Mediation as a Method of Dispute Resolution in Construction Projects

Abstract 

Construction is the second largest industry in India after Agriculture. By 2025, the Construction Industry is expected to reach $1.4 TN and its market in India is expected to emerge as the third largest globally. In 2020, construction equipment industry revenue stood at$ 6.5 Bn. This industry is a major contributor to the economy of every country around the world.

The construction field in general, consists of a range of sectors including but not limited to engineering, infrastructure and rural projects, real estate and urban development. In India, construction is the second highest recipient of Foreign Direct Investment (FDI) for the year 2020-21[1].

The construction sector across the globe has seen rapid development with U.S, China & India leading the way. The sector presently employs more than51 M people in India and over 100 M and 6% of the GDP globally. Due to such large stakes, the construction sector is highly technical in nature and disputes are a common feature of the industry. From the long length of dispute resolution[2] and high costs involved in the matter related to delay in completion of the project to contract disputes, technicalities and complexities of the industry make it one of the most prone to conflicts. Traditionally the construction disputes were resolved through adversarial methods, however, the same has proven to be costly, lengthy and often the reason for ending of relations between the contracting parties.

This blog attempts to highlight the development of mediation from being conceived as a method for resolution of only traditional in personam[3] disputes to the technique becoming a developmental process for resolution of complex issues involving techno legal aspects such as construction disputes. The blog will also discuss the advantages of Mediation as a dispute resolution mechanism for construction disputes vis-à-vis other alternative remedies and how it should be treated as the primary method for dispute resolution in construction projects.

Present Conflict Resolution Regime

In general, if the disputes between the contracting parties are not resolved through Dispute Resolution Board, the parties are most likely to resort to the traditional means of adjudication of construction disputes. This regime has seen a lack of suitable alternatives to the adjudication of the matter. The section highlights the subsisting conflict resolution regime in the construction industry.

Litigation

Litigation in courts is governed by a multitude of procedural and substantive laws created by the legislature. As the procedural and execution of a case involves various stages, the decision in traditional litigation is a very time-consuming process, which can severely impede the entire construction project, as timely completion is the essence of these contracts/projects. If we go by statistics, around 33.3 million cases were pending in India’s district and subordinate courts as of July 17, 2020, with 4.1 million in the high courts. As of January 1, 2021, the Supreme Court had approximately 65,000 pending cases. Despite the lack of data on cases pending before the tribunals, the law commission’s 272nd report found that only five tribunals hadabout 350,000 pending cases as of July 2017.

The latest pandemic situation has further exacerbated the situation. The number of ongoing cases at the Supreme Court had increased by 3.6% between February 1 and August 31, 2020. Cases climbed by 12.4% in the High Courts and 6.6% in the subordinate courts between January 29 and September 20. According to estimates from 2016, judicial delays cost Indiaroughly 0.5% of its GDP each year.

Arbitration

Arbitration is the most widely used method for resolving construction disputes in modern times. In Arbitration the parties agree to refer the disagreement to a third party, the arbitrator, as an alternative to litigation. The arbitrator, who is chosen, is often an expert from the same industry with adequate knowledge.  Disputes are settled using material facts, documentation, and applicable legal concepts. This is a time bound process and is expeditious as compared to litigation. The major reasons for Arbitration as the preferred choice is party autonomy and failure of litigation to dispense inexpensive or timely justice. Most of the construction contracts contain an arbitration clause today. The arbitration regime in India is governed by the Arbitration and Conciliation Act. Even though Arbitration is a time bound and expeditious process as compared to litigation, the high costs like fees of the Arbitrator and Arbitral tribunal, Arbitration Counsels and discoveries or ancillary costs of travel have made it probably the most expensive dispute resolution mechanism and out of reach for many.

Expert Determination

Expert Determination is another kind of dispute resolution technique that is usually used in conjunction with arbitration or litigation. This is an innovative technique of conflict resolution; it basically permits a technical expert to resolve any issues that arise during the contract’s execution and propose a binding conclusion. The parties through mutual prior agreement can decide whether or not the expert’s decision can be challenged subsequently (either through arbitration or litigation).

Negotiation

The act of bargaining to attain an agreement or understanding is referred to as negotiation. Negotiation has no formal rules, yet it is a widely accepted cultural approach. Because there are no formal rules, the procedures of negotiation begin by creating a platform where the parties try to explore the possible outcomes of the problem, look for mutual benefits from resolving the problem in a way that is mutually beneficial, or make concessions to overcome the problem. As Negotiation is a process that focuses on mutual benefit, it is also referred to as the “Win-Win” technique. Negotiation may yield satisfying results, but it is less desirable to the parties because there are no binding norms in place.

