Mediation of International Construction Disputes - Has the Time for US-Style Mediation Arrived?

• May 2010

• Construction

Robert S Peckar - Peckar & Abramson PC

In just twenty years, the use of mediation in domestic construction disputes in the United States has grown from a good idea to a prevalent practice. In that domestic setting, mediation has proved a very reliable way to resolve construction disputes of all types, from the simple to the extremely complex.

Robert S Peckar

The use of mediation has also become popular in the United Kingdom and other common law jurisdictions and those whose legal systems are largely based on the British model. Recently mediation has gained substantial support in the European Union. However, despite the growth of mediation, it is not reported to have made similar progress in the resolution of international construction disputes where there are substantial linguistic and cultural differences that result in scepticism about, if not outright rejection of, mediation. US-style mediation is as successful as it is because of the willingness of the parties to allow the mediator to fulfil a very active role with each party in private sessions – a role that further challenges the willingness of some international parties to accept this model.

Before discussing the potential of this manner of mediation for international construction cases, it is worthwhile to explain what US-style mediation is, as many in the world do not know.

US-style mediation is the voluntary participation by disputing parties in negotiations facilitated by a third-party neutral known as the “mediator”. The mediator typically is a lawyer (although he or she need not be) who is trained in the art of negotiation used in the mediation process. The key elements of the typical mediation process are:

• The process is voluntary. While some speak of “binding mediation”, that term is misleading. The only aspect of mediation that is binding is the agreement made by the parties to settle their dispute (more on that later). All parties must agree to participate or there is no mediation. Although some contracts require mediation as a condition precedent to the next step in the process, there is agreement at least at the time of contracting.
• Because the process is voluntary, the parties are making a commitment that they are willing to listen, to learn, and to make compromises to achieve a fair settlement with the other party.
• The process depends on the good faith of all parties to participate with an open mind and a desire to settle.
• The process is conducted under the guidance of a mediator, who is selected by all of the parties because they trust and respect the mediator’s skills, knowledge and integrity. The mediator is neutral and independent. The mediator typically is highly trained in the art of negotiation and mediation, knowledgeable in construction, and experienced in construction law. Mediation simply introduces a trusted expert into the negotiation process to facilitate a resolution of the dispute. There are several organisations that offer mediation services to members of the construction industry.
• Before and during the mediation, the mediator is provided with confidential information from each party about the strengths and weaknesses of their case, their settlement goals, financial concerns that might affect the settlement, personal relationships impacting settlement, other matters of value to each party, such as maintaining relationships or receiving expedited payment, and other confidences that may assist the mediator. Armed with this information, the parties’ trust and negotiation skills, the mediator is in an excellent position to guide the parties to an acceptable settlement.
• US-style mediators act in a facilitative manner, however, many will be quite strong in providing advice to the individual parties during their confidential sessions. That advice may range from “encouragement” that a party modify its position in order to achieve a settlement to a polite confrontation in which the mediator informs the party in clear terms why the mediator believes that party is not properly advancing the potential for settlement. The mediator may explain to the party that its resistance to make meaningful counter-offers is unhelpful. The mediator may also express a belief that the party is operating on an erroneous legal or factual position or that it is attempting to use a negotiating strategy that simply will not work. Many of the most successful construction-industry mediators in the United States are respected for their ability to bring strong guidance and the personal qualities of effective facilitation to the mediation process.
• Because of the sensitivity of the information provided to the mediator, the parties must have complete trust that he or she will maintain its confidentiality and help them reach the best settlement possible. Trust in the mediator is the cornerstone of a successful mediation.
• The mediator acts as an “honest broker of information” and never shares one party’s confidential information with another party without express permission. Thus, the parties are able to talk with the mediator about various options, including their “bottom-line number”, and other highly confidential considerations, without fear that they will be improperly disclosed to any other party. Mediators treat this obligation as a matter of sacred trust and do not violate that trust. Furthermore, the laws in most US states provide that all communications (oral and written) during the mediation process are confidential and may not be repeated in a legal proceeding.
• The mediation progresses through a rather predictable process to conclusion. Typically there are short pre-mediation submissions exchanged between the parties and with the mediator, an opening joint session, at which all the parties make presentations to each other about their case and their perceptions of the other parties’ cases, followed by a series of private caucuses with the mediator held in separate rooms. However, the parties are not constrained by a specific format and joint sessions may follow a caucus, sessions may be held with principals only and the mediator, or any other process may be used that will help achieve settlement. Flexibility is a key to mediation.
• An important element of the opening session of mediation is that the parties speak to each other and in particular the principals, not to the mediator. Sometimes the opening session is the first time a principal has heard a fair presentation of the other party’s position. The mediator is not a judge or arbitrator; and therefore, there is little advantage to try to convince the mediator of the merits of the party’s position. That shift in emphasis, from speaking to the third-party finder of fact to speaking directly to the other party, is at the heart of what makes mediation successful. The mediator’s role is to keep that dialogue appropriate in tone and direction both in the opening public session and then in the private caucuses.
• The mediator tries to help the parties focus on what is in their best business interests as opposed who is right or wrong on the issues, since it is often difficult to convince someone that they are wrong, and the matter may have little to do with a party’s best interest as far as settlement is concerned.
• The mediator helps the parties remove emotional issues or personal conflicts from the negotiation.
• The mediator has the ability to use many well-tested closing techniques to achieve the final resolution.
• Finally, in certain circumstances and as a last resort, the mediator can offer his or her opinion on certain issues and can suggest a settlement to assist the parties. If the parties trust the mediator, his or her opinion or suggestion may be enough to cause them to make the last move to settlement.
• The mediation process continues until a settlement is achieved by the parties or until the mediator (not the parties) concludes that settlement is unachievable and declares an “impasse”, at which time the parties revert to the formal dispute resolution process provided in their contract or as required by law. It is not unusual for mediation to continue late into the night or continue day-to-day with little time for sleep as momentum towards a settlement increases. It is also not unusual for the mediation to be postponed after the parties have exchanged information, discovery has occurred, or the parties have reassessed their positions and interests. The passage of time can be used to facilitate settlement.
• If the parties reach a settlement, they sign a settlement memorandum or agreement on the spot, in the mediation room, to avoid the chance that they will sleep on their agreement and change their minds the next day.
• The parties’ lawyers play an important role in mediation. They advise their clients throughout, may make presentations, and, if they are experienced in the mediation process, can help their client and the mediator steer through the challenges of mediation. However, unlike arbitration and litigation, jurists are not the central figures in the drama. At the end of the day it is the client who has control of the company’s destiny in mediation, as the client is the decision maker who must make the choices on what to say, when to say it, and whether to accept a settlement.

