Disputing parties will typically have access to the Australian court system[1] to seek resolution of disputes under a consultancy agreement; however there are other forms of dispute resolution which can be contemplated in the consultancy agreement.  Parties will be held by the Court to resolve disputes as prescribed in the consultancy agreement, unless there is persuasive evidence which would preclude that agreed manner (see the decision of Santos Limited v Flour Australia Pty Ltd [2016] QSC 129).

Think about the section in your consultancy agreement(s) which deal with dispute resolution. Chances are, there will be differences in the way consultancy agreements approach dispute resolution and you could be agreeing to an alternative dispute regime (known as ‘ADR’), such as expert determination or arbitration, which may disadvantage you and your professional indemnity insurer and make it more difficult to defend claims successfully.

Let’s consider arbitration. This ADR method is essentially the agreed submission of a dispute by its parties to a third party for a determination by which the parties agree to be bound. Unlike resolving a dispute through the Australian court system, the parties largely control this process. Some of the perceived benefits of arbitration include:

• level of privacy (generally not published);
• neutrality (relevant for international dispute between parties from different jurisdictions);
• flexibility (location of arbitration and what law/rules will govern the process); and
• time (proceedings can be scheduled quickly).

That being said, from risk management, claims management and professional indemnity insurance perspectives, it may well be an unsuitable dispute resolution method compared with the Australian court system. For example, in construction disputes, given the number of parties typically involved in the project, it is often necessary to join concurrent wrongdoers (other responsible parties) to a dispute. Arbitration typically will not allow for such parties to be joined.

You may therefore be found liable for more than your share of the loss and thereafter have to incur the cost of commencing separate proceedings against the concurrent wrongdoer(s) (for example, your sub-consultant architect or engineer). This is a time consuming and expensive process which could be considered to be an assumed liability and a waiver of rights – common, and broad, exclusions in professional indemnity insurance policies.

There are also limited appeal avenues at arbitration.  While some clients push for arbitration citing, for example, efficiency reasons, for others it is a deliberate strategy (i.e. to deprive you of the protection of proportionate liability – see the Western Australian Supreme Court decision of Curtin University of Technology v Woods Bagot Pty Ltd [2012] WASC 449).

For these reasons, it is advisable to pay attention to your dispute resolution clauses.  We suggest you keep ADR as a non-binding option for settling disputes whilst also reserving the right to use the Australian court system if necessary. For further reading, see our Practice Guides on Dispute Resolution and Proportionate Liability.

Hayley Landers

Risk Manager informed

[1] assuming the contracting parties are subject to this jurisdiction