Australia’s accession to the Hague Convention on Service Abroad of Judicial and Extrajudicial Documents in Civil and Commercial Matters 1965 (Convention) will streamline administrative procedures involved in transnational litigation. This welcome step will reduce many risks associated with transnational litigation, giving confidence to Australians engaged in international transactions.

• There is now less room for foreign defendants to challenge the validity of Australian court documents on technical grounds.
• It is easier for Australian litigants to prove valid overseas service to Australian courts.
• Australian defendants are more likely to receive notice of overseas proceedings which they are party to with sufficient time to defend themselves.

The service of documents internationally

'Service' of documents refers to the delivery of court authorised documents. This is an extremely important step in litigation, as it notifies the recipient that they are a defendant in court proceedings, and provides the court with jurisdiction to proceed with the matter.

For service to be valid, it must adhere to the rules of the court hearing the matter, and the jurisdiction of delivery. These rules can vary significantly between countries, making cross-border litigation complex, and prone to conflicts between differing legal systems. Consequently, the risks for parties involved can be high. If valid service does not reach a defendant, or does not reach them in time, default judgment may be awarded against them for failing to appear at the proceeding. For applicants, a failure to show that documents have been validly served within a required timeframe can prevent them from continuing with proceedings.

Before Australia's accession

Before Australia's accession to the Convention, Australian court documents were served through diplomatic channels or private agents, which often took months. The rules of the receiving country had to be researched to ensure compliance. A failure to adhere to these rules could render documents void, and in some countries, result in criminal penalties. Moreover, an irregularity in service could give the defendant an opportunity to challenge an Australian judgment handed down against them.

Similar problems were experienced by international litigants seeking to serve documents on Australian defendants. Consequently, Australian defendants to foreign litigation often received court documents with insufficient time to defend proceedings properly. This increased the risks of default judgment being handed down against them.

Given the increase in transactions in the international arena, it is important that unnecessary procedural risks are reduced. Australia's accession to the Convention is designed to reduce these risks.

Convention

Australia acceded to the Convention on 15 March 2010. The Convention aims to simplify the service of documents in civil disputes abroad. It does so by requiring member states to nominate a Central Authority which acts as the main channel for the service of documents between member countries. In Australia, the Central Authority is the Commonwealth Attorney-General's Department and the State Supreme Courts (with the exception of Queensland which has nominated its Department of Justice) are additional authorities.

There are 61 other members to the Convention. This includes many of Australia’s common trade partners, such as the China and the United States of America. Accordingly, the Convention affects a large proportion of international litigation.

Incoming documents

The Central Authority of each member country will receive requests for service from other member countries. It then returns either a certificate confirming valid service, or notification of ineffectual service (with reasons attached).

Outgoing documents

The Convention is mainly concerned with the incoming service of documents. Accordingly, member countries are responsible for determining how documents are sent to a Central Authority of another member country for service.

In Australia, an application to serve documents abroad may now be made to the Registrar of an Australian Federal or state Supreme Court. The court will then send the documents to the receiving country's Central Authority, who will serve the documents in accordance with the required procedures of that country. This process ensures that service is valid and timely.

Default judgments

The Convention also provides additional protection to defendants against default judgments. It does so by ensuring that a defendant is actually served documents with sufficient time before default judgment is given.

Final comments

The process for serving documents on international litigants has been harmonised into a simple application to an Australian court. Additionally, the process for receiving documents relating to foreign litigation is simplified so that it is administered through one channel. This will save time, money, and reduce the risks of transitional litigation. As a result, litigation is a more viable option for international dispute resolution, and ultimately, the risks of international transactions are reduced.

For further information please contact:

Peter Wood, Partner
T: +61 3 8608 2537
peter.wood@minterellison.com

• get the expert determination clauses right otherwise you may find them unenforceable and/or become involved in lengthy and costly disputes – about the clause!
• follow the agreed process – failure to do so may mean you spend more time arguing about how the clause operates than resolving the dispute
• do not manipulate the procedure for your own ends

Changing the rules

A good expert determination clause sets out the procedure to be followed. If you change the rules, you might find yourself fighting about not only the subject matter of the dispute, but the process as well.

A chilling example of the sorts of problems that can arise is seen in the disputes between Northbuild Constructions Pty Ltd (Northbuild) and Discovery Beach Project Pty Ltd (DBP). Northbuild and DBP have been in and out of the courts since 2004, with the most recent judgment handed down on 31 March 2010. Although the contract contained an expert determination clause, and the parties have attempted to use it, not one of the disputes referred to an expert has yet been resolved.

This is partly due to the fact that the parties changed the procedure for expert determination which was set out in the contract. These changes occurred in an haphazard way, documented in correspondence and the minutes of meetings. The result has been that the parties have spent more time arguing about how the dispute resolution clause operates than about the matters in dispute.

The 'patchwork quilt'

The contract contained a dispute resolution procedure in the special conditions which conflicted with the procedure specified in the general conditions. This was the cause of problems seen in the recent South Australian case of Abigroup Contractors Pty Ltd v Hardesty and Hanover International LLC (2009). The result was that the parties found themselves without any real guidance on how to run the expert determination – which resulted in the parties having the procedure determined rather than the substance of the dispute.

