Settlement of disputes using mediation is becoming more and more frequent. Palm Commercial Services promotes the use of mediation which can encourage a collaborative conclusion to settle a dispute.
History of Mediation
The origins of mediation can be traced to China over three thousand years ago. Historically, mediators were often respected community members who were known to the parties. Other parts of the world developed forms of adjudicative process whereas China used mediation techniques as a primary dispute resolution process. Abraham Lincoln highlighted the benefits of avoiding litigation in a lecture on law in 1850.
The use of mediation in the United Kingdom originated from family disputes and then the commercial sector started to use the process in the late 1980s. The Centre for Effective Dispute Resolution started promoting ADR in 1990. In 1988 the Institution of Civil Engineers established conciliation within their standard form of contract and the Construction Mediation Procedure was then added to the standard form.
The use of mediation in construction projects was rare in the 1990s, but currenty the largest single user of mediation in the UK is the construction industry and the introduction of the HGCRA 96 has not affected the increasing use of mediation.
Chances of Success
The chances of mediation obtaining a successful decision are high. 90% of all mediations settle either on the mediation day itself or shortly afterwards. The odds are therefore very god that any time and money spent will be rewarded.
In Mediation, an independent and skilled person is requested to assist the parties in dispute to come to a decision. This process is becoming popular internationally. The process is provided for in some standard construction contracts. The independent person who is referred to act as the mediator works with the parties to resolve the dispute and come to a mutually acceptable solution. The process comprises of discussion and negotiation.
Wembley Stadium National Landmark, but a Disastrous Build – An Example Why Mediation Should be Used More
“The only winners were the lawyers…”
The construction of Wembley Stadium is an excellent example of why mediation should be used for large construction disputes. Wembley Stadium was tendered in 1999. One of the UK’s largest contractors refused to submit a bid due to the high risk of running over budget. A bid was submitted in joint venture by Multiplex and Bovis and they were appointed as the preferred contractor. Bovis refused to accept a price below £339 million and in August the client Wembley National Stadium Limited (‘WNSL’) terminated the joint venture.
Multiplex made a solo bid to build Wembley in 39 months for £326.5 million which was accepted ten days later by WNSL. After further negotiations, the guaranteed fixed price was increased by £120 million to £445 million. It was anticipated by Multiplex that there would be few changes and they reported that the contract would secure a profit.
The main technical challenge comprised of the signature arch which was subcontracted to Cleveland Bridge as an 81 week, £60,000,000 lump-sum fixed price deal to fabricate, supply, deliver and erect the arch and roof.
This is when the problems started. In 2004, after severe disruption a legal dispute developed between the parties and Cleveland Bridge were ordered off the site. Hollandia, a Dutch steel subcontractor, were appointed to complete the works on a cost plus basis.
Cleveland Bridge issued a claim for non-payment against Multiplex at the TCC. Cleveland Bridge alleged that the design carried out by the civil and structural engineers (‘Mott Stadium Consortium’) was late and incomplete and in turn caused increased costs, delays and disruption to the subcontract works. A plan was agreed between Multiplex and Cleveland Bridge for acceleration and compensation for the change in the subcontract. The dispute occurred due to alleged non-payment and breaches of contract.
Losses in the region of £45,000,000 were announced by Multiplex in 2005 and resulted in their shares being suspended on the Australian stock market. In addition to the losses, Multiplex had a High court writ claim of £20,000,000 from Cleveland Bridge and £20,000,000 from other subcontractors. The extent of the losses was dependent on five factors; successful recovery of the claims against third parties, the ability to meet the construction programme, costs associated with the project’s steel work, project preliminaries costs, and as required, acceleration and weather. Several court judgements have been generated due to the project, and these continue as of 2011. The project was completed in 2007 after extensive delays. Multiplex made a loss of £147,000,000 on the project and the company was sold in the same year to a Canadian company.
The project was subject to much litigation127 and has been debated many times as a bad example of project management. The various litigations made interesting news for many concerned observers in the industry.
Brookfield Construction (UK) Limited v Mott MacDonald Limited
This recent and significant case management judgement on the largest construction UK construction lawsuit in history will be investigated since it provides a good understanding as to how litigation can result in ridiculous costs and highlights the importance of mediating early.
The Honourable Mr Justice Coulson made some extremely significant statements with regards to the benefits of mediation and this method was promoted in order to avoid the huge costs of litigation.
Multiplex issued the following claims against Mott:
Firstly, Multiplex’s tender price was too low as result of inadequate design information received from Mott when they submitted their original tender (the ‘Notional Tender Claim’). The claim amount was £13million.
Secondly, Mott design failures made Multiplex vulnerable to substantial claims from CBL. The claim amount was almost £28million.
Thirdly, Multiplex claimed for £4million which was for their prolonged and increased difficulties up to August 2004.
The fourth claim amounted to £100million and was for the delay and disruption to the steel works after August 2004 and included a claim for the loss of benefit of Cleveland Bridge’s fixed tender price.
The fifth claim was for settlements reached with other subcontractors and amounted to £41million.
The sixth claim amounted to more than £60million and included for delay and disruption, liquidated damages imposed by Wembley, the loss of an early completion bonus, the loss of opportunity to earn revenue on other projects and legal costs.
The final claim was for Mott disputed variations and was for the sum of £2.7million
Mr Justice Coulson made several statements implying that the parties should avoid litigation proceedings. He specifically used Multiplex v Cleveland Bridge as an example of proceedings which should be avoided. The costs incurred in this case were extremely
disproportionate to the costs awarded following litigation proceedings.
He reiterated to parties that his aim was, ‘...to try and ensure that this dispute does not go the same way as the CBUK litigation, and that there is a sensible cost/benefit ratio for both parties.’
