LAWBUILD Letter No. 12

Friday, 13th January 2006

Lawbuild provides construction law expertise to save clients time and money. A personal message from Lawbuild's Principal David Lewis

Please use this link to read our notice on publication of correspondence, legal disclaimers and intellectual property

Shall we settle?

In every court action, after a defence has been filed, the court requires each party to complete an allocation questionnaire whose very first question is: “Do you wish there to be a one month stay to attempt to settle the claim, either by informal discussion or by alternative dispute resolution?”

Alternative dispute resolution (or “ADR”) essentially means mediation. These days the courts encourage the parties in suitable cases to attempt a negotiated settlement, if necessary by mediation.

After reading my cri de coeur about the Civil Procedure Rules in The Lawbuild Letter No. 11, Mark McGeoch - an Associate Director at multi-disciplinary consultants Stapleton International Ltd and a practising mediator, arbitrator and independent expert – emailed me: “As a mediator (and arbitrator) I hope that you have recommended mediation as a way to solve your clients problems. It could be the cheaper option in the end as well as dealing with matters more speedily.”

Well no, I hadn’t been recommending mediation, having always been somewhat sceptical about it. I responded to Mark with two questions:

1. What is the minimum claim for which it would be economical to use mediation, bearing in mind that court proceedings could occur if the mediation fails?
2. How useful would mediation be for disputes between homeowners and builders, where emotions tend to get in the way even more than in other disputes?

Mark’s replies were unequivocal. He had completed mediations where the sum in dispute had been as low as £2,000 (generally county court mediations where he’d had only three hours to generate a settlement). Not to mention mediations with little or no money at stake, such as boundary and other neighbour disputes. He told me, “There is no dispute too small for mediation, provided that both parties have done their homework and appreciate the other side’s arguments. The key thing is that, if successful, one avoids all the legal costs of going to court.” And I was surprised when he told me that mediation has a 75% success rate.

As for homeowners and builders, Mark told me he had mediated in several such disputes, for which in his opinion mediation was ideal because it allowed the parties to vent their frustrations and emotions in a controlled environment. It was amazing (he said) what could be achieved once that venting had taken place.

The result of this exchange is Mark McGeoch’s article on his favourite subject in this issue of The Lawbuild Letter.

Am I convinced that mediation works? Not entirely, as I’d like to see one in practice before becoming a convert. But I certainly have a more favourably open mind about it than I did before reading Mark’s article. Read it and find out, as I did, what mediation’s all about.

Then sample the other goodies in this issue, including a summary of the main changes brought about by JCT 05.

I wish you and your family a happy, healthy and prosperous 2006.

With kind regards.

Principal of Lawbuild, solicitors
Editor of the Lawbuild Letter

Mediate (don’t litigate)

A mediator’s viewpoint

By Mark McGeoch FRICS

Why spend a fortune in both time and money when there is a cheaper, shorter alternative to settling a dispute? Isn’t it better to be in a position to be able to decide the outcome of your dispute yourself -rather than have a third party, be they Adjudicator, Arbitrator or Judge decide who wins and who loses? Isn’t it better to have a win/win situation? Try mediation.

As you can guess, I am a great fan of mediation. Having mediated for some eight years now, it never ceases to amaze me how parties, seemingly so entrenched in their various positions in a dispute, are surprised at the success of a process that gives them the power to decide the outcome. Mediation gives them that opportunity. Furthermore, with it now being a requirement to have actively considered mediation as an alternative to litigation, any potential litigant should be aware of it. So, what is mediation and how does it work?

The process

The process of mediation has been given various definitions and descriptions. One of the best I have heard is “helping two parties hold a difficult conversation” and involves the use of an independent third party mediator assisting the parties to arrive at a voluntarily negotiated settlement. The role of the mediator is not that of a judge or arbitrator. The mediator does not make a decision or impose a solution. The mediator facilitates the parties in their decision making and he or she does this by consulting in an independent and impartial fashion with the parties, either privately or together in order to assist in bringing about a mutually agreeable solution to their problem. The trust that develops between the mediator and the parties during the process allows the mediator to perform a bridging role between the parties.

