Mediation can be a quick and cost-effective way of resolving construction disputes, but there are pros and cons to this course of action.
Following a recent reform of the civil justice system suggested by the government, this is an appropriate time for claimants and defendants alike to think about mediation.
All small claims under £5,000 will now initially be automatically referred to mediation. Some critics are describing the government’s proposals as akin to making parties participate in a compulsory mediation, which they say is in contravention of human rights law. Others are less sceptical.
All construction contracts must adhere to the pre-action protocol for construction and engineering disputes, which details the steps a party must take to try to resolve the matter before proceeding with litigation.
Mediation encouraged by TCC
Mediation is one of the most popular alternative dispute resolution methods. The parties appoint a neutral individual (the mediator), who facilitates communication between them, in order to achieve a resolution that is mutually acceptable to both parties.
“It has been reported that 91 per cent of mediations are undertaken on the parties’ own initiative”
It is widely viewed that construction disputes are suited to mediation – so much so that there is strong judicial encouragement from the Technology and Construction Court.
Mediation is a quick and confidential process where parties have control over the outcome and timescale. It has been reported that 91 per cent of mediations are undertaken on the parties’ own initiative.
Focus on interests not just rights
The focus of the process is on the interests of the parties rather than their legal rights alone, so factors such as business relationships or maintaining reputation can be taken into account as necessary.
It is a conciliatory process that can assist in re-establishing lines of communication in a broken business relationship, as well as being a very flexible process.
“The process of mediation allows both parties to explain their position and attempt to negotiate through it with the help of the mediator”
Within construction it is often the case that disputes arise due to a breakdown in communication or disagreement between the parties. The process of mediation allows both parties to explain their position and attempt to negotiate through it with the help of the mediator.
In 2009, Lord Justice Jackson said that mediation was an excellent way to prevent the costs of construction litigation from exploding, and indeed it is a valuable and cost-saving mechanism when properly used.
- Costs savings In relation to costs, a survey – The Use of Mediation in Construction Disputes – showed that 76 per cent of mediations resulted in savings of more than £25,000, while 9 per cent of survey respondents indicated that they had saved more than £300,000 in costs as a result of mediation.
- Time savings As less time is spent on the dispute (if settled), parties save valuable management time.
- Confidentiality Mediation keeps the case out of the public eye, which is useful for companies concerned about how litigation will affect their reputation.
- Maintaining business relationships The co-operative and conciliatory nature, and the fact it is undertaken under the parties’ own initiative, mean the focus is on achieving a resolution satisfactory to both parties, which in turn means that bad relations are less likely, and the parties may be more likely to work together in the future than if they had fought the dispute through litigation or arbitration.
- Pressure to settle Mediation can also be used as a fishing expedition to “force” a party to accept a very low settlement offer.
- Perception of weakness Parties are sometimes concerned that their opponent will see them as having a weak case or that they are admitting liability.
- Confidentiality Some may see the confidentiality of the process as a disadvantage, especially if the claimant wants bad publicity for the defendant.
- Cost savings The perceived benefits can sometimes be misleading. Although the costs of mediation are lower than that of litigation, they can sometimes be viewed as an unnecessary waste of time and money which could lead to incurring additional costs if the mediation is unsuccessful in achieving an agreeable settlement or solution for both parties.
One final point both parties should bear in mind is that the consequences of failing to mediate (or attempt any other method of alternative dispute resolution), as required by any pre-action protocol for construction and engineering disputes, may involve an adverse costs order.
The court will consider any refusal to mediate seriously, so parties should ensure that their stance for refusal is reasonable.
Bill Barton is a partner at Barton Legal