What Does It Take, Is It Worth It, and What Are the Cost Implications of Alternative Dispute Resolution?

The volume of disputes and associated financial fallout in global construction claims is steadily rising, indicating that construction disputes continue to have a growing global impact. During the International Bar Association (IBA) Annual Conference in Mexico City, a key session explored the complexities of mediation in construction disputes. The panel focused on efficacy, cost implications, and whether mediation is the optimal forum for these disputes. A number of TransPerfect’s Construction Disputes Practice Group members attended the session to participate in the discussion. In addition to contributing to and building the learnings into our own advisory practice, we are also happy to share some of the key insights below.

Multi-Jurisdictional Elements in Construction Mediation

One of the most challenging aspects of construction disputes in a global context is navigating multi-jurisdictional issues. Different legal frameworks apply depending on the geographic location of any projects, parties, disputes, and seats. For instance, mediation in Mexico will be influenced by local legal traditions, while a company headquartered in Canada may be more familiar with its domestic legal framework. The divergence between these legal systems can create friction during the mediation process.

The relationships between counsel and the adjudicating bodies—whether in arbitration or court—also differ by jurisdiction, adding layers of complexity. While local counsel may be well-versed in regional laws and practices, they must prioritize the client’s best interests, especially when those clients may be unfamiliar with the intricacies of a foreign legal system. A Canadian company embroiled in a construction dispute in Mexico might not fully understand the nuances of Mexican law. Here, experienced representation becomes even more critical, ensuring that the client’s needs remain paramount.

Mediation, especially in multi-jurisdictional settings, often requires a pre-mediation meeting where both parties agree on the qualifications and background of the mediator. This ensures that the mediator has the prerequisite knowledge to address the specific legal and cultural aspects of the dispute, facilitating a smoother mediation process.

Addressing Power Imbalances in Mediation

One of the key takeaways from the IBA 2024 session was the importance of addressing power imbalances that often arise during mediation. There are five key areas where these imbalances manifest:

1. Interest-Based Elements: One party may have a stronger interest in the outcome due to financial or reputational stakes, which can skew the dynamics of the mediation. It’s critical to remove both parties from their entrenched positions and focus on their underlying interests.
2. Procedural Fairness: The mediator’s role is to ensure procedural fairness, particularly when dealing with parties of unequal status. In cases where there is a vested government interest—such as a high-profile infrastructure project—procedural fairness can be compromised if one party feels intimidated by the other’s power or influence.
3. Information Exchange: Information parity is a cornerstone of successful mediation. Both parties must have access to all critical documents and information relevant to the dispute. Without this transparency, mediation can become an exercise in futility, with one party at a distinct disadvantage.
4. Equal Opportunities: Providing both parties with equal opportunities to present their cases, including using breakout rooms during mediation sessions, can help ensure balanced decision-making. This is particularly important when one party may feel overwhelmed by the process or the opposing side’s resources.
5. Maintaining Long-Term Relationships: In many construction projects, the relationship between the disputing parties must be preserved for the long-term success of the project. Mediation offers a way to resolve disputes without permanently damaging professional relationships, which is crucial when the parties must continue working together to meet overall project goals and deadlines.

Mediation vs. Arbitration: Is Mediation the Better Choice?

A heavily debated topic during the session was the relative merits of mediation compared to arbitration. International arbitration is notoriously expensive, prompting many parties to seek mediation as a more cost-effective alternative. However, while mediation can reduce costs, it is not always the right solution. A major pitfall occurs when confidentiality provisions are not clearly set before mediation. Without clear agreements, information exchanged during mediation could be used later in arbitration or litigation, negating the confidentiality that many parties seek.

Parties should consider three important factors in their decision to mediate:

1. Financial Resources: Mediation offers significant cost savings compared to arbitration.
2. Access to Legal Resources: The quality of legal representation plays a significant role in determining whether mediation will be successful. Skilled mediators and lawyers can often help both sides find common ground. The more geographically complex a dispute is, the harder it may be to find truly representative legal resources.
3. Information Sharing: Equitable information sharing ensures that both parties are working with the same set of facts. Without this, mediation can quickly become lopsided and ineffective.

Despite the differences between mediation and arbitration, mediation offers several advantages. First, it allows parties to explore shared interests, focusing on the common ground rather than the contentious points of the dispute. Lawyers may be mandated to win the case for their clients, but mediation often de-escalates disputes and narrows the issues, making it easier to find a resolution that works for both sides sooner and more cost-effectively.

Mediation also gives parties a better understanding of each other’s perspectives, which can ultimately lead to more creative and amicable solutions. The process is less adversarial, focusing on solving the core issues rather than litigating every potential point of disagreement.

Conclusion

Mediation is an increasingly viable tool for resolving construction disputes, especially in a global context where multi-jurisdictional issues and power imbalances often come into play. As we learned from the IBA 2024 session, mediation offers opportunities for cost savings, efficiency, and the preservation of long-term professional relationships. However, its success depends on careful preparation, ensuring procedural fairness, and maintaining a balanced flow of information. When executed well, mediation can be a powerful alternative to arbitration and litigation, providing a pathway to resolution that is both cost-effective and collaborative.

For more on equitable information sharing, check out our webinar on the challenging eDiscovery issues often arising from the diverse data types involved in construction disputes, including CAD/design files, construction-specific project management databases, mobile phone data, and large volumes of images and video files.