The benefits of mediation in a commercial dispute

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The popular image of a lawyer is a person keen on prolonging an expensive court action.

More often the opposite is true. Lawyers know that court cases are expensive and that clients are fearful that legal costs could escalate to an intolerable level. They are also all too aware of how long and unpredictable litigation can end up becoming. Lawyers interested in preserving long-standing relationships with their clients will often recommend alternative dispute resolution options – mediation being one.

Mediation allows parties to remain in control of their own disputes and outcome while facilitating parties to tell their side of the story to the other party and the mediator.

What exactly is mediation?

Mediation is one form of alternative dispute resolution with others including Early Neutral Evaluation, expert determination and arbitration.

In essence mediation is an informal conflict resolution process brought before an independent, neutral third party. Mediation gives the parties the opportunity to discuss their issues, clear up misunderstandings, and find areas of agreement in a way that would never be possible in a court case.

Mediation is often voluntary. Typically the mediator has no authority to make a binding decision unless both parties agree to give the mediator that power which is dealt with in advance of the mediation commencing.

When parties should consider mediation

In practical terms mediation is likely to be quicker and more cost-effective than the more formal processes of arbitration or litigation (in court). Mediation should be considered as early as possible after a dispute has arisen. It is particularly appropriate where a dispute involves complex issues and/or multiple parties.

In addition, mediation can be implemented prior to, or in conjunction with, other forms of dispute resolution such as arbitration or court proceedings.

In circumstances where privacy and confidentiality are important, mediation enables parties to preserve these rights without public disclosure. This often leads to more satisfactory outcomes for both parties.

Advantages of mediation

Some of the many advantages to mediation are as follows:

You get to decide: The responsibility and authority for coming to an agreement remain with the people who have the conflict. The dispute is viewed as a problem to be solved. The mediator doesn’t make the decisions, and you don’t need to “take your chances” in the courtroom. In doing this however, naturally you need to understand your legal rights so that you can make decisions that are in your own best interests.

The focus is on needs and interests: Mediation examines the underlying causes of the problem and looks at what solutions best suit your unique needs and to satisfy your interests.

For a continuing relationship: Colleagues, business partners, and family members have to continue to deal with each other co-operatively. Going to court can divide people and increase hostility. Mediation looks to the future. It helps end the problem, not the relationship.

Mediation deals with feelings: Each person is encouraged to tell their own story in their own way. Discussing both legal and personal issues can help you develop a new understanding of yourself and the other person. You are encouraged to see things from the other person’s perspective.

Higher satisfaction: Participants in mediation report higher satisfaction rates than people who go to court. Because of their active involvement, they have a higher commitment to upholding the settlement than people who have a judge decide for them. Mediations end in agreement about 80 percent of the time and have high rates of compliance.

Informality: Mediation can be a less intimidating process than going to court. Since there are no strict rules of procedure, this flexibility allows the people involved to find the best path to agreement.  Although it is normal for any dispute resolution to be taxing emotionally, mediation is a process that is much less confronting and is conducted in a much more comfortable environment than litigation.

Faster than going to court: Years may pass before a case comes to trial, while a mediated agreement may be obtained in a couple of hours or in sessions over a few weeks.

Lower cost: The court process is expensive, and costs can exceed benefits. It may be more important to apply that money to solving the problem, to repairing damages, or to paying someone back. Mediation services are available at low cost for some types of cases. If you can’t agree, other legal options are still possible. Even a partial settlement can lessen later litigation fees.

Privacy: Unlike most court cases, which are matters of public record, most mediations are confidential.

Where mediation is not the solution

With mediation a resolution is not guaranteed. There is the potential that parties may invest time and money in trying to resolve a dispute out of court, and still end up having to go to court. Ultimately it is a call that should be made in consultation with an experienced lawyer.

Mediation should not be a solution in circumstances where it is not appropriate. Where a court remedy is necessary such as an injunction or specific and urgent court orders, mediation is not helpful.

It must also be remembered that the mediator has no power to impose a binding decision on the parties. Therefore, even after the mediation the matter may be unresolved and you may still need to go to court. This is where the selection of the mediator requires careful consideration by all parties.

