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Constructing an Agreement – Mediation in the Construction Industry

 In News

Written by IDR Members; Chris Bryden and Georgia Whiting of 4 King’s Bench Walk.

Chris Bryden and Georgia Whiting of 4 King’s Bench Walk lament the industry’s reluctance to adopt mediation more enthusiastically than it has. There is much to gain, and little to lose, by using mediation to resolve disputes, they argue.

The construction industry has historically been relatively hesitant to utilise mediation as a mechanism for resolution of disputes that arise, perhaps being fearful of the prospect that a statutory adjudication could be commenced prior to a mediation taking place (ambushing one party) or a fear that information exchanged in a mediation could be used to a tactical advantage
in the event that settlement is not agreed. This article seeks to dispel some of the common myths surrounding mediation and seeks to persuade practitioners and industry professionals alike, that mediation of construction disputes as an alternative to arbitration or litigation, has a number of advantages; now, perhaps, more than ever.

What is Mediation?

Mediation is, in essence, an assisted negotiation process overseen by a neutral third party mediator. It is a voluntary and confidential process, and remains non-binding until a legally binding settlement agreement is drawn up and signed by the parties (which may also include a Tomlin Order if there are proceedings extant).

Parties are often represented by lawyers at the mediation (usually lasting one day, though multiday mediations can be necessary) although such representation is not absolutely necessary (that said, as practising barristers often instructed to act in (or in the case of Georgia Whiting able to conduct) mediations, we would beg to differ!). The process is managed by the mediator, with a mixture of joint meetings and meetings between the mediator and one party at a time.

The beauty of a mediation is, whilst there is a usual process to be followed, it is entirely flexible and can be adapted to the needs of the parties (for example an initial plenary session where all parties are brought together is often dispensed with if it is considered to be unhelpful for the protagonists to physically meet or to see each other remotely over a screen).

The other significant benefit is that everything said in a mediation is absolutely without prejudice and subject to mediation privilege and confidentiality requirements set out in the mediation agreement, unless and until a binding agreement has been reached. That extends to what parties tell the mediator in private sessions, which can only be disclosed to the other side with express permission.

Why Mediate?

Construction disputes can carry with them a number of different types of cost, from the cost of a damaged business relationship, to reputational damage if an award or judgment is published, to the financial cost of any litigated dispute, to an emotional cost.

On the other hand, mediation has the scope to offer the parties far more than a court or an arbitrator can award them, often being limited to monetary remedies or injunctions. Instead, a mediated agreement, once legally binding, can include a multitude of other factors which add value to the parties. For example, any settlement can include deferred payments, discounts on future work, confidentiality provisions, even a joint venture moving forward. Such options add value and, importantly, can preserve an on-going commercial relationship.

More than that, many mediations take place over a day, which of course is a drop in the ocean both in terms of time and cost compared to court proceedings or an arbitration. In contrast, little is lost over a mediation which does not conclude in a settlement – the dialogue will remain confidential, and with a good mediator presiding, the dialogue and negotiations may well continue after the day is over, potentially leading to a settlement down the line. The Centre for Effective Dispute Resolution (“CEDR”) recently published statistics in this regard, reporting that, in 2020, 72% of mediations ended with settlement on the day, and a further 21% shortly after the mediation took place. Mediation is therefore an effective tool widely used in commercial and personal disputes, and it is incongruous that the construction sector has not made more use of mediation as a tool to reach an early compromise in respect of a dispute that has arisen.

However complex a dispute may legally be, mediation affords the parties the opportunity to consider creative solutions, facilitated by a mediator who is likely to have been selected because of experience in the field of construction, whether as a legal professional or an industry figure (or both). Whilst the mediator does not take on the role of a Judge, a good mediator may make suggestions and will “stress test” the parties’ respective positions, with their goal being the reaching of an outcome that both parties (or all parties) can live with.

Post Covid-19

One silver lining to have come out of the Covid pandemic ( for lawyers at least) has been the very swift pace at which the legal profession has had to adapt to remote working. Many mediations are now held remotely by Zoom and, it is envisaged by the authors, this is not a trend likely to go away. The flexibility this gives the parties, especially in a cross-border context, is a key benefit to a mediation, which can be held with even more flexibility and ease than previously was the case.

Further, as a result of the “teething problems” regarding technology and the Courts, amongst other hangovers from the pandemic, there is a significant backlog in the Courts. In contrast, parties wishing to mediate can do so as and when they choose, with the added flexibility referred to above.

