Law Note - Mediation in Construction Claims

A very recent survey regarding construction litigation was published and its results provide some interesting insights into how negotiation and mediation are useful in settling construction litigation claims.

 

In the paper, “Mediating Construction Disputes: An Evaluation of Existing Practice,” Nicholas Gould, Claire King and Philip Britton, of the Centre for Construction Law and Dispute Resolution at King’s College in London, England, provide insights into how construction disputes are resolved in Britain, Australia and Canada. They conducted a follow-up survey to the one conducted in 1999 of construction-related claims.

 

The main reason they wanted to follow up was to determine whether mediation was having any effect on reducing the amount of construction claims which proceeded to trial. In England, there is a specific court which deals with construction-related claims, otherwise the English system of procedure is somewhat similar to that in Canada. The most frequent issues that arose which required litigation were defects (18%), payment issues (13%), design issues (12%), professional negligence (13%), property damage (13%) and delay (7%), representing the large percentage of actions which are commenced.

 

They found that 23% of cases settled at the stage of exchange of pleadings, 14% after delivery of offers to settle, 11% after discoveries and 17% just prior to trial. The balance of settlements occurred at various other stages of the litigation.

 

The survey found that conventional negotiations settled 60% of the cases, mediation settled 35% of the cases and other forms of ADR settled the balance.

 

For the mediations to take place, 76% were initiated by the parties on their own. The balance was by court order or recommendation by a judge.

 

The survey found that if the mediation had not taken place, 78% of the respondents said that the matter would still have settled before trial through negotiation. Interestingly, only 19% felt that mediation avoided a trial.

 

For the matters that were settled at mediation at an early stage, 76% of respondents felt the cost savings of settling at mediation exceeded $40,000 and 43% of the respondents believed that would save in excess of $150,000. It is clear that the litigation played a major role in the decision-making at mediations.

 

The study found that negotiation is the most frequently used method of resolving claims throughout the litigation process. Mediation is used most often at the stage of exchange of pleadings or just prior to trial.

 

The survey then reviews the types of construction cases that go to trial. They found that payment issues and defects form the largest categories (combined 39%). Very few professional negligence cases made it to trial (3%). The survey found that negotiation/mediation was least effective in resolving defects and design failure claims, possibly due to the necessity of obtaining expert evidence. One can assume that mediation of defect and design failure claims much closer to trial has a better chance of success because the parties will have a more complete picture of all of the circumstances and will be able to assess their likelihood of success.

 

Where mediation failed and the matters went to trial, 60% of respondents felt mediation was a waste of time and money. This is probably to be expected but a real evaluation should be made as to the likelihood of success at mediation before mounting a major preparation and presentation at the mediation stage.

 

The survey concluded that the most successful method of resolving construction disputes was by negotiation rather than mediation. The survey concluded that no conclusion could be determined as to whether the mediator or a style of mediator would have any effect on the success of the mediation. One must remember that in construction disputes, the parties are generally fairly sophisticated and are more used to negotiating, and the parties are not arguing over “principles,” but rather “cost-benefit analysis” issues.

 

The common thread is that, in construction cases, the best way to settle is to maintain open lines of communication and discussions. The more this is done, the greater chance of success. Mediation forms part of the negotiation process in construction disputes but cannot be the only time that parties work to resolve the issues among themselves. Additionally, almost all parties save significant costs by negotiating a settlement as early as possible in the litigation process.

 

Ronald Petersen is a partner and Chair of the Commercial Litigation Group in Ottawa. Contact him directly at 613-232-7171 ext. 102 or rpetersen@langmichener.ca.

 

This Law Note appeared in the Lang Michener LLP InBrief Summer 2010. To subscribe to this publication, please visit our publications request page.