Dispute Review Board

A Dispute Review board comprises members (odd in number) usually from technical backgrounds from the construction industry. The DRB gained popularity after being included as a standard term of FIDIC Contracts. The members review the completion of a construction project on a real-time basis. Many construction contracts contain a clause for establishing DRB. The parties sign a tri-partite agreement to authorize and grant the authority to the board to act as a conflict resolution forum. The selection of the members of the board often involves various stages. The elected members then select a chairperson. The members of the DRB are usually experts in the field. The selection process ensures that bias of any kind is eliminated.

Mediation as an ADR Technique

Mediation is a facilitative procedure in which disputing parties seek the aid of an impartial third party, the mediator, who assists them in attempting to reach an agreement on the settlement of their conflict. Mediation as a conflict resolution technique is thus a consensual process; it is, in a way, an assisted negotiation between the two disputing parties, with the mediator acting as the facilitator, evaluator or middleman. Unlike in arbitration or litigation, the process is not adversarial, and the focus of the mediator is to empower the parties by focusing on the disputes and eliminating jargons.

Mediation has evolved as a dispute resolution mechanism around the world and is still developing. It is hard to determine the exact types of methods of Mediation as it varies across jurisdictions. Some of the leading lawyers and Mediators in the industry have provided different opinions on the topic. Menkel-Meadow[4] derives eight models of mediation from existing literature, whilst Boulle[5] recognises four models, and Alexander describes six “meta-models”[6]. Out of the existing models, the two most widely accepted forms of Mediation are Facilitative and Evaluative. Furthermore, the Mediation process can be either voluntary or Court-Mandated.

Facilitative Mediation

Facilitative mediation is also referred to as a “pure” form of Mediation devoid of any adjudicatory or statutory elements in the process. In facilitative mediation or traditional mediation, a professional mediator attempts to facilitate negotiation between the parties in conflict. Rather than making recommendations or imposing a decision, the mediator encourages disputants to reach their own voluntary solution. Mediators in this techniqueusually abstain from presenting their opinions regarding the dispute. This is the most common type of Mediation. The Mediator focuses on letting the parties take control of the process and decide the procedure and path for the process, trying to empower the parties by identifying each party’s underlying interests.

Evaluative Mediation

Evaluative Mediation is directly contrasting to the facilitative model as in this type of mediation, mediators may partially assume the role of a judge and hence, are more likely to express opinions or provide suggestions on the legal merits of the dispute. The Mediator in this form tries to make an impartial assessment of the dispute so as to inform the parties of the likely consequences in case the parties’ resort to an adversarial method of dispute resolution instead of focusing primarily on the underlying interests of the parties. Evaluative mediation is most often used in court-mandated mediation, and evaluative mediators are often attorneys who have legal expertise in the area of the dispute[7].

Court Mandated Mediation

The newest form of Mediation is the “Court-Mandated” Mediation wherein the local courts are now mandating the parties to explore mediation for the purposes of time and cost effectiveness. Talking about the Indian Scenario, the government has enacted various special legislations to refer the parties to Mediation. Section 89[8] of the Civil Procedure Code, 1908, was the first step towards an ADR oriented approach. Subsequently, out of the various legislations introduced towards this reform[9], the most concrete step towards the Mandatory Pre-Litigation was by way of amendment in the Commercial Courts Act, 2015 wherein the legislation made it a mandate for the disputing parties to attempt mediation before initiating a suit. Recently, the Chief Justice of India also remarked that Mediation should be made thefirst step of dispute resolution legally.

Mediation as a method of dispute resolution has not been the most preferred choice primarily because the process was voluntary and non-binding thereby meaning that it lacked legal backing in case of enforcement. However, the lacunae have now been filled by the United Nations Convention on International Settlement Agreements Resulting from Mediation (hereinafter referred to as the “Singapore Convention on Mediation”) as it established a framework for the enforceability of international settlement agreements resulting from mediation to resolve commercial disputes. The Convention which was signed by 53 nations, including India, made an attempt to ease international commerce globally. This convention hence, established the binding nature of Mediation and has been ever since helping in eliminating the doubt amongst the parties regarding enforcement of Mediated Settlements.

Construction Mediation

Even though there aren’t many pieces of evidence to support the theory of Mediation being used in complex issues in the 1900’s, the second half or so has shown that Mediation was now rising to be one of the top choices amongst all kinds of disputes irrespective of its nature.

Construction Industry specifically began acknowledging the development of Mediation in the field. In late 1978, the National Construction Industry Arbitration Committee (USA) created a mediation program, under the American Arbitration Association’s auspices which was based on specific voluntary construction mediation guidelines and a qualified panel of mediators made up of industry professionals [10].

