Open-access content
15th October 2012
Beverley Vara, FM World's regular legal contributor, explains why mediation over contract disputes is favourable to litigation - and how FMs can approach it.
15 October 2012
It's ensuring that the organisations to which contracts have been awarded actually perform - and perform well.
Most of the time, contractors do a great job and there are no difficulties. Sometimes there are difficulties and those can be easily managed through usual negotiation.
Occasionally however, relations deteriorate; solicitors' letters are exchanged, and it seems inevitable that the parties are heading for a showdown in court.
Obviously, that is one way to resolve the dispute. The court process is often criticised for being slow and expensive, but there are occasions when it is the only viable route for the parties to follow.
That said, legal practitioners in the UK are increasingly supporting and promoting alternative forms of dispute resolution, in particular mediation, to resolve differences that arise between parties. Seemingly intractable problems can be solved by mediation, which has a very high success rate. This is particularly important where the parties have an ongoing contractual relationship they wish to preserve.
The essential difference between resolution in the courts and resolution through mediation, other than (usually) speed and cost, is that in court, a third party, the judge, decides who
is right and who is wrong: there is a winner and a loser.
Mediation, on the other hand, is a process whereby the parties come to a facilitated agreement to resolve their dispute. It is possible to introduce elements outside of the scope of the existing dispute into the settlement and, very importantly, there is an opportunity for all parties to have their say.
Those reading this may think that a litigation solicitor writing an article such as this is akin to a turkey voting for Christmas. But litigators have enthusiastically embraced mediation as an additional means of achieving the best result for their client. In addition, the courts are increasingly keen that mediation should be used as a tool to resolve disputes. See, for example, the case of Rolf v De Guerin [2011] EWCA Civ 78 (see below).
So what is mediation?
Mediation is a confidential process whereby the parties agree to meet on a 'without-prejudice' basis in an attempt to resolve a potential or actual piece of litigation.
Unlike in formal litigation, there are no set rules that need to be followed in terms of process. The usual format is as follows:
1. The parties agree to mediate and decide on a suitable mediator.
2. They each prepare a position paper that is submitted to the mediator in advance of the agreed mediation date. Those papers are typically quite brief, although they may be supported by documentation to illustrate the point being made.
3. The mediator reviews the position statements so that he/she understands what the arguments are from the different parties' perspectives and may well speak to each individual party (or their legal representative, if appointed) before the mediation.
4. On the mediation day, the mediator is there to facilitate a settlement rather than to impose it.
5. The day usually starts with all the parties together in a combined session. The mediator may invite the parties to discuss some aspects of the case in that session, or after introductions. They may then divide into separate rooms, the mediator moving between the different parties, speaking with each of them confidentially (although he is likely to invite them to meet in a joint session later on).
6. The idea is that the parties trust the mediator and are prepared to tell them what a good outcome would look like for them.
7. What any party says to the mediator in the confidential session remains private for them unless or until they give expressed authority to the mediator to share some part of what they have said with the other parties.
8. During the course of many meetings throughout the day, typically the parties develop further trust and rapport with the mediator until one of them will finally say something that unlocks the dispute and allows
it to be settled.
9. Sometimes, simply having the opportunity to say how badly let down and angry they feel about a particular issue is sufficiently important for one party to break the blockage that was preventing settlement before. Sometimes an explanation for why something has gone wrong can be offered up that makes the behaviour complained of less offensive in the other party's eyes.
Sometimes, the contractual agreement between the parties can be varied in a way that suits both parties because often different elements of a complex contractual dispute have different levels of importance to the different parties - something vitally important to one can be conceded by the other if they get something else in return, which is very important to them but of less importance to the other side.
It is easy to be sceptical about mediation. It's often argued that if an agreement could be reached, then it would have been reached in the ordinary course of business. Mediation does, however, have a very high rate of success and that is why it is so encouraged by the courts.
Beverley Vara is a partner at solicitors Allen & Overy LLP specialising in real estate litigation and is a CEDR accredited mediator
What does contract management mean for facilities managers?
It's ensuring that the organisations to which contracts have been awarded actually perform - and perform well.
Most of the time, contractors do a great job and there are no difficulties. Sometimes there are difficulties and those can be easily managed through usual negotiation.
Occasionally however, relations deteriorate; solicitors' letters are exchanged, and it seems inevitable that the parties are heading for a showdown in court.
Obviously, that is one way to resolve the dispute. The court process is often criticised for being slow and expensive, but there are occasions when it is the only viable route for the parties to follow.
