in some states as the District Court). These 33The c our t s ys t emDispute final 29/10/02 3:45 PM Page 33TABLE 3.1 JURI SDI CTI ONS OF THE COURTS I N AUSTRALI AACT Supreme Court Court of Appeal; criminal and civil trialsMagistrates Court Criminal, civil, traffic offences, Claims up to $50 000workers compensation, Victims of Crime and Childrens CourtNSW Supreme Court Court of Appeal; criminal, land and environment court; industrial relations commission; compensation courtDistrict Court Criminal; personal injury; damage Claims from $40 000 toto property; contract disputes; and $750 000debt recoveryLocal Court Criminal; juvenile; motor traffic; Civil recovery up to $40 000civil actions; some family law issues and coronial inquiriesNT Supreme Court Court of Criminal Appeal; civil and criminal trials; appeals form the Magistrates CourtLocal Court Local Court; Court of Summary Claims up to $100 000Jurisdiction; Juvenile Court; work health; Coroners Court andFamily CourtQld Supreme Court Court of Appeal; serious criminalmattersDistrict Court Civil disputes and criminal cases Civil recovery betweenincluding rape and armed robbery $50 000 and $250 000Magistrates Court Less serious offences; civil matters Civil recovery up to $50 000SA Supreme Court Court of Appeal; criminal, civil, land and valuation; admiralty and appellate causesDistrict Court Civil, administrative, and Motor vehicle related where disciplinary; criminal injuries; amount exceeds $60 000; compensation and criminal other actions where the divisions sum exceeds $30 000Magistrates Court Criminal; juvenile; motor traffic; Motor vehicle relatedcivil actions; some family law matters up to $60 000.; issues and coronial inquiries other actions where matters are below $30 00034Di s put e r es ol ut i on i n c ons t r uc t i on managementDispute final 29/10/02 3:45 PM Page 34Tas. Supreme Court Court of Appeal; serious criminal Jurisdiction in all mattersmatters; civil law matters over $20 000Magistrates Court Civil actions; criminal; Childrens Jurisdiction in matters and Family Court; small claims; under $20 000coronial; appealsVic. Supreme Court Court of Appeal; criminal and civilCounty Court Civil matters including all claims Except for personal injuryfor personal injuries. All criminal up to $200 000indictable offences except treason, murder and some related areas; appeals from the Magistrates CourtMagistrates Court Criminal; motor traffic matters; Disputes up to $40 000civil actions including motor vehicle accident claims; contractual and tortuous matters; and personal injury claimsWA Supreme Court Civil, criminal and appellant jurisdictionDistrict Court Civil, criminal and appellant Up to $250 000jurisdictionMagistrates Court Civil Up to $25 000Small claims Up to $3000Residential tenancy disputes Up to $6000Criminalwill hear both commercial and criminal cases. A judge and jurywill hear criminal cases. Most civil cases, including the majorityof building matters, will be heard by a judge sitting alone. Thelimits of this court are such that it will not generally hear thesmaller cases but will hear those above the maximum level asset by the Magistrates Court (see below). A common level isfrom $25 000 to $200 000 but this varies from jurisdiction tojurisdiction (refer to Table 3.1). In many states, this court hasalso adopted the use of a specialist list for building cases. Thisprovides the chance for the court to provide the parties initiallywith a judge who is (or quickly becomes) familiar with build-ing matters as well as the law, to undertake the first directionshearing. The main constraint at this level is the formality of thecourt system itself.35The c our t s ys t emDispute final 29/10/02 3:45 PM Page 35AUSTRALIAMagistrates or Local Courts It is the Magistrates Court that hears the majority of small valueconstruction disputes (with the proviso that they do not have togo to a specialist tribunal). As such it is important that the work-ing of this court is fully appreciated. It hears many cases, and anyone magistrate may hear a range of cases over a given period.Unlike the higher courts, most Magistrates Courts do not havea building cases list, although this is being considered in variousjurisdictions.This is the lowest level court, a fact reflected well by its physi-cal presence throughout each state: higher courts are located onlyin the major cities. The Court can sit as a number of special courts,including the Childrens Court, Workers Compensation Court,industrial division, employees relations and others depending onthe jurisdiction. These courts hear the majority of summaryoffence cases: traffic offences, breaches of local council bylaws,minor criminal cases such as drunkenness, family disturbances andcommittal proceedings for more serious cases. They usually sitwith a magistrate only. The financial limit for these courts is rela-tively low and varies according to the jurisdiction, but ranges from$25 000 to $50 000 in most cases. By agreement, and in accordancewith regulations, a higher financial level can be heard. The Rulesof Court in each jurisdiction cover the full working of the courtand include the Notice of Dispute, through claims and counter-claims and discovery. The Rules are such that evidence may begiven orally before the court, or in the form of sworn affidavits.The court may also view any place, process or thing. The Rulesallow for the use of witnesses and expert witnesses.In Victoria and other jurisdictions around the country, thesecourts require that any matter under $5000 must go first tocourt annexed arbitration, although there is flexibility with thisdepending on the nature of the complaint. The arbitration mustbe conducted by either a magistrate or a registrar and is notbound by rules of evidence, although the court representativemay inquire into any matter in such manner as they see fit. Theaward must be in writing, and although the summation doesnot have to include reasons for the decision