Many commercial contracts, including those between building managers, facilities managers, caretakers, strata managers and Owners Corporations, have a clause buried towards the end of the contract that sets out a process for resolving disputes.
In my experience it is all too common for parties to ignore the contractual dispute resolution processes set out in their contract and to rush to litigation whether due to heightened emotions, a misunderstanding or lack of knowledge about the process or incomplete legal advice. This can be expensive and lead to unexpected costs consequences.
A recent case saw a strata manager commence legal proceedings for an alleged breach of contract by an Owners Corporation responsible for the management of a unit complex for aged and disabled residents. When a dispute arose, the management agreement required the parties to use their best endeavours to resolve the dispute by meeting regularly and attending negotiation and, if that failed, to appoint an arbitrator who would act as an expert to make a determination in writing to resolve the dispute. Under the contract both parties would share the cost of this process.
The Owners Corporation successfully defended the claim by the strata manager. However, its conduct in refusing to take part in the alternative dispute resolution process (in this case an expert determination) was found to have caused unnecessary legal proceedings. As a result the question of legal costs became an issue.
What are the potential cost consequences of refusing to participate in ADR?
The District Court found that the failure of the Owners Corporation to participate in the expert determination was “a significant factor” when exercising its discretion to award costs. By itself however it was not sufficient reason to deprive the successful Owners Corporation of its costs. Something more such as misconduct, destruction of evidence or other improper conduct was required.
Taking into consideration the strength of the Owners Corporation’s case, the nature of the dispute and the evidence, the Court awarded the Owners Corporation one third of its costs. This is significantly less than a successful party would generally be awarded.
If your Owners Corporation has a dispute it should review the relevant contract and obtain prompt legal advice remembering that litigation is not always the answer or the only answer to a dispute.
Author: Allison Benson
Date: 20 May 2014