Mediation and arbitration are commonly referred to as “Alternative Dispute Resolution” or “ADR.” However, a pre-trial mediation is not simply an “alternative.” Mediation is the most common method of resolving construction disputes in Washington; and, in fact, is required by contract or the courts in most circumstances. When a dispute is not resolved at mediation, it usually proceeds to either litigation or arbitration. What are the differences in these approaches and when might each be most useful?
Mediation is intended to be a voluntary dispute resolution process. In other words, when a mediation is successful, the parties reach an agreement that resolves their dispute. There is no decision-maker other than the parties themselves. A mediator acts as a facilitator to relay offers between the mediating parties (who are usually in different rooms) and their counsel, and presents strategies to narrow the distance between the parties’ positions. Unlike arbitration, where an “award” is issued to the prevailing party, and litigation, where a “verdict” and “judgment” are issued, the documentation of the outcome of a mediation is a settlement agreement, which, depending on the parties’ preferences, may or may not be confidential. There generally is no finding of liability, and a party who decides to settle to avoid the costs of further dispute resolution can state in the settlement agreement that they deny all liability. Mediation can happen at any time – including before or after formal discovery; therefore an early mediation can save costs. If you prefer not to leave the outcome of a dispute up to a jury, judge, or arbitrator, want to manage your own risk, and if you expect all parties to cooperate with the process, mediation can be the most cost-efficient and mutually acceptable way to resolve a dispute.
Four tips for a “productive” mediation in which all parties are fully prepared are:
(1) Preparation is Key. Clearly communicate your position to the other parties in a persuasive, detailed letter or demand at least 30 days before the mediation, or earlier if you are the plaintiff or claimant. Include the dollar value of all damages claims, the calculation, invoices supporting the damages, and the factual and legal basis for your claim.
(2) Involve Insurance Companies Early. If insurance companies are expected to be involved or funding offers at mediation, identify them as many months as possible in advance, notify them, and provide the information they request (preferably through counsel). Insurance companies will need to be involved in the mediation strategy planning process and will need extra time to prepare and reserve funds.
(3) Get the Mediator’s Help Ahead of Time to Address Anticipated Obstacles. Advise the mediator ahead of time if significant obstacles to reaching a settlement are expected, for example if a key party or insurance company is not participating or is unprepared. The mediator may be able to work through some issues ahead of time, ensuring that the participants will not waste their time during the mediation. Alternatively, the mediator may suggest that the mediation be postponed until parties are ready.
(4) Carefully Think Through Your Settlement Wish List. Before the mediation, consider what settlement terms are important to you. For example, can the dispute be resolved by an exchange of money, or do you want the other party to agree to take or refrain from certain actions? Raise unusual settlement terms early, make sure all key terms are agreed upon during the mediation, and include all such terms in the written settlement agreement.
Arbitration Versus Litigation
Often the contracting parties need to decide before entering into the contract whether they want to arbitrate future disputes or try them in court. How do you know which approach to select?
Arbitration is essentially hiring 1-3 private judges. The arbitration hearing is similar to a trial, except there is no jury, you may be able to select your arbitrator, and the hearing can take place in a conference room or other location selected by the parties and/or arbitrator. The parties must pay the fees of the arbitrator(s), which can be a significant expense.
Litigation is typically a 1-2 year process, although timing varies somewhat in Washington depending on the county. For example, in King County, a trial date and schedule for key pre-trial deadlines will be set shortly after the action is first filed, whereas courts in some other Washington counties may not set a trial date until certain pre-trial steps are completed. A party has a right to request a trial by a jury of 12 unless the right is waived. Court costs are relatively limited.
Factors in choosing between arbitration and litigation in a construction dispute include:
- How quickly do you want the dispute decided? Do you want the dispute decided while the construction project is ongoing? Arbitration can potentially occur in a shorter period than a court trial, and the process can be more flexible.
- How much dispute resolution cost can your project accommodate? Setting aside the attorneys’ fees, the costs of an arbitration proceeding can be significant, unlike a court trial which generally has low costs and low barriers to entry.
- How much discovery (written interrogatories, depositions, requests for admission, etc.) do you anticipate needing to undertake? Discovery may be limited or even unavailable in arbitration.
- Do you expect your position to be emotional or highly sympathetic to a jury? Or do you anticipate any disputes to be highly technical or require analysis of complex contract provisions that would benefit from a decision by an attorney or retired judge as arbitrator?
- Is any information at issue in the dispute sensitive? While sensitive information can be protected to a certain extent in a court proceeding by use of confidentiality agreements and filing court documents under seal, arbitration is a private proceeding and, unless the result is appealed to the courts, there is no government record of the documents submitted, other than the judgment on an arbitration award.
- Do you anticipate needing to bring third parties into the dispute resolution process? Would you potentially have incomplete relief if you are unable to have all aspects of the dispute(s) decided in the same resolution process? Because a party generally must consent to being joined in an arbitration, you may prefer litigation over arbitration if there is any concern about inability to compel a third party into an arbitration proceeding, incomplete relief, or multiple inconsistent rulings.
- Do you anticipate wanting to preserve rights to appeal an unwanted outcome? Depending on the contract provisions, arbitration may be final and non-appealable, unlike a jury verdict or trial court judgment, which is generally appealable.
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The information contained in this website is provided for informational purposes only and should not be construed as legal advice on any matter, nor does it establish an attorney-client relationship. © 2021 Carney Badley Spellman, P.S.