That said, legal practitioners in the UK are increasingly supporting and promoting alternative forms of dispute resolution, in particular mediation, to resolve differences that arise between parties. Seemingly intractable problems can be solved by mediation, which has a very high success rate. This is particularly important where the parties have an ongoing contractual relationship they wish to preserve.
The essential difference between resolution in the courts and resolution through mediation, other than (usually) speed and cost, is that in court, a third party, the judge, decides who
is right and who is wrong: there is a winner and a loser.
Mediation, on the other hand, is a process whereby the parties come to a facilitated agreement to resolve their dispute. It is possible to introduce elements outside of the scope of the existing dispute into the settlement and, very importantly, there is an opportunity for all parties to have their say.
Those reading this may think that a litigation solicitor writing an article such as this is akin to a turkey voting for Christmas. But litigators have enthusiastically embraced mediation as an additional means of achieving the best result for their client. In addition, the courts are increasingly keen that mediation should be used as a tool to resolve disputes. See, for example, the case of Rolf v De Guerin [2011] EWCA Civ 78 (see below).
So what is mediation?
Mediation is a confidential process whereby the parties agree to meet on a 'without-prejudice' basis in an attempt to resolve a potential or actual piece of litigation.
Unlike in formal litigation, there are no set rules that need to be followed in terms of process. The usual format is as follows:
1. The parties agree to mediate and decide on a suitable mediator.
2. They each prepare a position paper that is submitted to the mediator in advance of the agreed mediation date. Those papers are typically quite brief, although they may be supported by documentation to illustrate the point being made.
3. The mediator reviews the position statements so that he/she understands what the arguments are from the different parties' perspectives and may well speak to each individual party (or their legal representative, if appointed) before the mediation.
4. On the mediation day, the mediator is there to facilitate a settlement rather than to impose it.
5. The day usually starts with all the parties together in a combined session. The mediator may invite the parties to discuss some aspects of the case in that session, or after introductions. They may then divide into separate rooms, the mediator moving between the different parties, speaking with each of them confidentially (although he is likely to invite them to meet in a joint session later on).
6. The idea is that the parties trust the mediator and are prepared to tell them what a good outcome would look like for them.
7. What any party says to the mediator in the confidential session remains private for them unless or until they give expressed authority to the mediator to share some part of what they have said with the other parties.
8. During the course of many meetings throughout the day, typically the parties develop further trust and rapport with the mediator until one of them will finally say something that unlocks the dispute and allows
it to be settled.
9. Sometimes, simply having the opportunity to say how badly let down and angry they feel about a particular issue is sufficiently important for one party to break the blockage that was preventing settlement before. Sometimes an explanation for why something has gone wrong can be offered up that makes the behaviour complained of less offensive in the other party's eyes.
Sometimes, the contractual agreement between the parties can be varied in a way that suits both parties because often different elements of a complex contractual dispute have different levels of importance to the different parties - something vitally important to one can be conceded by the other if they get something else in return, which is very important to them but of less importance to the other side.
It is easy to be sceptical about mediation. It's often argued that if an agreement could be reached, then it would have been reached in the ordinary course of business. Mediation does, however, have a very high rate of success and that is why it is so encouraged by the courts.
Beverley Vara is a partner at solicitors Allen & Overy LLP specialising in real estate litigation and is a CEDR accredited mediator
Case study - the view from the courtroom
Mediation is encouraged to the point to which there are cost penalties for those that refuse to mediate, and this is where the case of Rolf v De Guerin, mentioned earlier, becomes relevant.
In brief, the facts of the case were these: a builder, Mr De Guerin, had entered into a contract to extend the home of Ms Rolf.
The building works did not go smoothly and the judge found that one of the difficulties with the works was that the husband of Rolf played an "aggressive and interfering role" that led to the breakdown of the contract. Additionally, Rolf stopped paying the weekly payments due under the contract, which De Guerin claimed amounted to a repudiation of the contract that he accepted by walking off the site.
After this, Rolf instructed other builders to finish the garage and she claimed from De Guerin the cost of those additional works.
Rolf wrote to De Guerin offering to settle or mediate several times, but these offers were largely ignored by De Guerin until just before the trial.
No agreement was reached and the trial took place.
At trial, Judgment was given for Rolf but for much less than the amount that De Guerin, had offered to pay (albeit his offer was to pay by instalments).
Costs were awarded in favour of De Guerin and this cost award was appealed. Rolf argued on appeal that although her offer to settle was pitched too high, the letter showed willingness on her part to settle, as did her offer to mediate and meet to discuss settlement. These were all matters that went to her credit and conduct of the claim. Her barrister argued that, in the circumstances, the court should exercise its discretion and further, the offer that De Guerin had put in the week before trial could not have been made in good faith in light of his acknowledged financial difficulties.
