ALTERNATIVES IN DISPUTE RESOLUTION - MEDIATION

 

(Guest Editorial for "Construction Law")

 

The last few years have seen a period of of enormous change in construction law: new statutes for adjudication and arbitration, new civil procedure rules in the courts (Woolf reforms) and an important decision from the House of Lords affecting the choice between litigation and arbitration.

 

The Arbitration Act 1996 created a new regime in arbitration with procedures aimed at making arbitration more effective, streamlined and user-friendly. As soon as construction lawyers were up to speed with the new arbitration procedures, the House of Lords decided Beaufort Developments (Northern Ireland) Ltd v Gilbert-Ash Northern Ireland Limited and Others in 1998. The effect was that Judges do have jurisdiction to deal with extensions of time, opening up and revising decisions, certificates and opinions of Architects and Engineers under standard form construction contracts. Previously that had been the sole province of arbitrators since decision in the Court of Appeal, 14 years earlier, in Northern Regional Health Authority v Derek Crouch Construction Co Ltd. Suddenly, draftsmen were free to choose arbitration or litigation in construction contracts; we all began to consider whether arbitration was such a good idea after all. Even JCT 80 now contains alternative provisions for either arbitration or litigation.

 

Much has been written over the last 12 months about adjudication under the Housing Grants Construction & Regeneration Act 1996 (HGCRA) as a method of dispute resolution. Now that the dust has settled on all these changes, except as yet the new civil procedure rules in the courts, it is interesting to see where they have left other alternative methods of dispute resolution. The most used of those is mediation.

 

Mediation (and conciliation under the ICE Conciliation Procedure, which is similar) has a fundamentally different approach to traditional dispute resolution: in court or arbitration, the judge or the arbitrator decide the legal rights of the parties and declare them; those rights are then enforceable by further legal process if necessary. It is the availability of those legal rights that makes for a civilised society but they also create the environment in which mediation is possible.

 

Mediation on the other hand is a voluntary and confidential principled negotiation, held on a without prejudice basis, aided by a skilled neutral third party, the mediator.  The mediator’s role is to assist the parties to find their own solution; he is not there to impose his decision. Does it work? The answer to that question is an unequivocal yes. There is a high probability, amounting to about an 80% chance, that the dispute will settle either at the mediation or, if not, within a few days thereafter.

 

This all raises the question as to why mediation is such a successful process. The answer is simply that it is much closer to what commercial parties really want to achieve: settle their disputes satisfactorily, under their control, at minimum cost, on a basis that they can accept voluntarily, in a negotiating environment that they can understand. Some aspects of this can be easily seen by looking at the following points about mediation.

 

• Mediation brings to the forefront the commercial and other  interests of the parties, rather than just concentrating on their legal rights. That is not to say that legal rights are ignored; they are a very important background to a mediation. Interest based solutions are often found in successful mediations; business relationships can be re-built as part of the process - a result that is almost unheard of in court or arbitration proceedings. Lateral thinking can produce solutions that are unavailable in other dispute resolution methods; for example, funding part of a settlement payment by giving a discount on future supplies up to a fixed value, or agreeing to work together to tender in joint venture for a new project.

 

• The procedure in a mediation is flexible and easily understood by non-lawyers; arbitration, adjudication and court procedure is rigid (even after the new Arbitration Act, the HGCRA and the new civil procedure rules) and is almost completely lacking in transparency to non-lawyers.

 

• Mediation is consensual, not adversarial. The parties are in control of the process, not the lawyers. It is voluntary and either party can stop it at any time if they wish.

 

• In the context of the average construction dispute, the costs of mediation are tiny (a few thousand pounds, shared equally by the parties) compared with the massive, sometimes crippling, cost of running arbitration or litigation. After winning an award from the Centre for Dispute Resolution last year for exceptional commitment to mediation, Bill Pearce of insurers ITT London and Edinburgh said that more than £1 million had been saved in legal cost in one year through the use of mediation. By reason of the imposed procedure and necessary formality in statutory adjudication, the costs are likely to be much higher in adjudication than mediation.

 

• It is very quick indeed; most mediations last a day; a few are two days, and even fewer are three days. The lead time can be very short; if necessary, it can be just a few days - faster than the 28 days for statutory adjudication.

 

• Provided it is set up properly and governed by a carefully drafted mediation agreement, it is private, confidential and without prejudice; so no evidence of what has been said or done in the mediation, if it is unsuccessful, can subsequently be given in an arbitration or in court.

 

• Mediation enables each party to tell the other party directly (not the mediator) what their claims and grievances are. This is the equivalent of “having a day in court”. It is an important part of the process but it is also much cheaper and quicker to do it in mediation than it is to have a real day in court.

 

• A skilled mediator assists the parties to face the reality of their position in the dispute in an environment that is not threatening or judgmental. He can help to cut through previous failures in communication between the parties, personality clashes and the fact that peoples jobs may be on the line if litigation does not go well. Mediation inevitably brings the real decision makers into the dispute settlement process. All of this can bring about a successful settlement where previous negotiations have failed; it explains why mediation adds value to ordinary inter-party negotiation.

 

Even now, after the increasing success of mediation in the UK over the last few years, to many people mediation still sounds like something imported from the hippies of California. That view is at last beginning to be seen much less as the understanding of mediation increases in the construction industry, in its professions and amongst lawyers. The reality is that last year about 30% of the mediations handled by the Centre for Dispute Resolution were in the construction and engineering sectors.

 

The moral here is not to forget mediation as a primary dispute resolution method simply because there is so much talk currently of statutory adjudication, which is a blunt and inflexible instrument compared to mediation. Mediation in the UK is now a success story. The new civil procedure rules will increase that success. So the approach should change: do not ask whether a dispute is suitable for mediation; assume that it is, unless there are really good reasons for not using it.