This case made perfect sense for mediation early, and highlights the extremely high costs of other methods of dispute resolution.
Prior to the litigation Multiplex and Mott engaged the TCC pre-action protocol process between 2005 and 2007. Detailed documentation was prepared, but the process was slow and the costs were huge. The evidence suggested that the process was pointless to both parties. It was at this point that Justice Coulson voiced his concern that the TCC was the only part of the new Business court which required this process to be undertaken. He referred to Lord Jackson’s recently issued report when stating that this expensive protocol process bears little fruit at the end.
The Case Management Conferences (the ‘CMC’)
The first CMC was held in July 2009 and the two principle matters of debate were the faults in Multiplex’s case and the best way to attempt to try the huge claim. A long sub-trial would need to be scheduled for 2011 to look at the claims and it was anticipated that due to the level of claim, it would pretty much last for the whole year. This was inadequate use of the court and it was intimated that the parties should consider the outcome.
A review CMC was scheduled for November 2009, but Multiplex were successful in obtaining an adjournment until December 2009. At this time Mott complained of the costs which Multiplex were attempting to recover and that they had failed to provide sufficient details of the allegations. Justice Coulson at this stage acknowledged that Multiplex was struggling to present a coherent case.
A further CMC was held in January 2010 where the costs were discussed. In February 2010 the scope of the sub-trial and the party’s issues were discussed. At this stage the basis of Multiplex’s claims were starting to appear in detail and the presentation became clearer. Mott’s requests for further information was refused Mott were instructed that the date
of March 2010 for presentation of their amended defence and counter claim must be achieved. This date was reluctantly postponed until April 2010. The scheduled sub-trial would have been delayed until 2012 if there were further delays to the timetable.
The legal costs at this stage were significant. Multiplex stated in December 2009 that £29million had been incurred to date and the sub-trial would cost a further £17million, resulted in overall costs in the region of £46million. It was this stage that Justice Coulson stated:
‘In the 25 years that I have been involved in construction cases, I have never seen costs figures at such a level. As a matter of general impression, I am presently unable to see
how such costs could be described as reasonable or proportionate.’
Multiplex’s comment that the costs were high since the claim was complicated and considered them disproportionate and potentially unreasonable was disagreed with. Multiplex spent £12million on experts up to November 2009. It was expected that for this huge sum, it was reasonable to expect that an expert analysis of the important events, an analysis of what did and what did not cause delay would be available. It was considered that Multiplex had not tackled the claim very well.
Multiplex changed their solicitors and Mott argued that costs incurred as a result of this doubling up of resources during handover should not be considered. The new solicitor offered a credit of £100,000, but this was not seen to be much considering the amount of paperwork which the case had generated. It was considered that it was too early to
review detailed cost assessments.
Multiplex were incurring costs of £1m per month. It was instructed that both parties should exchange cost updates every three months so that they were fully aware of the litigation costs being incurred. The document management company employed by Multiplex had also
gone bust, which had added to wasted cost. Multiplex agreed that they would not attempt to recover these costs. It was ordered that the costs estimated in the early CMC were the
maximum likely recovery costs following the sub-trial and if the costs were higher than this estimate, then the parties would have to persuade the court during any attempted cost recovery. Mott’s estimate was £27,494,500 and Multiplex’s estimate was £45,695,000.
It was evident that Multiplex had adopted the stance of including every little detail in their claim, relevant or not relevant. They were instructed to move away from this and focus on the relevant items.
Both parties were also instructed to co-operate with each other and it was advised that the solicitors met on a regular basis to iron any minor differences to avoid the un-necessary run up of costs.
Justice Coulson persuaded both parties to try and resolve the dispute without going to trial due to the size of the claim. He recommended mediation as a suitable next step, taken sooner rather than later. The case of Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd was referred to with regards to the disputing parties allowing the dispute to get totally out of hand, lack of focus on legal costs and senior employees from both Cleveland Bridge and Multiplex becoming remote to the dispute. This case concluded with the following statement advising parties to refrain from such disputes:
Finally I wish to say something directly to the parties. It has been obvious to me that no settlement could be achieved whilst certain fundamental issues were unresolved. Both parties have had a measure of success on the preliminary issues. Neither party has won an
outright victory. With the assistance of this court's decision on the ten preliminary issues, it may now be possible for both parties to arrive at an overall settlement of their disputes, either through negotiation or else with the help of a mediator, who is unconnected with this court.
Finally, if ADR failed to resolve the dispute between Multiplex and Mott Macdonald, then it would be seen that at least they tried, and the fact that they had tried would be viewed favourably.
Justice Coulson concluded with the following statement:
“If there is a genuine effort on both sides to resolve their differences by ADR, but that attempt results in failure, then I will deal with the issues noted above at the sub-trial in 2011. Indeed, at that sub-trial, I would like to be in a position to decide as many of the issues between the parties as possible. I repeat that the parties should approach the 2011 sub-trial on the footing that it is most unlikely that there will ever be another.”
The dispute was settled during the middle of 2010 and it was understood that Mott Macdonald agreed to pay Brookfield at least £30m its legal costs but it was not known whether liability was accepted by either party.
Both sides obviously took on board the comments made in the judgement and both potentially avoided the huge costs of the trial scheduled for January 2011. With regards to the conclusion a source quoted, “The only winners have been the lawyers”.
To summarise, the largest UK construction case was avoided following the advice by Justice Coulson. It is interesting that the timing of this was shortly after the publication of the Jackson Report and shows the route in which construction dispute resolution is heading towards ADR methods such as mediation. Although it is not known whether mediation was used to settle this case, it is highly likely that a method such as this would have produced the result. Significant cost has been saved and more importantly the work of the TCC which can proceed with cases where litigation must be held.