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In Victoria, the usual forums for mediation in construction disputes are as follows:

1. VCAT mediation for domestic building disputes less than $100,000 in value, or where there will be a delay in getting a Member for a Compulsory Conference;
2. VCAT compulsory conferences before a VCAT Member (for domestic building), which is effectively a more intense form of mediation, and usually more likely to achieve a settlement;
3. Private mediation ordered by the Court as part of the timetable in commercial building disputes.  (The Court does not arrange the mediations for the parties).

As well, there is “conciliation” at the Domestic Building Disputes Resolution Victoria (DBDRV), which is very similar to a mediation.  In practice, the DBDRV conciliators are more like facilitators, and are not significantly pro-active in the negotiation. If the matter is not resolved at the DBDRV as a matter of complexity, then the matter goes to VCAT.

Private Mediation

Before a matter is at VCAT or the Court, there is nothing to stop the parties arranging a private mediation, with or without a mediator.  In practice, mediations without a mediator as a ‘circuit breaker’ are less effective as parties will simply argue their usual points and will be less likely to move from entrenched positions.

In a private mediation with a mediator, the parties generally agree to bear the costs equally on a 50/50 basis.

Potentially mediations can occur at the building site, and this is particularly helpful if there are allegations of defective or incomplete works, and if experts can attend to assist the mediation process (and not act as advocates).

Generally a mediation has more prospect of achieving a settlement the closer to the trial date the parties are at.  The justified concern about the costs of a final Hearing are more prevalent in the parties’ thinking at that time, as is general weariness of the dispute.

Before the Mediation (or Compulsory Conference)

The Position Paper

You should prepare a position paper of no more than about 4 pages, even if there is no direction from the Tribunal or Court to file and serve a paper.  This is an aide memoire for the best parts of one’s argument.

In a VCAT compulsory conference it is required that each party exchanges (and files) a position paper of no more than 4 pages at least a few working days prior to the date of the compulsory conference.

The advocate needs to be familiar with the pleadings in the case and any expert reports prior to preparing the position paper.

The position paper if it is to be exchanged or filed should clearly be marked “without prejudice, for the purposes of the compulsory conference / mediation only”.  It should of course be checked by the client prior to finalisation to ensure they agree with it.

Experts should not attend a mediation or compulsory conference without the consent of the opposing party, and the Tribunal or Court should be informed of the expert’s attendance in advance of the appearance starting.

You should meet with the client(s) at least one day prior to the mediation / compulsory conference to discuss their position and strategy.  The client should be advised to consider a “best offer” position to settle the case, and be given some advice about the alternative to not settling and likely costs / time frame going forward.

In that meeting prior to the day of the appearance, the likely procedure should be explained to the client(s) ie:

1. Opening statements or arguments by each side / party to the dispute, which is almost always presented by a solicitor or barrister; and then
2. An open session with all parties and the mediator to discuss key issues in contention (generally the parties are free to speak during this middle section, provided they do not talk over the top of others and civility is maintained); and then
3. Private sessions (whether by video conference or in person) where the lawyer and their clients are in private for discussion, and each party is visited by the mediator to discuss the case and offers of settlement will be made to the opponent (generally via the mediator);
4. Each party is expected to enter into the mediation / compulsory conference in “good faith” and to make a bona fide attempt to settle the dispute;
5. Parties must appear personally, whether they have a legal advocate or not, and a company should have at least one director present.  In other words, someone with authority to make decisions to settle the case should be present on behalf of a party;
6. All discussions are ‘without prejudice’, meaning statements or offers of settlement cannot be repeated at a later date after the mediation concludes.

If a party does not attend at a VCAT compulsory conference without any excuse, there is a power in the VCAT Act 1998 for the Member to make orders against that party, including dismissal of a claim or defence and the entry of judgment against a party.

Otherwise, no orders can be made adverse to a party unless by consent, and if there is an overall settlement then Terms of Settlement should be drawn up and signed on the day before the parties leave the session.

VCAT has a standard / precedent Terms of Settlement to save the parties time and it is available on the VCAT website.

At the Mediation or Compulsory Conference

The Mediator (or VCAT Member) will give an opening statement to discuss the process and the ‘without prejudice’ nature of the appearance.  They will likely give a warning about future costs in the litigation if the case does not settle.

Each party will then present their arguments in turn, as a summary of the party’s position.  In most cases this is done by the lawyer, and it is imperative to present a strong argument to place pressure on the other party to compromise.  The clients will of course expect that a good and compelling argument is presented.

A legal advocate should also be in a position to discuss likely future costs (legal and expert) with their clients in private session, so that during the mediation or CC the client is as informed as possible about the cost and time consequences of not settling the case.

The mediator can only communicate an offer or proposal to the opponent if the other party has given consent to that communication.

Initially offers made will be based on logic and generally the first items to be removed from a claim in a negotiation are legal and expert costs, then indirect or consequential costs (which are harder generally to recoup at a final Hearing than direct costs such as rectification of defects, or damages for non-payment).

However, as the mediation continues it may seem like monetary offers are based more on a commercial feeling for the client’s position, and less on defined monetary aspects of a claim.  It can become more like a “Dutch Auction”.

An offer of settlement can be purely based on a settlement sum of money, or on a builder returning to a site to carry out agreed rectification or completion work, or on a combination of both.  An agreement for a practitioner to return to site may be a viable solution if the parties are a long distance apart on monetary offers.

In many cases there is now a ‘toxic’ relationship between the parties, particularly if a contract has been terminated, and an agreed settlement sum will be an easier path to settlement. 

In return for payment of a settlement sum, the other party will be given a general release from all known or reasonably knowable claims, demands or costs related to the disputed contract.

Terms of Settlement

Proposed Terms of Settlement need to be carefully checked by the lawyer and explained to their client(s) prior to signing of the Terms.  The client needs to fully comprehend and “own” the settlement bargain, which will be enforceable as if they are Orders.

Is Mediation About “win/win” or “lose the least?”

Mediators (and VCAT Members) often say that a good mediation is where both sides of the dispute (or all sides) walk away somewhat unhappy.  This means that opposing parties have had to compromise their positions in order to get a settlement.

In many cases though a compromise well prior to Final Hearing dates can be a wiser outcome as it will then rule a line under future costs, time and stress, as well as the delay and uncertainty in waiting for an outcome from a Final Hearing.

If there is no settlement though, it is not the “end of the world” and this needs to be communicated by the lawyer to their client(s).  The party’s best position on the day should ideally, and soon thereafter, be communicated in a written Offer of Compromise or Calderbank letter.  This is to help protect that party’s position on future legal costs.

This is a Lovegrove and Cotton publication, authored by Justin Cotton.

Disclaimer

This article is not legal advice and discusses it’s topic in only general terms. Should you be in need of legal advice, please contact a construction law firm. The experienced team at Lovegrove & Cotton can help property owners and building practitioners resolve any type of building dispute.