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Mediation of Construction Disputes – 5 Tips for a Successful Mediation

July 3, 2013 | Construction, Dispute Resolution, Litigation

Mediation is a flexible and confidential form of alternative dispute resolution (ADR) and is now considered to be the primary method of ADR. It is most commonly used to contain conflicts or to resolve disputes and is less litigious than other methods of resolution. Thus, it is seen as an effective tool for facilitating communication between parties and achieving a mutually acceptable result. It has been shown that 90% of cases settle before trial, indicating how effective mediation can be.

The Mediation Process – 5 Key Tips

1. How to begin – mediation is usually entered into in two ways: either on a voluntary basis, often by suggesting to the other party that proceedings will be commenced, but that mediation could be used instead, or where previously contracted to do so through a mediation clause in a contract, which is strongly recommended as it avoids disagreement about whether or not to mediate. Always look for an early opportunity to mediate, that way costs will be minimised and this will not prove an obstacle to settlement.

2. Preparation – it is imperative to gain a full understanding of the case, what the aims are and how these can be achieved. A clear well-formulated strategy for negotiations should be created. Identify the weaknesses in the other side’s case which may be exploited. A position statement must be drafted which will detail, briefly, the dispute and the claim; keep it positive.

3. Appointing the mediator – the right mediator can be one of the most important factors in a successful mediation; seek recommendations as to who to appoint and suggest one is chosen from a selection of three reputable recommended mediators. It is better for the parties to agree on the appointment of a mediator rather than have a third party nominate one.

4. Negotiation tactics – on the day decide how to present the opening statement, but be brief. Encourage a structured focus to the negotiations, identifying key issues to be resolved and the best individuals in the team to do this. Time on the day is limited; do not waste it, instead, set a timetable for having the first offer and maintain pressure to reach a conclusion. Be proactive throughout.

5. Concluding the mediation – it is vital to have a settlement agreement drafted beforehand on a laptop (for ease of amendment) and available at the mediation after matters have been concluded. This allows the settlement to be signed immediately, keeping both time and costs reduced. Where a resolution is reached and signed it will generally be enforceable by the court.

What Claims is Mediation Suitable for?

In 2010 Lord Justice Jackson, a leading technology and construction judge, noted that, with regard to small, low value construction disputes, mediation is strongly recommended and advised where conventional negotiation methods have failed.

Mediation is particularly well suited to construction disputes because they tend to occur as a result of a breakdown in communication between the parties and, as such, mediation provides the setting for parties to communicate and negotiate effectively though a neutral third party.

Costs of Mediation

The division of costs can be agreed between the parties. The most common approach is to share the mediator’s fees and other general expenses and costs. Costs may be divided more creatively and in some circumstances one party may agree to bear the costs in a bid to encourage the other party to mediate.

Increasingly parties are agreeing that, where mediations fails, the court should order the losing party to pay for the legal costs of the opposition (including mediation costs). Thus it is even more imperative to work towards a settlement during the mediation.

Advantages of Mediation

1. The principal advantage of mediation is that it avoids the high costs and lengthy process associated with bringing, or defending, court proceedings.

2. Mediation can be introduced at any time, making it useful for avoiding escalating conflicts. Thus, mediation also helps to preserve working relationships, as well as facilitating amicable terminations.

3. Parties retain a significant level of autonomy and have a much higher degree of control over the proceedings and the settlement than would otherwise be achieved in court proceedings.

4. The presence of a neutral third party allows each party’s understanding of their case to be tested, providing the opportunity for parties to re-evaluate their approach and, where appropriate, to consider various alternatives.

5. Mediation proceedings are generally conducted “without prejudice”, which means that the documents produced for mediation cannot be disclosed in later proceedings and a party cannot rely on what was said by the other party, or mediator, if the case does not settle.

6. Parties can request various actions, including restructuring of existing contracts, structured payment terms and even apologies. Mediation is often successful as it takes into account the personal and commercial interests of both parties. Mediation settlements usually have a high degree of longevity, given that they are constructed by the parties.

7. Mediation has a significantly high success rate. In 2012 CEDR’s Fifth Mediation Audit recorded that 70% of mediations settled on the day, with 20% settling shortly after. It strongly appears that mediation is an accomplished tried and tested method of ADR.

Disadvantages of Mediation

In some cases mediation cannot resolve the issue. For example, if a decision of the court is required on the interpretation of a contract term, that is not an appropriate issue to be resolved in mediation.

Normally mediation will take place once direct negotiations have failed, so it could be suggested that mediation will not succeed where negotiation could not. However, the imposition of a neutral third party creates a problem-solving focus which overcomes the traditional problem of parties becoming defensive and entrenched in their own position.

If mediation does not settle there is often the feeling that both time and money have gone to waste. Nonetheless, in practice, a failed mediation can generate alternative options which can be discussed after the mediation. Accordingly, a high proportion of failed mediations still go on to settle shortly afterwards.

The Courts’ Opinion of Mediation

The Technology and Construction Court (TCC) is a firm advocate of the effectiveness of mediation with regard to construction disputes; a view endorsed by the regular courts. The TCC issued guidance in 2010 which further endorsed ADR: “The court will provide encouragement to the parties to use alternative dispute resolution and will, whenever appropriate, facilitate the use of such a procedure.” This is indicative of the positive view taken of mediation by the court with regard to settling disputes in a non-litigious cost-effective environment. Overall, mediation is supported by courts and judges and should be considered by disputing parties before a decision to litigate is made.

Refusals to Mediate

Case law on the subject suggests that a party who refuses, without good reason, to mediate may face cost sanctions. This illustrates the courts’ preference for ADR. Significantly, where a party is deemed to have acted unreasonably during the course of mediation, causing it to fail, the final court-imposed settlement may be reduced accordingly. In 2008 a judge made such an alteration, imposing a 20% reduction of the costs recoverable on the party whose conduct was considered to be unreasonable.

To avoid such penalties, parties must work with the independent mediator to reach a shared agreement, rather than adopting an adversarial stance.

 

This article contains information of general interest about current legal issues, but does not provide legal advice. It is prepared for the general information of our clients and other interested parties. This article should not be relied upon in any specific situation without appropriate legal advice. If you require legal advice on any of the issues raised in this article, please contact one of our specialist construction lawyers.

Wakefield Office

17 Navigation Court
Calder Park
Wakefield
West Yorkshire
WF2 7BJ
Tel: 01924 258719
Fax: 01924 257666
enquiries@hklegal.co.uk

London Office

28 Queen Street
London
EC4R 1BB
enquiries@hklegal.co.uk