Construction projects involve risks that often lead to disputes. These disputes have led to an increase in the complexity and number of legal cases. In an effort to reduce the cost and delay associated with litigation, parties are turning to alternative dispute resolution processes such as arbitration and mediation to resolve these disputes. Often, these processes are stipulated in the construction contract. However, they can also be agreed to by the parties in dispute through a separate dispute resolution agreement.

It is important to fully understand these processes to determine which is best suited for a specific case. Mediation is appropriate for situations in which both parties are prepared to compromise and, with the help of a neutral person, reach a timely and mutually satisfactory resolution. Arbitration may be more appropriate when parties need to reach a final decision and there is no likelihood of negotiating a settlement.

Time commitment
Mediations are usually able to be held sooner than an arbitration hearing and tend to conclude within a few days. Mediation briefs are often exchanged and provided to the mediator in advance, which allows the parties to better understand the other’s position prior to the mediation session.

Arbitration hearings usually last longer than a mediation and involve a considerable amount of time in advance for discovery of documents and limited examinations for discovery.

Under both processes, the parties have the flexibility of agreeing to an appropriate schedule rather than a schedule dictated by the litigation procedural rules.

Cost
Mediation can be much more cost-effective than either litigation or arbitration but only if it results in a resolution. The three main cost components of mediation include internal business costs for preparation and attendance, the cost of lawyers or other advisors to prepare and attend, and the cost of the mediator and session room.

The arbitration process tends to involve a longer process, presentation of evidence, possible discoveries, legal submissions and expert reports. This inevitably leads to significantly higher costs than mediation, more similar to the cost of litigation.

Preserving the business relationship
The biggest advantage of mediation over arbitration is it avoids the adversarial process and, as a result, preserves the business relationship. Mediation can focus more on the business interests of the parties than on their legal positions. By not dwelling on the different views of how the dispute arose, the parties are able to meet in a neutral environment with an objective mediator and concentrate on creating a solution to their dispute. The mediator assists the parties in identifying the strengths and weaknesses of their case while discovering the underlying interests at the heart of the dispute.

Control
In mediation, the parties maintain control over how the dispute will be resolved. A mediator has no authority to impose a settlement or to tell the parties how the dispute must be resolved. The parties must agree on the final outcome.

In arbitration, the final outcome is based upon the decision of the arbitrator and the parties are bound by it even if they don’t agree with it.

Keys to success
To help ensure a successful mediation:

• Plan to spend a concentrated period of time in the mediation. Do not plan on conducting other business during or between sessions.
• Consider the cost of avoiding future litigation or arbitration.
• Have an understanding of the issues that is akin to that of the other party.
• Resist setting a “bottom line” or “top dollar” settlement number until the mediator has discussed the case.
• Ensure there is sufficient information. Exchange mediation submissions, documents and relevant information in advance.
• Be prepared to address technical issues. Have an expert available to discuss any reports with the mediator and other party.
• Each party should be represented by someone having settlement authority to allow a final settlement to be reached.
• Discuss internally the concept of settlement and possible options beforehand. Think about benefits that might be negotiated in addition to payment of money.
• Maintain a flexible attitude about settlement options.
• Determine objective and rationale bases for settlement proposals.
• Come to the table with an open mind.
• Leave extra time in case more time is needed to reach a settlement.

Mediation and arbitration are both effective processes for parties wanting to resolve disputes outside of court. However, if there is a common motivation to settle the dispute on a timely basis while preserving the business relationship, there is little to lose and everything to gain by attempting mediation.

Trish Morrison is a partner and the regional leader of the Calgary construction group at Borden Ladner Gervais LLP. She can be reached at 403.232.9472 or pmorrison@blg.com.