Over the course of the pandemic the authors have had experience of numerous remote mediations, including those with multiple parties. A good mediator will have a practice guide for the use of Zoom for mediations, and will create various breakout rooms, with each party and their legal team having a room, a room for a joint session if desired, a room for the lawyers to speak to each other, and so on.

In contrast to court proceedings, where the familiarity of home surroundings has generally led to a lack of respect for the court setting, that familiarity appears anecdotally to have assisted in being able to bring parties together to reach a compromise more so than if each were physically present at a mediation venue.

Pre-action Protocols

Although there is no absolute requirement in the UK for parties to mediate before issuing proceedings, parties are very strongly encouraged to consider doing so by virtue of pre-action protocols. An unreasonable refusal to mediate (or failure to mediate in good faith) can also sound in costs penalties at the conclusion of any trial.

The courts have also recently made clear that such penalties are a real risk to a recalcitrant litigant declining mediation: see Wales (t/a Selective Investment Services) v CBRE Managed Services Ltd & Anor [2020] EWHC 1050 (Comm) or the award of indemnity costs: BXB v (1)Watch Tower and Bible Tract Society Of Pennsylvannia and (2) Trustees of the Barry Congregation of Jehovah’s Witnesses [2020] EWHC 656 (QB) and DSN v Blackpool Football Club Ltd (Rev 1) [2020] EWHC 670 (QB). In the latter case the court made clear that no defence, however strong, by itself justifies a failure to engage in any kind of alternative dispute resolution. That leads on to a consideration of when parties should consider mediating; as above, the strength of the process is that this decision is entirely in the gift of the parties and in many cases an early mediation can lead to vast costs savings when compared to arbitration, adjudication or litigation.

The Mediation Convention

A recent development in the world of alternative dispute resolution is the Singapore Convention on Mediation (“the Convention”), which came into force on 12 September 2020. Whilst the UK has not as yet signed the Convention, it will apply where two parties are based in Europe mediate, and the place:

  1. Where the settlement agreement is to be performed; or
  2. Where the subject matter of the settlement agreement is most closely connected is in a state that has signed the Convention.

As such, unlike the New York Convention on Enforcement of Arbitral Awards, it is not based on reciprocity. The aim of the Convention is to provide for an international framework for the enforcement of mediated settlement agreements. It allows parties seeking to enforce such an award to apply directly to the courts of the state where assets are located.

There are a number of requirements in order to utilise the terms of the Convention (and a number of areas of law in which it will not apply). One key benefit of the Convention (aside from the obvious regarding enforcement) is that it is likely to increase confidence in the mediation process in both the UK and internationally.

Conclusion

Arguably, the construction industry, with its own specialist court and statutory schemes, has lagged behind in considering mediation as a viable dispute resolution process. However, the construction industry has many features which, in the authors’ opinion, make it a perfect candidate for mediation. Perhaps it has been the ability to adjudicate at any time which has led some in the industry to overlook mediation.

Mediation has a number of very obvious benefits over litigation and arbitration. For example, mediation is a much quicker and cheaper process. As above, it also has the ability, given its flexible nature, to provide the parties with far more value than a figure awarded to one party at the end of a lengthy trial.

The parties have the capacity to agree whatever they wish (so long as it is legal), which can serve to protect reputation, on-going business interests and avoid the emotional toll that a trial inevitably carries with it for the individuals involved. There are also some (less obvious at first blush) advantages of mediation over adjudication. In particular, in an adjudication, only one dispute may be adjudicated on at any time (absent agreement of the parties, which is rarely forthcoming).

In contrast, a mediation can involve as many parties as agree to engage in the process, and involve a multitude of different contracts and disputes. Further, mediation is a facilitative process as opposed to an adjudicator imposing a temporarily binding decision on the parties.

In a mediation, should the parties wish, the agreement can resolve all issues, and will be legally binding once a settlement agreement has been reached there is no second bite at the cherry absent very rare circumstances (e.g. fraud). It is hoped that the construction industry will continue to develop and utilise the mediation process as a further mechanism to resolve disputes. Not all disputes will be suitable for mediation, but many which otherwise proceed to adjudication, arbitration or litigation clearly are so suitable. In the authors’ opinion, given the relatively limited costs (compared to other routes) of a mediation, there is little to lose by doing so, and a vast amount potentially to gain.

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