Fundamentally, mediation rarely produces a satisfactory resolution unless both parties to a dispute are committed to a resolution by this way. If one party does not cooperate or engage with the processes, mediation will be fruitless.

Conclusion

Mediation is an alternative to financially and emotionally costly and time-consuming processes such as using the court system. It is suitable for people who are willing to communicate with the other party and attempt to better understand and settle their dispute with the help of a trained third party.

To find out more call us on +612 9030 7400 or email info@bradburylegal.com.au.

Different options for resolving building disputes

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A building dispute can have serious implications for all parties involved, the most obvious being delays to the construction project and the resulting financial loss.

A dispute may arise from disagreements over the interpretation of a contract term, incomplete or defective works, variations to the scope of works, or charges for prime cost items and provisional sums.

Bringing a building dispute matter before a court or tribunal can exacerbate the issues between the parties, delay the project further, incur additional costs and cause even more damage to the parties’ strained relationship. It is almost always beneficial to settle a building dispute through alternative dispute resolution (ADR).

ADR involves retaining an impartial third party to assist in reaching an early settlement of the matter. In fact, most jurisdictions require that parties to a building dispute make genuine attempts to settle the matter before proceeding to a tribunal or court.

Construction contracts often contain ADR clauses that specify the approach to be used if a dispute arises. The ADR method may be facilitative, advisory or determinative.

When preparing or entering a construction contract, it is important to understand the different ADR approaches and their implications, and to choose the type most suited to the circumstances. If there is no ADR clause, the parties may agree to use a particular method. The following is a summary of each.

Facilitative

A building dispute may be resolved through mediation which involves a neutral person meeting face to face with the parties to assist them in narrowing the disputed issues, exploring options and reaching a solution.

Mediation is informal and confidential, and the mediator does not provide legal advice nor does he or she determine the matter. The parties should be willing to negotiate in good faith and make genuine attempts to resolve the dispute.

The parties meet in a “without prejudice” environment and the mediator coaches the parties through the issues and encourages them to engage in meaningful negotiations.

Mediation allows the parties to reach an early settlement that may be more flexible than one imposed by a court or tribunal and may assist in preserving the parties’ commercial relationship allowing them to continue working throughout the project and beyond.

The construction contract will usually specify who may be appointed as a mediator and stipulate who is responsible for the costs of the mediation – this is often shared equally between the parties.

Advisory

Advisory ADR processes may include conciliation, expert appraisal and case appraisal. Each involve the appointment of a third party to consider the available material and provide advice regarding the facts and appropriate law and how the matter may be settled.

Early Neutral Evaluation was first used in the United States in response to a critical backlog of cases within the courts system and generally falls within the category of case appraisal. An evaluator with knowledge of the law is appointed and considers the parties’ respective arguments and evidence. The evaluator may be a dispute resolution practitioner or judicial officer. They make a non-binding evaluation of the strengths and weaknesses of each side, the likely liability and an estimate of damages.

In other words, the parties are provided an expert opinion, from an experienced and respected neutral party, regarding the likely outcome if the matter was to go to a court or tribunal. The evaluation is confidential, and the appraisal provided generally encourages settlement without the delay, costs and formalities associated with a court or tribunal hearing.

Senior Executive Appraisal, also known as a mini-trial, involves a panel of senior experts joining an independent neutral third party to consider and evaluate the dispute. The parties present their own evidence and the panel convene to attempt to settle the matter. The power conferred on the panel and independent third-party is predetermined by agreement.

Determinative

An independent expert with appropriate technical knowledge is appointed by the parties to determine the dispute. The determination is generally made on the respective parties’ written submissions, statements and evidence and the expert may conduct his or her own investigations before determining an award. Oral evidence does not usually form part of the process.

The contract generally sets out the process governing this method of ADR, including who the expert should be, how the expert is appointed, the relevant timeframes, the binding nature of the decision and how costs are to be paid.

If the contract provides for the determination to be binding and a party refuses to comply with the decision, then the other party will generally need to rely on the contract’s provisions to enforce the decision through the court.

When ADR is unsuccessful

Not all building disputes may be successfully negotiated.