The manipulation of the threshold

The Abigroup case is also an example of a party trying to manipulate the clause to suit its own ends. The contract provided a tiered dispute resolution process of good faith negotiations followed by referral by both parties to expert determination. The general conditions also provided that only awards which did not exceed $500,000 were binding. The parties agreed that the mediation had replaced the negotiation stage. The mediation failed to resolve the disputes so HHI unilaterally referred some of the dispute to determination by the expert (not in conformance with the specified procedure). Rather than refer the whole dispute which had been mediated, HHI only referred certain claims. Coincidentally, these claims resulted in a determination of $160 less than the $500,000 threshold.

Abigroup claimed that the expert determinations were an abuse of the agreed process – that HHI had contrived the claims it referred to the expert so they fell within the enforceability limit. The court agreed that the method used by HHI was a 'contrivance'. The mediation provided the delineation for the dispute – the claim could not be changed after the mediation.

What should you do to ensure an effective expert determination?

To minimise the risk of ending up fighting about the clause:

• make sure your expert determination clause is properly drafted before you sign the contract
• some of the main elements of a well drafted expert determination clause include:
  • identification of the dispute and reference of the dispute to expert determination
  • a proper procedure – use an industry procedure if you don't want to draft from scratch
  • appointment of the expert by an existing third party body (or replacement body) if the parties can't agree
  • is it final and binding? If a threshold is to be used be careful to avoid possible manipulation
• don't change the rules when a dispute occurs, or if you do, document it in a written agreement signed by the parties
• don't try to manipulate the process – the courts will know!
• be alert to attempts by the other party to manipulate the process.

For further information please contact:

Jennifer McVeigh, Consultant
T: +61 3119 6519
jennifer.mcveigh@minterellison.com

Karen Beattie, Lawyer
T: +61 3119 6495
karen.beattie@minterellison.com

Although it is clear that an arbitrator must include a statement of the reasons for which an award is made, there are now competing lines of authority throughout Australia as to the level of detailed required.

Recent decisions of the New South Wales Court of Appeal and the Supreme Court of Queensland diverge from the judgement of the Court of Appeal in Victoria in Oil Basins Limited v BHP Billiton Limited (2007) 18 VR 346.

For further information please contact:

Jennifer McVeigh, Consultant
T: +61 3119 6519
jennifer.mcveigh@minterellison.com

A recent study conducted by the Cooperative Research Centre for Construction Innovation (CRC) into dispute avoidance and resolution in the construction industry has resulted in the CRC launching its Guide to Leading Practice for Dispute Avoidance and Resolution (the Guide) in November 2009.

Cultural change is the key

The study found that without cultural change being led from the top it is unlikely that there will be a reduction in disputes arising from construction projects, according to research conducted by the CRC for Construction Innovation.

The aim of the research was to identify strategies to avoid contractual disputes and where disputes could not be avoided, to manage disputes more effectively. The strategies are intended to be applied to every project, regardless of size, delivery strategy or location.

Why does it matter?

Disputes cost money. The CRC's project team estimated an industry wide weighted average value of avoidable costs that end up in dispute of about 5.9% of contract price. The costs are direct - legal services, arbitration, consultants and in house resources – and indirect - delays to the project, adverse performance of the project, reduced morale, erosion of confidence and trust in working relationships, adverse reputational impact, emotional impact on people involved, lost opportunities for future work, destruction of business relationships and the loss of people to the industry because of wasted effort, disillusionment and frustration.

What can be done?

The CRC research has shown that strategic decisions substantially determine the project environment or culture and the manner in which the project team is conditioned to behave. They are at the heart of whether a collaborative approach to the project is possible. In many cases the project's sponsors do not make a deliberate decision regarding these matters. The common 'business as usual' or default position is borne of previous experience or professional advice. The Guide points to cultural issues that need to be addressed to effect change – based on improvement in communication and leadership.

The causes of disputes are often the downstream consequences of decisions made by a project sponsor during project initiation. While everyone engaged on a project has a role to play, the ability of designers and contractors to play that role is largely determined by the commercial framework of risk allocation and contract conditions imposed by project sponsors.

While studies of 'excellent' projects show that they use a mix of procurement strategies, the common feature is that they have a strong focus on informed client leadership to create a project environment within which all parties are able to focus on common project objectives while enjoying working together.

Underlying Principles of effective issue resolution

Regardless of the issue resolution process adopted for a particular project, the CRC's research indicates that the underlying principles of effective issue resolution can be reduced to 5 key points:

1. ensuring that the contract embodies a process to resolve issues at the lowest appropriate level
2. if necessary, escalation of issues to a more senior level and if need be, to the most senior level
3. employing every endeavour to resolve issues by negotiation without involvement of lawyers
4. using skilled facilitators to assist in resolving issues, and
5. if formal dispute resolution is inevitable, selecting the most appropriate method to achieve an early, cheap and non-project disruptive solution.

Naturally, all of these matters must be considered at the time of entry into the contract, not when a dispute arises.

Drafting risk shifting contract conditions is not the solution

The CRC research indicates that risk averse contracts which attempt to transfer risk of matters within the control or influence of the party transferring the risk are entirely counter productive and lead directly and indirectly to project inefficiency, delays, costs, quality issues and disputes.

The CRC research also indicates that it is preferable that clients remain engaged with risk management throughout the life of the project.

We recommend that this be taken into consideration when negotiating contract conditions.

Conclusion

For long term participants in the construction industry the results of the CRC's research holds no surprises. The guidelines appear eminently sensible. The challenge is to invest the necessary time into communication and strategic decision making.

To paraphrase Albert Einstein, if the construction industry keeps doing the same thing over and over again it cannot expect different results.

For further information please contact:

Jennifer McVeigh, Consultant
T: +61 3119 6519
jennifer.mcveigh@minterellison.com