Legal

MEDIATE, DON’T LITIGATE

Why Mediation Works

Disputes are unfortunately a “fact of life” in the building and construction industry. Mediation is a “circuit breaker” that can be used to deal efficiently and cost effectively with disputes when they arise. There are at least four reasons why mediation works. These are: • limitations of the law; • involvement of a specialist dispute resolver; • search for creative solutions; • financial imperatives. The limitations of the law The typical response to the emergence of a “dispute” is usually to take the advice of lawyers. While this may be an appropriate response, the limitations of this as an exclusive strategy warrants closer consideration. 36 MBA NSW | Issue Three | June/July 2018 Lawyers, by virtue of their training, unavoidably consider the “instructions” as relayed to them by their clients, through a legal “prism”. That “prism” is made up of the lawyer’s past experience in dealing with such matters, and their knowledge of the law. A client’s version of events is unavoidably viewed by lawyers through this “prism”. The only “light” which typically passes through the prism are those “facts” which the person briefing the lawyer considers to be “important”. That information usually then forms the basis of the lawyer’s initial “advice”. When considering a client’s version of events through the “legal prism”, lawyers will typically apply legal principles with which they are familiar. For example, when dealing with a contractual dispute, a lawyer may perhaps look for a “breach” of a warranty or condition which might give rise to “damages”. Those damages are typically the monetary cost of placing the aggrieved party back in the position which they would have enjoyed, except for the occurrence of the “breach”. The law is a specialist field that pays scant regard to the practical realities of the building industry. Builders are not usually lawyers, nor are most lawyers builders. What a builder thinks to tell a lawyer in initial conferences may not be information which eventually turns out to be most relevant in a subsequent legal forum. It can take many months, in the course of legal proceedings, before all the relevant “facts” emerge. Often this can eventually have the effect of putting the clients “story” and “prospects” in a far less favourable light than when legal advice was first sought. This is hardly an efficient process or desirable outcome. Real resolution of a dispute involves more than

just “winning the argument”. It involves dealing with the dispute in a manner that addresses the real needs and/or interests of the parties involved. Those needs and interests are often not apparent. “Winning” at all costs may be a noble goal, but it is usually far from assured in litigation. And in most cases, it is also expensive. Mediation works because it does not just look at a dispute through a legal “prism”. It also takes into account the real needs and interests of the parties. Unless these are also addressed at least to some extent, real resolution of a dispute is normally impossible. The involvement of a specialist dispute resolver Most builders are very familiar with the use of specialists. What is not so well understood or accepted is the benefit of involving a specialist “dispute resolver” as soon as a dispute arises (or appears likely to arise). Ideally this person will have a good mix of both practical and legal expertise. Unlike members in tribunals, magistrates or judges, mediators do not impose outcomes on disputes. They work hard to resolve disputes with the active involvement of those involved. The object of the process is not “winning” but “resolving” the dispute cost effectively to the reasonable satisfaction of all parties. That is quite different to litigation in which there is always a “loser”. A good mediator will help the parties “turn over every stone” in the search for a sensible resolution to the dispute. This often has very little to do with enforcing “rights” or obtaining all the “legal entitlements”. Important issues such as cashflow, continued working relationship and the maintenance of reputation are often far more important considerations. A specialist mediator also has the benefit of something that neither of the parties nor their legal representatives have. That is the ability to meet with both sides privately and in confidence. When doing so, he or she is able to uncover the real needs of the parties and to explore possible options for meeting those needs. Mediation works because it is a specialist skill. The earlier that a specialist dispute resolver such as a mediator is engaged, the greater the chance that the dispute can be resolved before substantial costs are incurred. This is usually infinitely preferable to just spending even more money in pursuit of an uncertain, and legally binding, “imposed” result. A creative search for solutions Mediation works because it involves a creative search for solutions. A creative search for solutions seeks a resolution which is better for all concerned than any of the other alternatives on the table. This is usually because it brings certainty where there are substantial financial risks (as in the case of litigation) or because it brings forward desired outcomes which may otherwise be substantially delayed. From my experience, parties usually become willing to settle their disputes when they realise that it is in their own best interests to do so. This realisation usually only occurs when all perceived available solutions have been fully explored. By working through all the “what ifs”, a skilled mediator is usually able to tease out at least one outcome which both parties might not necessarily like, but which they are prepared to live with. Having done many mediations, it never ceases to amaze me how - with a bit of creativity and lateral thinking - even entrenched disputes can be completely resolved. Often the agreed terms of a mediated settlement bear little resemblance to the demands which had been made prior to the mediation. The eventual confidential terms of settlement are usually in no small part due to the skills of a skilled and creative mediator. This is because the mediator persisted in the face of apparent impossibility at the start, or refused to be deterred by the lack of enthusiasm or optimism on the part of the lawyers or the parties involved. Mediation works because solutions usually exist but which are often not even considered by disputing parties. It works because the process directs the energy of the parties into considering creative solutions. This often leads to a win/win outcome and complete resolution. The financial imperatives At the time when a dispute is “brewing”, very few builders fully appreciate where and how it might end. Many builders have told me that “had they known” they would have rather forgone part, or all, of a claimed disputed variation or unpaid progress claim. This being because the eventual cost of dealing with the dispute in a legal forum eventually far outweighed the cost of dealing pragmatically with the dispute in some other way when it first arose. Builders also often don’t foresee the consequences of their initial responses to an emerging dispute. A blunt and forceful “letter of demand” from a zealous solicitor may impress the builder, but may only serve to infuriate the recipient. The commencement of proceedings for debt recovery also often gives rise to the inevitable “cross claim”. With the benefit of “expert evidence”, the amount of the cross claim often far exceeds the amount of the debt sought to be recovered. At that point, even if the builder wants to discontinue it usually finds itself “locked in” and already exposed to the other side’s legal costs if it tries to “discontinue”. Even if a dispute is successfully litigated, the result seldom meets expectations. The amount recovered is often considerably less than that which was claimed. Even with the benefit of cost orders, the builder is usually still considerably out of pocket and the result is often no better than what could have been achieved months earlier, as part of a mediated settlement, and at a fraction of the cost. It is worth noting that even if mediation is not attempted early, it is likely to be ordered anyway later on by a tribunal or a court. By this time considerable costs will usually have been incurred by both sides. This makes the resolution of the dispute more difficult because the parties will both want the issue of those costs to form part of any settlement. Mediation works because it can result in a negotiated outcome, many months before any other litigated dispute. A dispute can also often be resolved sensibly and cost effectively, before the relationship between the parties is completely destroyed in a litigated “war of attrition”. The cost benefits of a mediated settlement usually also far outweigh most other dispute resolution processes. The moral of this story? If in doubt, don’t litigate — rather first mediate!

Rob Zikmann Specialist Dispute Resolver and Mediator www.robzikmann.com.au Tel: (02) 9232 3414 Email: rob.zikmann@chambers.net.au