Before the day – the parties

Before the actual day of the mediation, several things will have taken place. As well as the parties signing an agreement to mediate they should have done a lot of work with their legal representative, including (i) looking at the strengths and weaknesses of not only their own case, but also that of their opponent, (ii) costs and disbursements to date, (iii) are there any non-monetary areas for settlement? (iv) what is the monetary range you feel the other side could settle for? (v) what are the cost and time implications of not reaching a mediated settlement? and, one of the most important items, (vi) who should attend? Don’t send the Project Manager alone when it is the Chairman who is the only person who can make strategic decisions. One would not go to court unprepared, so it is unrealistic to assume that one can go to mediation unprepared, especially if you are hoping to reach agreement to what could eventually be a very expensive and time consuming piece of litigation. The parties should have examined all aspects of their case and be aware of the limits (be they financial or otherwise) that they are prepared to go to achieve that settlement.

Before the day – the mediator

The mediator in the meantime will have spoken (confidentially) to the parties and/or their legal representative to describe the process and obtain some background to the case. No mediator wants to go into a mediation unprepared; without knowing something about the personalities involved, brief details of the dispute as well as potential avenues for settlement. As well as discussing matters with the representatives, the mediator should request a case summary which will include:

• The factual background

• The issues in dispute and the key arguments on liability

• The issues in dispute and the key arguments on quantum

• Details of prior offers and/or negotiations

• Common ground

• Any essential and relevant documents

Mediation Day

On the day, all parties including the mediator should arrive in plenty of time. Each party will be shown to a room which will be theirs for the day. The mediator will then come in and have an introductory (confidential) meeting with all present. This will be the first opportunity the mediator will have had to meet the parties (face to face) so it is hoped that it will be a relaxing opportunity for the parties to ask any questions they might have about the day.

All the parties will then be invited into one room, where, after an introduction from the mediator each party will have an opportunity to tell the other what their problems have been and what they would like to achieve in the mediation. This is often the first meeting the parties will have had for a while and it is a good opportunity (and often the first) for each party to LISTEN to what the other has to say. What happens after that varies and is the wonderful thing about the flexibility of mediation. I have done mediations where we have stayed in the room all day and talked things through – that works. I have done mediations where the parties just want to get back to their own rooms because they can’t stand the sight of each other and I end up shuttling back and forth to get a resolution – that works. What tends to happen though is that a discussion begins, normally with me asking some questions by way of clarification and then, gradually, there is a full discussion involving all participants seeking clarification about what someone said and/or explaining why they did what they did, or said what they said. This normally lasts for 2-3 hours, before there comes a natural break point where both parties wish to go back to their rooms to discuss, in private, what they have heard.

The mediator will then visit each party in turn, examining what has been said with a view to helping the parties reach a settlement. The mediator will look at the parties respective positions in light of what has been discussed, look at the strengths and weaknesses, examine with the parties their INTERESTS as well as legal rights. This is a vitally important difference between mediation and litigation/arbitration; courts can only have regard to legal rights and declare them, it cannot deal with the parties’ other interests. An example of this is when I did a mediation between a lead backing singer of a band and the band leader. The dispute was over the contract between the parties and payment of royalties. A judge could only have decided what the contract was and if royalties were payable. The agreement reached between the parties basically ignored the contract, but gave them both a means to make some money - a classic win/win situation.

As well as meeting the parties separately I have, after seeking agreement to do so, put the parties back together again so that one party can explain something to the other or ask a question of the other. I have brought legal representatives together to talk over a legal point or two, I have met one solicitor or one party on his/her own to discuss something. At all times though what is being discussed is confidential, unless I have been given permission to take it to the other side. Similarly, everything discussed between the parties remains confidential and without prejudice. This gives the parties comfort that something that they may admit or acknowledge in a mediation (but would not do so in a court of law) cannot be repeated later. This is what makes mediation so successful. The parties can get down to some real hard bargaining without the formality or pressure of legal proceedings. At the end of the day, everything the mediator does, is with the aim of helping the parties reach an agreement that they can live with, but, and just as importantly, put an end to the dispute between them allowing them to move on.

Examples

To highlight some of the successes (there have been many) and a low point (there have been one or two) in my mediation experience, I have given some examples below:

1. A mediation between two parties over a boundary. The ‘natural boundary’ between the parties’ land, was a stream and first impressions were that the boundary should be down the centre line of the stream. First impressions are not always right and the agreement reached between the two parties involved the boundary starting one meter inside one parties’ land, crossing the stream someway down and going the rest of the way down the centreline of a hedge on the other side. The parties were happy and so was I.
   