De Guerin said that he had been unwilling to mediate because if he had mediated he would have had to accept "his guilt". He said that he would have been unable to persuade a mediator what Rolf's husband (Mr Meslati) was like. He felt it important that the judge saw for himself at trial when Meslati gave evidence, and in any event he "wanted his day in Court and he was proved correct".
The Court of Appeal allowed the appeal and exercised their discretion to make an order so that there would be no order as to costs.
One of the factors in the court deciding on its amended order was Rolf's willingness to settle. De Guerin spurned this offer until it was too late and even then his offer to settle, mediate or meet was undermined by his difficult financial situation.
The court felt it was completely clear to De Guerin from the very first that Rolf wanted to avoid litigation if she could and was willing to settle at a figure that was far lower than her claim. Moreover, even that figure was plainly negotiable as was clear from her anxiousness to mediate or meet and her stated desire to avoid the expensive litigation. The court was not convinced by De Guerin's reasons for declining mediation.
Tellingly, it said that "as for wanting his day in court, that is of course the reason why the courts had been unwilling to compel parties to mediate rather than litigate: but it does not seem to be an adequate response to a proper judicial concern that parties should respond reasonably to offers to mediate or settle and that their conduct in this respect can be taken into account in awarding costs".
They found the conduct, that had to be considered in determining costs, could include the reasonableness of a party's response to mediation and "the Judgment of Lord Justice Brooke in Dunnett v Railtrack Plc, where he said that skilled mediators are now able to achieve results satisfactory to both parties in many cases which are quite beyond the powers of lawyers and the courts to achieve".
Mediation is encouraged to the point to which there are cost penalties for those that refuse to mediate, and this is where the case of Rolf v De Guerin, mentioned earlier, becomes relevant.
In brief, the facts of the case were these: a builder, Mr De Guerin, had entered into a contract to extend the home of Ms Rolf.
The building works did not go smoothly and the judge found that one of the difficulties with the works was that the husband of Rolf played an "aggressive and interfering role" that led to the breakdown of the contract. Additionally, Rolf stopped paying the weekly payments due under the contract, which De Guerin claimed amounted to a repudiation of the contract that he accepted by walking off the site.
After this, Rolf instructed other builders to finish the garage and she claimed from De Guerin the cost of those additional works.
Rolf wrote to De Guerin offering to settle or mediate several times, but these offers were largely ignored by De Guerin until just before the trial.
No agreement was reached and the trial took place.
At trial, Judgment was given for Rolf but for much less than the amount that De Guerin, had offered to pay (albeit his offer was to pay by instalments).
Costs were awarded in favour of De Guerin and this cost award was appealed. Rolf argued on appeal that although her offer to settle was pitched too high, the letter showed willingness on her part to settle, as did her offer to mediate and meet to discuss settlement. These were all matters that went to her credit and conduct of the claim. Her barrister argued that, in the circumstances, the court should exercise its discretion and further, the offer that De Guerin had put in the week before trial could not have been made in good faith in light of his acknowledged financial difficulties.
De Guerin said that he had been unwilling to mediate because if he had mediated he would have had to accept "his guilt". He said that he would have been unable to persuade a mediator what Rolf's husband (Mr Meslati) was like. He felt it important that the judge saw for himself at trial when Meslati gave evidence, and in any event he "wanted his day in Court and he was proved correct".
The Court of Appeal allowed the appeal and exercised their discretion to make an order so that there would be no order as to costs.
One of the factors in the court deciding on its amended order was Rolf's willingness to settle. De Guerin spurned this offer until it was too late and even then his offer to settle, mediate or meet was undermined by his difficult financial situation.
The court felt it was completely clear to De Guerin from the very first that Rolf wanted to avoid litigation if she could and was willing to settle at a figure that was far lower than her claim. Moreover, even that figure was plainly negotiable as was clear from her anxiousness to mediate or meet and her stated desire to avoid the expensive litigation. The court was not convinced by De Guerin's reasons for declining mediation.
Tellingly, it said that "as for wanting his day in court, that is of course the reason why the courts had been unwilling to compel parties to mediate rather than litigate: but it does not seem to be an adequate response to a proper judicial concern that parties should respond reasonably to offers to mediate or settle and that their conduct in this respect can be taken into account in awarding costs".
They found the conduct, that had to be considered in determining costs, could include the reasonableness of a party's response to mediation and "the Judgment of Lord Justice Brooke in Dunnett v Railtrack Plc, where he said that skilled mediators are now able to achieve results satisfactory to both parties in many cases which are quite beyond the powers of lawyers and the courts to achieve".