Clause 47 of the Australian Standard AS 2124-1992 General Conditions provides that if a dispute arises, a party must give notice of the dispute and attempt to resolve the dispute before the matter is referred to litigation or arbitration.  This clause has recently been examined in Jamac Construction Group Pty Ltd v De Mol Investments Pty Ltd [2014] WASC 273.

The Court examined whether this clause prohibited a defendant in bringing a counterclaim if they had not previously raised the claim in accordance with Clause 47 and been through alternative dispute resolution procedures.

In Jamac, a payment claim was issued after the Contract was terminated due to frustration for works completed prior to the frustrating event; the payment claim was disputed and later became the subject of litigation.  De Mol Investments Pty Ltd (“De Mol”) produced a defence including various claims not previously raised during any of the prior dispute resolution processes.

Jamac Construction Group Pty Ltd (“Jamac”) applied to have any paragraph raising claims not previously raised in the dispute resolution process stuck out on the basis that De Mol had not addressed Clause 47 of the contract and therefore not entitled to raise these claims in the litigation.

The Court found that De Mol was not required to engage in the dispute resolution process for the claims made by way of set off or counterclaim and stated that:

“For this court to mandate that process to unfold at this late stage presents to me as pointless in the extreme. I would assess that as a significant triumph of form over substance.”

This case begins to clarify the confusion surrounding Clause 47 and what it means for parties engaged in litigation involving the AS2124-1992 General Conditions.

The implication of Jamac means the Court will not necessarily enforce the dispute resolution clauses of a contract if they result in significant and unnecessary delay to the litigation on foot, and a defendant is able to raise claims by way of set off or counterclaim despite not meeting the requirements of any such clause.

Parties are benefited by outlining precisely how they intend for the clause to operate both after termination of the contract and once litigation is on foot in specific terms in the contract.