   
2. A dispute between a house owner who had purchased off plan and the builder. The wife made the opening statement showing photographs of the problems she and her family had endured. Having been fobbed off for three years, this was the first time the management of the builders had really listened to what the family had been through. After apologising, something they had not done up until the mediation, a timetable for rectifying the defects was eventually agreed as well as a sum by way of compensation. The major sticking point was the size of the house owner’s legal fees and who was gong to pay them as they were four times the sum paid by way of compensation!
   
   
3. In a construction dispute both parties were so surprised at the Adjudicator’s decision, that they agreed to mediate any further problems (there were three subsequent mediations held). Doing this made each side realise the problems of the other in a non-confrontational environment and mended some of the bridges that had been burned in the adjudication; on a project that had not yet been finished.
   
   
4. I mentioned earlier that the key decision maker should attend. In another mediation, I had received assurances from both parties that their representatives had authority to settle. Having been mediating since 09:00 one of the parties’ legal representatives asked to see me in private at 17:00. He advised that his parties’ representative had telephoned his Chairman to outline progress so far. That effectively killed off the mediation because the Chairman would not allow any agreement anywhere near the sums being discussed. Had he been there to hear what had been discussed, he might have understood how his representative had arrived at the current situation.

Benefits of mediation

Quite often one hears people say parties are too far apart to mediate, or that “their” particular dispute cannot be mediated, but mediation, even if it does not settle a dispute fully, can still be beneficial. A recent seminar paper cited a £10 million defects claim dispute between a developer and contractor that was the object of mediation: an initial mediation helped resolve about £1 million worth of issues. Another mediation was held to tackle other specific legal issues, which eventually were settled by separate legal proceedings. The parties mediated for a third time and reached a deal . Of course there will be cases where mediation won’t work, such as when a legal precedent is sought, or vindication and punishment remains a primary objective, but the benefits of mediation are many:

• It is private, informal and flexible

• It is a voluntary process (though some contracts are now including mediation as a means to resolve disputes)

• It is confidential and conducted on a without prejudice basis

• It is non binding until a signed agreement is reached

• It gives the parties control to decide the outcome of their dispute

• It allows the parties to look at not just legal rights but also their interests and needs

• It increases the options for settlement

• It is more cost-effective and less time-consuming than litigation and/or arbitration

• It facilitates communications and separates people from the problem

• It allows relationships to continue

Conclusion

The Centre for Effective Dispute Resolution (CEDR) figures for the year 2004 show that 75% of all cases mediated settle on the day or shortly thereafter, and this is a consistent figure throughout the mediation world. What are the odds of going to court and getting the decision that you can live with? By coming to mediation in the first place, parties have often indicated a willingness to talk to each other. It makes sense therefore to go that extra mile to get your solution to your problem.

Mark McGeoch DipArb FRICS FCIArb is an Associate Director at Stapleton International Limited. He is a practising mediator, arbitrator and independent expert. You can contact him by email through this link.

Want to survive JCT 2005?

Few radical changes

The intervals between new editions of the JCT standard forms of contract seem to be getting shorter: previous editions were published in 1963, 1980 and 1998. With the 2005 edition, the Joint Contracts Tribunal has taken the opportunity to rationalise its contracts while resisting the temptation to make radical changes. The balance of risk remains essentially the same. Here is a very brief rundown on the new edition of the Standard Building Contract (“SBC 05”).

What’s new

• third party rights, as an alternative to collateral warranties

• clauses (as standard) requiring collateral warranties (“employer/subcontractor agreements”) or third party rights in favour of employers

What’s been dropped

• Performance Specified Work

• Nominated Subcontractors

• Nominated Suppliers

• Insurance for Employer’s loss of liquidated and ascertained damages (the old clause 22D)

• JCT adjudication rules (replaced by statutory Scheme for Construction Contracts)

What’s changed

• Section-based clause numbering (as in IFC 98 etc.)

• The Private and Local Authorities editions are now combined (what took them so long?)

• The Sectional Completion Supplement and the Contractor’s Designed Portion Supplement are integrated into the standard contracts – there are no separate supplements

• The Appendix – containing the usual variables – is renamed as the Contract Particulars and now appears immediately following the Articles of Agreement

• Schedule 2 Quotation (replacing Contractor’s Price Statement procedure for variations)

• The various insurance and fluctuations options have their own schedules instead of being set out in the Conditions

• Clauses requiring collateral warranties are integrated in the contract

• The “default” option for dispute resolution is litigation instead of arbitration

• Termination is no longer automatic on the contractor’s winding up or for other events of insolvency (but the employer can terminate by giving notice, of course)

Lawbuild seminar on SBC 05

For readers in the construction industry we would be happy to give a short (about one hour) seminar at your offices on SBC 05, maybe over a sandwich lunch, to which you could invite your partners and staff, as well as clients and associates.

