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Mediating Construction Disputes – An Evaluation of Existing Practice

In June 2006, the TCC joined forces with the Centre of Construction Law and Dispute Resolution at King’s College London to obtain and utilise data from the TCC in London, Birmingham and Bristol, in order to analyse the use of mediation in construction disputes. At Fenwick Elliott we were proud to be at the forefront of the preparation and drafting of the report entitled, Mediating Construction Disputes - An Evaluation of Existing Practice. The report was used by Mr Justice Jackson in his Review of Civil Litigation Costs and we have also been shortlisted as a finalist for the CEDR Awards 2010 in the “Best communication or publication” category.

Summary of the research

The report was written by Nicholas Gould and Claire King of Fenwick Elliott LLP and Philip Britton, a professor at the Centre of Construction Law and Dispute Resolution at King’s College London. The survey came about because much more has been written about the theory of mediation, and its proper place in the avoidance and resolution of disputes in construction, than about its actual use; this report combines hard detail about its practice within UK construction litigation, with a summary of the existing knowledge about mediation in the common law world and about its relation to other formal and informal methods of dealing with construction disputes.

The research demonstrates the savings in time and cost that mediation brings to the UK construction industry. In summary, the findings show that:

  • Mediation now plays an important role in the TCC and is an indispensable tool for settling cases before they go to trial.
     
  • Parties do not generally wait until a hearing is imminent before attempting to settle their dispute, and successful mediations are mainly carried out during the exchange of pleadings, or as a result of disclosure.
     
  • Where a settlement was reached prior to judgment, the most successful method used was conventional negotiation, not mediation.
     
  • In the vast majority of cases, mediation is undertaken on the parties’ own initiative. Out of the successful mediations only 22% were taken as a result of the Court suggesting it. Even where unsuccessful, 91% of mediations occurred as a result of the parties’ own initiative.
     
  • Surprisingly, only a small number of typical mainstream construction disputes (such as claims for variations, delays and site conditions) come before the Court. The common disputes that reach the TCC are those involving defects, payment issues, design issues and professional negligence.
     
  • For the vast majority of mediations in construction disputes, the mediator is appointed by agreement of the parties, rather than by an appointing body.
     
  • The cost savings attributed to successful mediations are a real incentive for parties to consider mediation.

This last point is significant. Only 15% of respondents reported savings of less than £25,000; 76% reported savings in excess of £25,000; and the top 9% saved over £300,000. The cost savings are generally proportional to the cost of the mediation, suggesting higher value claims spend more money on mediation, presumably because they realise that the potential savings resulting from mediation will be greater.

This suggests that the incentive to consider mediation provided by the Civil Procedure Rules (namely, cost sanctions) is effective and that advisers to parties to construction disputes now routinely consider mediation to try and bring about resolution of the dispute. The parties themselves generally decided to mediate their dispute at three key stages: as a result of exchanging pleadings; during or a result of disclosure; and shortly before trial. Of successful mediations, a higher percentage of respondents whose mediations had taken place during exchange of pleadings and shortly before trial believed that the dispute would have progressed to judgment if mediation had not taken place. This potentially suggests that mediation was comparatively more successful at these stages.

The vast majority of mediators were legally qualified. Only 16% were construction professionals. This perhaps diminishes the strength of any argument for greater regulation of mediation and supports the market-based approach adopted by the recent EC Mediation Directive for 2008/52/EC.

In the vast majority of mediations, the parties were able to agree between them on the mediator to appoint. Appointing bodies were only used by 20% of respondents. There was also a tendency to use the same mediators again and again, suggesting a comparatively mature market with parties’ advisors suggesting well known mediators within the construction dispute field.

As the construction industry is particularly innovative in designing a wide range of dispute resolution methods, both domestically and internationally, the report also considers the broad spectrum of dispute resolution techniques utilised in the construction industry. In addition to the widespread use of mediation, the report looks at the use of an independent intervener; the dispute resolution adviser; the ICE’s conciliation procedure; project mediation; dispute boards; and multi-tiered dispute resolution. The extensive choice available to parties when forming a construction contract does provide a degree of flexibility, allowing them to decide how they prefer their dispute to be resolved, managed and controlled.

Furthermore, regulation for the training, appointment and performance of mediators, as well as the professional backgrounds and skills of mediators in construction disputes, are also discussed in the report.

The Jackson review

The results from the TCC / King’s College London research project have been supported by Lord Justice Jackson in both his preliminary and final reports of his review of civil litigation costs. In chapter 29 of the final report, he recommended that “mediation should be promoted with particular vigour for those low value construction cases in which conventional negotiation is unsuccessful”.

The hard facts

Lord Justice Jackson further emphasises his support for the research in his foreword to the recent mediation report. He notes in the foreward to his Final Report that: “Empirical data are far more valuable than the anecdotal evidence about litigant behaviour which sometimes informs decisions.”

His comments echo the sentiments of Professor Dame Hazel Genn of UCL, co-director of the Centre for Empirical Legal Studies in the Faculty of Law at University College London, who has often criticised civil justice policy and practice as being based too much on anecdotes and assumptions, and too little on solid empirical evidence. The aim of this research is a response to just that. It attempts to dispel those anecdotes and assumptions employed when considering mediation in the resolution of construction disputes, by providing the detail of the data gathered.

The research may only consider one form of alternative dispute resolution (ADR), in a specialised and complex category of the High Court; however, it sets the ball rolling for future research on the use of ADR.

Mediating Construction Disputes – An Evaluation of Existing Practice can be downloaded at: www.fenwickelliott.com/mediating-construction-disputes-download.

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