While the different providers of mediation services in the United States cite somewhat different success rates, it is clear that there is at least an 80 per cent chance that mediation will reach a settlement. Some cite statistics greater than 90 per cent. Given the very expensive, time-consuming, and disruptive aspects of US litigation on contractors and other members of the construction industry, it should come as no surprise that mediation is the process of choice. Furthermore, mediation is available to parties before litigation is filed and the high cost of litigation has been incurred or at any time during the litigation process. Thus, there is flexibility in choosing when to engage in the mediation process.

In summary, mediation in the United States is a negotiation in which an independent, trusted expert in negotiation and construction law is inserted between the parties, is provided with all of the parties’ confidential information, and then, armed with this information, tries to guide the parties to a settlement. It has a very high success rate. So, why wouldn’t the rest of the world jump at the chance to settle international construction disputes through US-style mediation as often as the construction industry in the United States?

This author has advocated the growth of mediation in various jurisdictions and has observed that the truly international case, involving companies from different countries, speaking different languages, and coming from different legal systems and legal cultures presents many challenges to mediation that normally do not exist in the domestic situation. All of those challenges relate to the mediator – his or her nationality, religion, language skills, perceived connection to a particular country or legal system, and a distrust in the whole concept that the mediator will actually maintain the sacred trust of confidentiality. When one adds the unique characteristics of US-style mediators, the issue becomes perhaps more complex from the perspective of those parties who do not understand how well that style of mediation does indeed work.

In domestic disputes in many nations, generally the parties can speak the same language, share the same culture, function under the same legal system, know the proposed mediator personally or by reputation, and understand how the law of their jurisdiction will or will not respect the confidential nature of the process and communications between the parties and the mediator. Thus, if mediation is legally possible, the parties can rely on and trust the integrity of the mediator and the process and will further trust that they will not be subject to some untried approach to dispute resolution that to them may be uncomfortable. However, in the truly international case that brings parties from different parts of the globe together, the confidence that a mediator and the process will be conducted in a way that is “comfortable” for that party is often not present. For example:

• International parties to construction disputes may approach any negotiation with very different perspectives on how to negotiate. For parties from some countries, it is culturally unacceptable to offer or accept a reduced amount or to even share a willingness to settle for less with the mediator, as to do so may be perceived as personal weakness. It may be more acceptable for parties from such countries to lose in arbitration or court than to make concessions voluntarily. Such attitudes make the mediator’s job very difficult. An example of a particular issue that has resulted in non-US parties becoming uncomfortable about a US-style mediator’s approach to the facilitation of a settlement is the following: US-style mediators typically remind the parties of the expense they will suffer if they fail to settle their disputes and go on to arbitration or litigation. That reminder is accepted and often appreciated by construction-industry members in a dispute in the United States. Some international parties have been heard to complain that such a consideration is not relevant or even appropriate in a discussion about how much to pay to or accept from the other party.
• The language barrier can present tremendous problems, even with a translator. How easily can a party trust someone who does not speak their language? This becomes even more of a problem if the mediator speaks the adversary’s language.
• For parties from some countries, because the mediator goes into a room with the other party for hours (the caucus) to discuss the dispute this can be extremely worrisome and can undermine their trust in the mediator and the process.
• For others the sharing of highly confidential information, particularly if the mediator does not share their nationality, culture, or religion, is very difficult. As a result, even if they participate in the mediation they may be unwilling to share their confidences, which will make it less likely that the process will be successful.
• For some, the mere fact that they have never participated in mediation before, but have been in court or arbitration, is sufficient reason to reject mediation.

The reasons for resisting mediation, US-style or otherwise, or even seeing the reason for it are as varied as the nationalities and experience of the parties. This author, however, is convinced that in time there will be a model for international construction mediation that will benefit from positive experiences of parties who are pioneers in its development. The key to such a process inevitably will be trust; trust in the mediator and trust in the system. However, the model will have to overcome many serious obstacles, and US-style mediation may not be the solution, but it can provide some good lessons and ideas.

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