We would also supply seminar papers (about 15 pages) in .pdf format for you to print and circulate to those attending.

For a price, please email me with details of the venue, numbers, and preferred date(s) and time(s).

New Construction Industry Scheme (CIS)

Contractors: from April 2007 (the Government have just deferred the introduction by twelve months) there will no longer be any cards, certificates or vouchers.

Instead, when you take on a subcontractor who has not worked for you for a set period of time, you must contact HM Revenue and Customs (HMRC) to find out whether the subcontractor should be paid net or gross.

You must then pay the subcontractor in line with the net or gross instructions given by HMRC.

You will have to submit a monthly return to HMRC which will include a declaration that the subcontractors listed are not employed.

Contractors and subcontractors already registered under the current CIS scheme won’t have to re-register for the new scheme.

The new CIS will apply to employers vis-à-vis contractors in the same way as it will affect contractors vis-à-vis subcontractors. For more detailed information, visit HMRC's web page.

Letters

Double winner

Only the other day an architect rang me to say he did a Google search ... and was directed to your site and an article featuring me as your competition winner! This not only helped to boost my professional image but prompted me to explain to them what you do. I hope that there isn't a fee for this promotion! Simon Frost, Warran Frost Associates, quantity surveyors, Essex.

Adriatic hotspot

No doubt you will have seen in the media that Montenegro is forecast to be the next holiday/tourism “hotspot” ... We have started a real estate agency together with building services called “Total Group”. Our website will be up shortly. If you have any clients or serious investor/developers who might be interested in the vast opportunities here, please pass them on to me. Robin Smith, Kotor, Montenegro.

Rumination and illumination

Your newsletters and insights and ruminations continue to be of great interest. Richard Schmidt, Martineau Johnson, solicitors, London.

Business Network International^®

Lawbuild and David Lewis are a member of the Victoria (London) Chapter of Business Network International (BNI).

BNI is a business and professional networking organisation whose purpose is to generate quality referred business for its members. BNI can claim to be the most successful organisation of its kind in the world, as it records the business transacted on a weekly basis. In 2004 members of BNI worldwide passed over 3,300,000 referrals generating £850m of business. Currently, there are more than 3,800 active groups, of which 525 are in the UK and Ireland.

BNI groups limit membership to one person per business, so members have an opportunity to lock out their competition.

You can contact us to ask about the benefits of becoming a BNI member, and we can arrange for you to attend one or two meetings as a visitor and without obligation.

To learn more, visit BNI Europe and BNI Victoria.

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Missed Lawbuild Letters Nos. 1 to 11?

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About Lawbuild

Lawbuild is a specialist construction law practice offering expert advice and services to anyone carrying out or lending money for construction, and to any buyer, seller, landlord or tenant of recently built or refurbished property. We are experienced, thorough and professional. Our aim is to save clients time and money, and our charges are very reasonable.

Lawbuild is equally at home with contracts for services and with many other kinds of agreement.

Lawbuild’s principal, David Lewis, has more than 30 years’ experience in contracts and construction law.

Contact information

Here's how to get in touch with us:

Email

letter@lawbuild.co.uk but first read Publication of correspondence etc.

Phone

020 8346 6424

Fax

020 8346 0745

Mobile

07887 757 606

Post

David Lewis
Lawbuild, solicitors
37 The Grove
LONDON
N3 1QT

Website

www.lawbuild.co.uk

Before you go ...

You’ve now reached the end of Lawbuild Letter No. 12. We hope you’ve enjoyed reading it, and we look forward to hearing from you at any time. But before you go, do read Daniel Finkelstein's article in The Times of 26th October 2005. In this opinion piece Finkelstein uses the recent example of how the Metropolitan Police, in order to comply with what it must have supposed were its legal obligations to the partially sighted, changed (at substantial cost) its famous revolving sign outside New Scotland Yard by removing the italics from the slogan “Working for a safer London”. He explains how laws can cost money and reduce our liberties even when they are not enforced, simply because law-abiding people over-interpret and over-comply with them. We were reminded of the dictum by the great chess grandmaster, Aron Nimzovitch (1886-1935): "The threat is stronger than the execution."