By Stuart Robertson (partner) and Andrea Lim (solicitor) in Dentons Kensington Swan’s Construction and Major Projects team.
Despite the provision for mediation in most standard form construction contracts, mediation, in lieu of traditional dispute resolution procedures such as litigation, is rarely used as a first instance method of resolution.
Mediation is often left to the last minute and when used is facilitated in a manner which fails to achieve many of the real benefits it offers.
The process of mediation
The process of mediation is an empowering one. Cynics who say that mediation is unhelpful and drawn out are often ignorant of the process, conscious of the weaknesses in their own case or are being advised by counsel who do not have their client’s best interests at heart. This is not to say that mediation can be used in every type of dispute, but there would be few examples of disputes that could not be resolved by mediation.
Often private mediators set themselves targets to spend the morning session hearing each party state its case and then identify the key matters in dispute. In the afternoon session, they focus almost solely on dollars and move quickly to a ‘horse trading’ forum.
Their tactic is then to keep the parties as long as possible until settlement is achieved. This formulaic approach can be quite successful, but overlooks many benefits of mediation in the haste to settle.
Benefits of mediation
The benefits of mediation include:
- Anything prepared for or discussed in a mediation is without prejudice and cannot be used in any subsequent litigation (if any).
- It is a voluntary and confidential process.
- Flexibility; the selection of mediator, venue and timing is entirely up to the parties. It can also allow for mediations within mediations, for example defendants coming to agreement on their contributions to any settlement as a separate exercise to negotiating an overall settlement with the claimants.
- The overwhelming majority of disputes can be resolved in one day.
- The avoidance of internal and external costs, delay and the uncertainty in the court process (often referred to as ‘litigation risk’).
Even if settlement of all issues is not achieved at mediation, it is often the case that matters would be resolved shortly after, or at worst the matters in dispute can be substantially reduced resulting in a significant saving on the length and cost of a formal court hearing or adjudication.
Importantly, mediation can have a number of long-term positive benefits for the future relationship of the parties. Skilled mediators are focused on both understanding the parties’ interests and the key issues in dispute. While invariably disputes ultimately result in money or something of monetary value, the solution does not always have to be payment in cash.
In the leaky building context, there have been a number of mediations that resulted in building companies agreeing to repair the plaintiff’s property, with contributions from the defendants.
In civil construction disputes, if there is a shortage of supply, materials left on site can be of more benefit to one party than payment. In a term maintenance contract, the provision of new services as an add-on to the existing contract scope could prove more beneficial to all parties rather than paying a penalty to the principal.
Other types of mediation
Court assisted resolution comes in the form of judicial settlement conferences (‘JSC’). In the High Court, JCS will only be allocated to cases where private mediation is, for some reason, inappropriate.
These are convened by a judge whose role is to facilitate settlement discussions and act as a mediator between the parties. Unfortunately, judges too often overlook the opportunities available in mediation, being focused on easing the backlog of cases.
In reflection of that pressure, the High Court, with the consent of the parties, may make an order at any time directing the parties to try mediation or some other form of alternative dispute resolution. The case is then referred to a panel of trained private mediators who operate outside the court process.
Once mediated, the parties report back to the court as to whether or not they had resolved their dispute and, if not, whether there is any reduction in the scope of the dispute to go to hearing.
Very rarely do parties avail themselves of the mediation provisions in standard form contracts (for example, NZS3910:2013, clause 13.3).
Prior to the introduction of the Construction Contracts Act 2002 (‘the Act’), parties were faced with the alternatives of mediation and/or arbitration. As arbitration was edging closer to the time and cost with court hearings, mediations were used more often.
However, with the introduction of the quick and speedy adjudication process under the Act, mediations have almost been forgotten.
If there was ever a time to utilise tried and true alternatives to litigation, it is now. Mediation empowers the parties to seek mutually acceptable solutions to their disputes. It opens the possibility of finding solutions that are unique, time and cost efficient and bring a relative quick close to the dispute process. Agreed settlement avoids the uncertainty, and the emotional pressure that litigation often entails.
An agreed outcome is more likely to be acceptable to both parties, and leave open the possibility of a continuing and long term relationship.
Dentons Kensington Swan offers 15 minutes of free advice on construction issues to CCNZ members. This publication is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. Dentons Kensington Swan does not accept any liability other than to its clients, and then only in relation to specific requests for advice.