What kind of dispute are you signing up for? Enforcement of dispute resolution clauses in construction contracts

The recent South Australian decisions in Dexus SAHMRI2 Pty Ltd v South Australian Health and Medical Research Institute Ltd and McMahon Services Australia Pty Ltd v Minister for Infrastructure and Transport highlight the need for parties to construction contracts to pay careful attention to the drafting of dispute resolution clauses and properly consider whether the clause is fit for purpose and provides an appropriate mechanism for resolving any future disputes, prior to entering into the contract. This article provides an overview of the circumstances in which courts will enforce dispute resolution clauses, and some practical steps that parties to construction contracts can take to draft effective dispute resolution clauses.

How dispute resolution clauses are enforced by the courts

Most construction contracts contain a dispute resolution clause setting out the procedure to be followed if a dispute arises. These clauses usually provide several steps through which a dispute can be escalated: for example, a meeting between the parties’ senior leadership, prior to more formal alternative dispute resolution procedures, such as arbitration or expert determination, then finally litigation in court.

When a dispute does arise, one party sometimes commences court proceedings rather than follows the contractual dispute resolution procedure. If the other party disagrees with that course of action and wishes to comply with the contractual dispute resolution procedure, its recourse is to apply for the court proceedings to be stayed. Authorities demonstrate that the manner in which the Court will determine this application is dependent on the type of contractual dispute resolution clause under consideration.

Arbitration clauses

Arbitration clauses are governed by the national arbitration legislation: in South Australia, the relevant legislation is the Commercial Arbitration Act 2011 (SA) for domestic commercial arbitrations,[1] and the International Arbitration Act 1974 (Cth) for international commercial arbitrations.

Under the Commercial Arbitration Act 2011 (SA), if a party commences court proceedings in breach of a valid domestic commercial arbitration agreement (which includes an arbitration clause in a contract), the other party can request that the court refer the matter to arbitration. This request can be made at any time before the requesting party has submitted its ‘first statement of the substance of the dispute’, which would usually be its defence. Once a request is made, the court must refer the matter to arbitration, unless the court finds that the arbitration agreement is null and void, inoperative, or incapable of being performed.

Other dispute resolution clauses

The court has a discretion to stay proceedings commenced in breach of any non-arbitration dispute resolution clause, including clauses requiring negotiation, mediation, or expert determination.

When determining a stay application, the court’s starting point is that there is a “strong bias” in favour of holding the parties to the dispute resolution procedure they contracted for. The onus is on the party who commenced the court proceedings to establish that the dispute is not amenable to resolution by the contractual procedure, such that there is a good reason to refuse a stay.[2]

Circumstances that may favour the refusal of a stay include:

• The contractual procedure provides for expert determination by an unsuitable expert – for example, if the dispute resolution clause requires expert determination by a technical construction expert, but the dispute involves complex questions of law.
• The contractual procedure is not designed to determine the type of dispute – for example, if the dispute resolution procedure is an expedited or simplified process that is not intended to apply to large or complex disputes.
• The contractual procedure can only resolve part of the dispute, and/or would result in duplication of proceedings – for example, if the dispute resolution clause only applies to part of the dispute, the dispute involves someone who is not a party to the contract, or the dispute would inevitably proceed to litigation anyway.

Case study 1: Dexus SAHMRI2 Pty Ltd v South Australian Health and Medical Research Institute Ltd [2025] SASC 61

This case concerned a contract for the construction of SAHMRI’s new proton therapy facility. The parties to the contract were the applicant Dexus (the owner of the facility building) and the respondents SAHMRI and ABC (a subsidiary of SAHMRI). Once construction was complete and a Certificate of Occupancy was issued, Dexus was to provide lease agreements, and SAHMRI and ABC were to return executed copies of the agreements within five business days.

After construction was complete, Dexus commenced proceedings in the Supreme Court of South Australia, claiming that SAHMRI and ABC had failed to provide executed leases as required by the contract. SAHMRI and ABC sought a stay of the proceedings, on the basis that Dexus had not referred the dispute to expert determination pursuant to the contract’s dispute resolution clause.

His Honour B Doyle J rejected the respondents’ application, declining to stay the proceedings. His Honour’s reasons for refusing a stay included:

• Dexus was not seeking monetary compensation. Rather, it was seeking an order for specific performance or an injunction requiring the respondents to provide the leases, being remedies that can only be granted by a court. If Dexus went through the contractual expert determination procedure and the expert found in Dexus’s favour, Dexus may still have needed to seek specific performance or an injunction in court, which would have required the court to engage in ‘independent discretionary consideration, in a way that would not be required in relation to a monetary award’.[3]
• The contractual expert determination procedure required the expert to deliver their determination within 20 business days of their appointment. The scope of the dispute was such that it would be difficult for the expert to meet this deadline while also providing procedural fairness to the parties.[4]
• The issues in dispute were mostly legal issues, rather than issues requiring technical expertise to resolve. Hence, the dispute was overall ‘equally if not better suited to determination by the Court than by an expert’, particularly given the greater fact-finding powers available to the Court (such as issuing subpoenas, and formally taking evidence from witnesses).[5]
• There was a period of approximately one and a half months before Dexus commenced the proceedings, during which the respondents were contractually entitled to refer the dispute to expert determination but failed to do so.[6] The respondents had also failed to identify any contractual basis for not executing the leases, which led to Dexus taking the position that there was no dispute to which the contractual dispute resolution clause applied.[7]
• In all of the above circumstances, the dispute was ‘not one in respect of which expert determination is likely to offer any particular advantage, and it is affected by potential disadvantages of duplication and therefore delay (and wasted cost)’. [8]

