In this issue, we will look at mediation – what it means, how to go about it and whether it presents a viable alternative to arbitration or litigation in resolving disputes on construction projects.
The Centre for Effective Dispute Resolution (CEDR), a body in mediation circles, defines mediation as “a flexible process conducted confidentially in which a neutral person actively assists parties in working towards a negotiated agreement of a dispute or difference, with the parties in ultimate control of the decision to settle the terms of resolution”.
This process differs from arbitration. While arbitration is consensual, confidential involves a neutral party as evaluator.
There are certain constraints on the parties once they have agreed to go to arbitration. If there is a valid arbitration clause, the ability of one party to commence arbitration and prosecute it all the way to an award is not dependant on the consent or continued participation of the other party, and the other party cannot ignore the award simply because he does not like what it says. Mediation, on the other hand, is completely consensual; any party can call a halt to it at any time and, if the mediator is being asked to provide a recommendation, a party is free to ignore it should he not like it. This level of flexibility and choice has led a number of commentators to argue that mediation is really a waste of time. While that is sometimes true, it would not be fair to characterise mediation thus as it ignores the countless instances where mediation has succeeded in achieving a settlement of a dispute.
There are two basic types of mediation: an ‘evaluative’ mediation where the mediator is asked to give his view (which is not binding on the parties, but the parties can use the mediator’s view to guide their settlement negotiations or decision to proceed to arbitration or litigation), and a ‘facilitative’ mediation where the mediator is merely the facilitator of settlement negotiations and it is up to the parties to use him as a route to reach a agreement.
A high level of skill is required of the mediator in the latter type – and some of the most respected and successful mediators internationally are those who encourage facilitative mediation. There is merit in that approach as an evaluative mediator’s report could end up being dissected as if it is an arbitration award. The next key element is the choice of mediator. If the matter involves an assessment of complex legal principles, a judge or seasoned arbitrator may be of considerable value as mediator – but often mediation is about ‘interests’ of the parties rather than their ‘strict legal positions’, and a mediator who can look underneath the skin of a dispute and what the parties are prepared to accept to give up, is an ideal mediator.
An example of the difference between legal positions and interests can be seen in a successful mediation in the UK which involved a dispute about the defective construction of a road. The contractor had mistakenly put the reinforcing mesh in the bottom layer rather than the top layer. This, the developer argued, significantly reduced the design life of the road. The replacement of the entire road would have been very expensive and disruptive to the tenants of the estate who had moved in, and the developer of the estate was demanding an indemnity for claims from the tenants and loss in rent.
The contractor argued that there would be no significant effect on the projected design life of the road from its error. The parties went to mediation and through that process were able to arrive at a solution whereby the road was allowed to remain but the contractor provided a 20-year warranty, guaranteed by its parent, for the maintenance of the road. Mediation can be conducted as the parties’ desire. Usually, the mediator(s) will set out a structure, or the parties can ask for their own. It is up to the parties to conduct their case in a way that persuades the other side to see their point of view, and gives enough ‘ammunition’ to the mediator to persuade the other side in private sessions with them. The mediation ends either when the parties have agreed to terms of a settlement, or the mediator has provided his evaluation (if it is an evaluative mediation) or the parties have decided to not accept the settlement (or sometimes, not continue with the mediation). The ideal settlement is where both parties feel that they have had to make a compromise and neither party has ‘won’. But sometimes settlement can come much after mediation has concluded as parties’ senior management continue to talk and look for a middle ground.
Some jurisdictions, like Hong Kong, make mediation a compulsory step prior to arbitration for disputes with the government on construction projects. A similar option is included in contracts for some of the PSUs in India. But whether compulsory or not, mediation is an extremely useful tool and – if used sensibly – can achieve a party’s commercial aims without destroying the commercial relationship with the other side.
• Shourav Lahiri is the principal at Lahiri LLC, a Singapore-based law firm specialising in construction and engineering law and arbitration. He can be reached at shourav.