If resolution is impossible or impractical, either party may make the appropriate application to their state or territory Administrative Tribunal or court. The matter will proceed according to the type of construction project, the value of the claim, and the parties to the dispute. Tribunals and courts are formal jurisdictions and have strict processes and timeframes.

Conclusion

Unresolved building disputes can escalate quickly depleting valuable time and resources of the parties involved. Utilising ADR to resolve a dispute can be time efficient, cost effective and assist in preserving the relationship between the parties.

Determining which ADR method is appropriate will depend on the facts and circumstances of each case. In all matters however, the parties should be willing to listen and make genuine efforts to negotiate and resolve the issues.

If you or someone you know wants more information or needs help or advice, please contact us on +61 2 9248 3450 or email info@bradburylegal.com.au.

The dreaded ACL injury: the Australian Consumer Law and building contracts

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Since it fully came into effect on 1 January 2011, the Australian Consumer Law (ACL) has lived up to its infamous initials. Just as athletes live in fear of hearing those three letters from physicians, now businesspeople must also tread carefully to avoid hearing them from judges.

The ACL is part of the Competition and Consumer Act 2010 (Cth). Although recently enacted, many of its provisions were previously in effect under the now-repealed Trade Practices Act 1974 (Cth).

This law touches all trade and commerce in Australia in some way, and seeks to ensure that parties adhere to standards of fairness and honesty in business. Failure to do so can lead to a number of consequences, including a contract being torn up and even criminal sanctions.

The regime is part of a broad shift of the law away from the fundamental legal principle that if parties willingly and knowingly agree to a contract, they must keep their promise, regardless of how difficult this is or ends up becoming.

Perhaps its name is to blame, but many are under the false impression that the Australian Consumer Law only applies to everyday retail consumers. However, complex “high-end” commercial deals can equally be subject to the ACL. Your building contract could be affected in the same way that Amy buying a DVD player is affected.

This article is only a primer to a range of consumer law issues that people on construction projects should be thinking about. For information about how these might apply to your project or your claim, please seek legal advice.

What is the ACL?

The ACL is the primary law governing protections and expectations about business conduct in Australia. It applies nationally, to every State and Territory. It also applies where foreign companies do business with businesses in Australia.

In general, it is important for developers, homeowners and contractors to know that the ACL applies even if the parties have “agreed” that it doesn’t apply. Parties cannot contract to exclude the application of the ACL.

Having said that, courts are still working out how to deal with contracts that in roundabout ways exclude its operation.

What transactions are caught by the ACL?

This depends.

Certain protections apply to any trade or commerce taking place in Australia. Additional protections regulate more specific types of transaction.

Developers and builders would do well to ask themselves the following questions:

  1. Is my project trade and commerce?
  2. Is my contract a consumer contract?
  3. Is my contract a small business contract?

Is my project “trade or commerce” under the ACL?

This is the broadest category of protections given by the ACL, so if you are thinking about it the answer is very likely “yes, my project is trade and commerce”.

The ACL covers trade or commerce that takes place within Australia and includes business or professional activity (whether for-profit or non-profit).

Some previous examples of constructions that were affected by ACL claims include projects to:

  • build extensions to a large domestic airport;
  • construct a spillway for a dam;
  • design and install a ceiling to an aquatic centre; and
  • build a strata title development in Kirribilli.

So what protections apply in trade and commerce?

The most famous protection is misleading and deceptive conduct. Not precisely defined, it encompasses a broad range of statements, representations or behaviour that may mislead or deceive a reasonable person. In certain circumstances, silence may be misleading, and this will be caught too. It does not matter that the person did not intend to mislead with their conduct, and does not matter that the deception happened before the contract was executed.

Related to this is the protection from unfair practices, which are activities that are broadly misleading. These include false or misleading claims about the standard of goods and services being supplied. They also include prohibitions against bait advertising, against asserting a right to payment without a reasonable cause to believe there is a right to payment, and against supplying unsolicited services.

Another line that all businesses involved in trade or commerce must toe is that of unconscionable conduct. The definition of “unconscionable conduct” is broad and not limited to what is written down in the statute books. Either a supplier or an acquirer of goods or services may be accused of unconscionable conduct.