Many other famous organisations like the Joint Contracts Tribunal (JCT) in its Joint Contracts Tribunal (JCT) Design and Build Contract, specifically included mediation. Furthermore, the Institution of Civil Engineers (ICE) in its Conditions of Contract, 2004 included &; amicable settlement alongside adjudication and arbitration. Conciliation or mediation is examples of amicable resolution (under the ICE Mediation Procedure 2002).[11]

Construction disputes differ from other kinds of legal disputes as construction disputes involve complex technical and legal (also referred to as techno-legal) issues involving, normally, of the nature which requires immediate and speedy disposal so as to not hinder the stipulated timeline of the project and cause further delays in completion. Looking at the resolution of construction disputes, it would not be wrong to say that ADR has always been symbolic in resolving construction disputes. The most viable practices for the resolution of construction disputes include prevention, early intervention, inclusion and exercise of ADR, and a pre-decided agenda as to how disputes will be handled (Cox & Thompson, 1998 and Winkler, 2009).

Almost every construction contract contains a clause regarding Dispute Review Board, Negotiation and/or amicable settlement. Another important factor for non-adversarial dispute resolution of construction contracts is that the contracting parties in a construction project are primarily working for a common target of completion of the project as per the terms and conditions, implying that they are not in competition with each other, but, on the same side. Furthermore, the Mediation process also provided the contracting parties with the requisite confidentiality to resolve their disputes which also ensured that the relations between the parties were not hindered.

However, despite such advantages, Mediation could not gain widespread popularity amongst the general public, lawyers or jurists. Often Mediation was considered as a mere secondary technique when the primary adversarial technique fails to cater to the needs of the parties or to give a resolution.

Nevertheless, Mediation as an ADR technique has stood the test of time and is now evolving as the most preferred method with the governments, jurists and lawyers alike, having seen the drawbacks of adversarial or court mechanisms. Many countries are now promoting the use of mediation.

Scope and Advantages Of Mediation In Construction Disputes

Mediation is a process where the Mediator is a facilitator, the parties are in control of the process and the solution has the capability of deciding all aspects of the dispute. It is probably the only ADR technique that not only takes into account the commercial aspects of a case but also takes into consideration the personal interests of the contracting parties. Hence, from delays and technical errors to personal biases and strong stands, Mediation can cater to all aspects of a dispute between the parties irrespective of its technicalities.

As compared to other forms of ADR, Mediation is the least expensive and fastest way of resolving disputes. Where adversarial methods like Litigation and Arbitration involve long procedures and appreciating evidence along with witness testimonies, Mediation is a matter of few meetings usually. Early and immediate resolution of disputes is particularly advantageous in ongoing construction projects so as to not cause further delays and losses in the project.

Another advantage of Mediation is that the setting of Mediation is often private and informal. Mediation helps in the preservation of relations which is of utmost importance especially in ongoing projects like construction projects. The informal nature of the process also helps the parties in developing creative solutions which may never be possible in a process involving passing of a judgment or an award on the merits of the case. This also allows the parties to especially focus on only such issues which are a matter of disagreement rather than considering the entire dispute at length. Furthermore, it is also pertinent to mention that a number of studies have shown that Mediation as an ADR provided a higher level of user satisfaction to the parties involved in such resolution techniques [12].

It is also important to highlight that Mediation has always been perceived as an outcome-oriented technique. Even though the same is true it is necessary that Mediation in order to be widely recognized in the Construction Industry, will have to be viewed holistically and not only as a means to an outcome or settlement. One of the most vital aspects of Mediation that has been overlooked by the industry is the “Post-Settlement” Scenario. Emphasis should be drawn more on long-term benefits that can ensue from engaging in a non-confrontational and empowering process.

Concerns Regarding the Use of Mediation in Complex Disputes

One of the major concerns regarding the use of Mediation is the use of the process tactically for their client’s convenience rather than assuming it as a dispute resolution means [13].  Also, many parties and lawyers still doubt the process due to its informal and flexible nature. The commercial lawyers in practice often undermine the results of the resolution by comparing the Mediator with a “Judge” or an “Arbitrator” [14].

Conclusion

The common perception about the law is that it’s about deciding between wrong or right or black and white. Often the litigants or the contracting parties are mere spectators to their own case who are waiting for ‘justice’ to be delivered at the hands of the Judge or the Arbitrator. Mediation on the other hand has marked the paradigm shift in the legal landscape. The process has provided evidence that dispute resolution is not only about the process or outcome but also about involvement and empowerment.

Given the present advancements around the world, it would not be incorrect to say that world has started to recognize the suitability of Mediation as a dispute resolution process, and it may be arguable that in the future it will be conceived as not an ancillary but the primary method of dispute resolution.