Case study 2: McMahon Services Australia Pty Ltd v Minister for Infrastructure and Transport [2026] SASC 46

This case concerned a contract for the construction by the applicant contractor of new berthing facilities for the Kangaroo Island ferries. The contractor made several variation and delay claims against the principal.

The contractor commenced proceedings in the Supreme Court of South Australia. The principal, represented by LK Law, sought a stay of the proceedings, on the basis that the contractor had not complied with the expert determination procedure in the contract’s dispute resolution clause.

Auxiliary Justice Dart granted the stay sought by the principal. His Honour’s reasons for doing so included:

• The contractor argued that the expert determination procedure would not ‘produce a fair outcome because there is no provision for the making of discovery and no ability to cross-examine witnesses in circumstances where there may be a conflict in the evidence’.[9] However, this is a feature of any expert determination process, which is what the parties contracted for. ‘The consequence of agreeing to a streamlined process for the determination of disputes is that the full range of procedures available in litigation in court are not available.”[10]
• As to discovery of documents, the contract did allow the expert to request information (including documents) from the parties. The expert could therefore request further documents if he was not satisfied that he had the necessary documents to make a determination.[11]
• As to cross-examination of witnesses, in circumstances where the dispute was essentially about entitlement to variations for additional work allegedly performed, the inability to cross-examine witnesses was not ‘so significant as to make the expert determination process inappropriate or unfair’.[12]
• The parties had selected an appropriate expert, being a retired judge who would presumably ‘know what it is that he needs from the parties to adjudicate fairly on their dispute’.[13]

Considerations for drafting dispute resolution clauses

For contracting parties, the cases discussed above highlight the importance of giving consideration to the details of the dispute resolution clause, to ensure that it is appropriate for the types of dispute most likely to arise on the project. In particular, parties should have regard to the scale and complexities of the specific project and consider factors including:

• To what disputes does the dispute resolution clause apply? Is the application of the clause clear and certain, but also sufficiently broad to capture all disputes that are likely to arise on the project?
• What alternative dispute resolution mechanisms (e.g. negotiation, mediation, expert determination or arbitration) are included? Are these the most efficient and appropriate mechanisms for resolving any disputes that are likely to arise on the project noting the specifics of the project? Does the clause clearly explain the process by which a dispute is escalated from one mechanism to the next?
• If the dispute resolution clause includes expert determination:
  • Are the provisions regarding the selection of an expert (or panel of experts) broad enough to allow the selection of an appropriate expert for any dispute that is likely to arise on the project (e.g. a technical expert for a technical construction dispute, or a lawyer, barrister, or retired judge with specific experience in construction projects)?
  • If there are specified timeframes for any procedural steps, such as submissions by the parties or delivery of the expert’s determination, are these timeframes reasonable and proportionate in light of the potential value and complexity of disputes on the project? Is there provision for these timeframes to be extended by the expert if necessary?
  • Does the expert determination procedure include mechanisms for the gathering of evidence, such as powers for the expert to request documents, hear oral evidence, or hold informal meetings with the parties? Overall, are these mechanisms adequate in light of the potential value and complexity of the disputes on the project?
• In what circumstances are the parties expressly permitted to proceed to litigation (either before or after the completion of the alternative dispute resolution mechanisms)? For example, if the dispute resolution clause includes expert determination, is there a certain claim value or determination value above which the expert determination is no longer final and binding on the parties; if so, how are non-monetary claims dealt with?

Particularly for medium to large projects, a contracting party should seek advice on the drafting of the dispute resolution clause from a lawyer with experience in construction dispute resolution and litigation.

If you have a query about a dispute resolution clause in a contract you are negotiating, or a contract that is already on foot, please reach out to the authors to discuss.

[1] ‘Domestic commercial arbitration’ is defined in section 1(3) of the Act.

[2] See discussion in Dexus SAHMRI2 Pty Ltd v South Australian Health and Medical Research Institute Ltd [2025] SASC 61 at [18]-[22].

[3] Dexus at [26]-[27], [105]-[111], [127].

[4] Dexus at [115]-[119].

[5] Dexus at [112]-[114], [129].

[6] Dexus at [123].

[7] Dexus at [102]-[103], [125].

[8] Dexus at [130].

[9] McMahon Services at [29].

[10] McMahon Services at [25], [37].

[11] McMahon Services at [36].

[12] McMahon Services at [37].

[13] McMahon Services at [44].