Some examples of what might be considered to be unconscionable include: the imposition of conditions not reasonably necessary to protect the interests of a party, the exertion of any undue influence or pressure on a party, and unreasonable failure by a party to disclose intended conduct or risks that would not be foreseen.

Is my contract a small business contract?

The contract in question might be a “small business contract”. This will be where:

  • A contract is for supply of good or services, and
  • A party to the contract is a business that has 20 or fewer employees, and
  • The upfront contract price is up to $300,000 (or the upfront contract price is $1 million and the contract has a duration of more than 12 months).

These are the questions businesspeople should be asking themselves.

Small business contracts have all the protections outlined above (including misleading and deceptive conduct, unfair practices, and unconscionable conduct). In addition, they are protected from unfair contract terms

An unfair contract term is a term in a standard form contract that would cause significant imbalance in the parties’ rights, is not reasonably necessary to protect the legitimate interests of the party benefiting from it, and would cause detriment to the other party.

There are no hard and fast rules about what is an unfair term, as the circumstances of the case will always be considered carefully by a court. However, an example is a term that allows one party unilaterally to vary the characteristics of the goods supplied, or to vary the terms of the contract.

Is my contract a consumer contract?

The most protected species under the ACL are consumers. The contract for goods or services is a consumer contract if:

  • The price of the goods or the services is less than $40,000; or
  • The goods or services were of a kind ordinarily acquired for personal, domestic or household use or consumption; or
  • The goods were a commercial road vehicle.

Where any of these apply, the person acquiring the goods or services could be a “consumer” in the eyes of the law. In addition to the protections listed above, consumers benefit from consumer guarantees.

Consumer guarantees are a litany of warranties that a supplier of goods or services makes to a consumer the moment the contract is in place. Some examples include:

  • The goods or services are of acceptable quality;
  • The services are rendered with due care and skill;
  • The services are reasonably fit for a purpose, if the consumer makes it know they hire the services for this purpose.

Many of these guarantees already exist elsewhere, in tort and contract. The difference here is that contracting parties cannot contract out of these consumer or small business guarantees. Subject to what is said below, they will apply regardless of any contractual term stipulating that they don’t.

Remedies

Parties who are a victim and suffer loss or damage because of another party’s breach of the ACL have many remedies at their disposal.

The main remedy is that they may make a claim for damages from the offending party. This claim for damages must be made within 6 years of the day that the entitlement for the claim first arose.

Some of the above breaches of the ACL are also criminal offences. This especially includes false or misleading representations, and unfair practices.

If the ACCC or local bodies such as Fair Trading NSW bring actions against businesses for the above breaches, they can enforce pecuniary penalties. They can also request injunctions preventing the offending conduct. There are a myriad of other remedies to suit the specific circumstances, including requirements to undertake training of staff.

Limiting the effect of the ACL

The effect of the ACL cannot be excluded, restricted or modified by a term of the contract. Any contractual term that purports to do this is struck out by courts.

Though this principle appears clear as day, courts have found it difficult to apply in the real world, and there are isolated examples of businesspeople who have avoided a nasty ACL claim through clever drafting of the contract.

In one NSW case, a contract purported to prevent claims made under statute after one year from the date of practical completion. This had the practical effect of reducing the 6 year limitation under the Act, and the court found this was acceptable. Similarly, another NSW case held that a monetary limit of $300,000 was effective to prevent a claim under the ACL from more than this amount. The courts in both cases gave detailed consideration to the surrounding circumstances.

However, a recent Victorian case has gone the opposite direction. The contract purported to require a claimant to give 7 days’ notice to the other party if it was going to make a claim, including under statute. The Victorian Supreme Court found that this contractual provision was void.

Hopefully these issues will be definitively settled by a superior court. Until then, parties must be wary both of the possibility that the ACL will override what their contract says, and of the possibility that contractual time bars or monetary bars might affect a claim they have.

Conclusion

It is essential for anyone involved in business and all their staff members to understand their obligations under the ACL, because you can be sure the lawyers of the other side will know them. There is no escaping them, as they apply irrespective of what the contract says and government regulators are on the lookout for breaches.

If you or someone you know wants more information or needs help or advice, please contact us on +61 2 9248 3450 or email info@bradburylegal.com.au.