About the Authors 

Mr. Ankit Sharma is a practising Advocate in India. He obtained a Master of Law’s (LL.M) Degree from Cornell University Law School, New York, USA. He is a B.A,Ll.b(Hons.) graduate from Indraprastha University (GGSIPU), New Delhi, India and has obtained a Post-Graduate Diploma in Intellectual Property Rights Law (PGDIPRL) from National Law School of India University, Bangalore, India.

Ms. Disha Chauhan is a lawyer by profession. She is a graduate of UPES, Dehradun having graduated in B.B.A, LL.b (Hons.)

Editorial Team 

Managing Editor: Naman Anand  

Editors-in-Chief: Akanksha Goel & Aakaansha Arya  

Senior Editor: Nutan Keswani  

Associate Editor: Muskaan Aggarwal  

Junior Editor: Tisa Padhy

Preferred Method of Citation 

Ankit Sharma and Disha Chauhan, “Mediation as a Method of Dispute Resolution in Construction Projects” (IJPIEL, 07 October, 2021). 

<https://ijpiel.com/index.php/2021/09/06/bond-green-bond-examining-the-regulation-of-green-bonds-in-india/>

Endnotes 

[1] Id.

[2] The global average length of construction disputes ranges from 13.4 months to 13.9 months, 2021. Global Construction Disputes Report. Arcadi.

[3] In Personam: Literally, “against the person.” In personam refers to courts’ power to adjudicate matters directed against a party, as distinguished from in-rem proceedings over disputed property. In Legal Information Institute, Cornell Law School, https://www.law.cornell.edu/wex/in_personam

[4] Meadow, C. Lawyer Negotiations: Theories and Realities What We Learn From Mediation. (1993). 56 Modern L. Rev. 361 379.

[5] Boulle, L. Mediation: Principles, Process, Practice. (2005). LexisNexis Butterworths.

[6] Alexander, N. The Mediation Meta Model: Understanding Practice Around the World. (2008). Conflict Resolution Quarterly.

[7] Id.

[8] [89. Settlement of disputes outside the Court.–(1) Where it appears to the Court that there exist elements of a settlement which may be acceptable to the parties, the Court shall formulate the terms of settlement and give them to the parties for their observations and after receiving the observations of the parties, the Court may reformulate the terms of a possible settlement and refer the same for:–

(a) arbitration;

(b) conciliation;

(c) judicial settlement including settlement through LokAdalat: or

(d) mediation.

(2) Were a dispute has been referred–

(a) for arbitration or conciliation, the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply as if the proceedings for arbitration or conciliation were referred for settlement under the provisions of that Act;

(b) to LokAdalat, the Court shall refer the same to the LokAdalat in accordance with the provisions of sub-section (1) of section 20 of the Legal Services Authority Act, 1987 (39 of 1987) and all other provisions of that Act shall .apply in respect of the dispute so referred to the LokAdalat;

(c) for judicial settlement, the Court shall refer the same to a suitable institution or person and such institution or person shall be deemed to be a LokAdalat and all the provisions of the Legal Services Authority Act, 1987 (39 of 1987) shall apply as if the dispute were referred to a LokAdalat under the provisions of that Act;

(d) for mediation, the Court shall effect a compromise between the parties and shall follow such procedure as may be prescribed.]

[9] Many amendments were brought to include Mediation as a pre-litigation requisite by the Parliament. Provision for mediation of consumer disputes in the new Consumer Protection Act, 2019 vide Section 37. Chapter V of the Act provides detailed provisions pertaining to mediation of consumer disputes, including those concerning the establishment of consumer mediation cells attached to each of the District Commissions and the State Commissions of a State (Section 74), empanelment of mediators (Section 75), the procedure for mediation (Section 79), etc. Further, Consumer Protection (Mediation) Rules, 2020 and Section 442 of the Companies Act,2013 are also provisions enforced with the same intent.

[10] Myers, J. International Construction Dispute Resolutions and New Alternatives. (1985) 6 Constr. LAW.1.

[11] Ceno, J. Construction Mediation as a Developmental Process, 2013. (2013). INT’l REV. L. 1.

[12] Guthrie, C; and Levin, J. Party Satisfaction Perspective on a Comprehensive Mediation Statute. (1998). 13 Ohio St. J. on Dis. Res. 885 908.

[13] Latham, M. Constructing The Team: Final Report of the Government/Industry Review of Procurement and Contractual Arrangements in the UK Construction Industry. (1994). The Stationary Office.

[14] Ceno, J. An Investigation into Lawyer Attitudes Towards the Use of Mediation in Commercial Property Disputes in England and Wales. (2011). 3 Int’l J.- L. in the Built Env’t 182 198.