This article about mediation in the Construction Industry (applied also to the Middle East) has been kindly made available by Rafat Isweilih to the readers of this blog.

Mediation in the Middle East

Rafat Isweilih

BSc. CE, MCIArb, RICS Accredited Mediator, Commercial & Contracts Manager

Introduction

Whilst the construction industry worldwide is plagued by disputes, construction disputes in the Middle East have two distinct characteristics. The high value of the disputes and the long time it takes to resolve such disputes. The Arcadis Global Construction Disputes Report 2019 shows that the global average value of a dispute is estimated at US$ 33 million versus an estimated average value of US$ 56.7 million in the Middle East. Similarly, the global average length of disputes is 17 months compared to an average length of 20 months in the Middle East (1).

With its attractive characteristics like flexibility, simplicity, short timeframe, cost efficiency, etc., Mediation can become a favourable alternative dispute resolution in the Middle East construction industry. This objective can be achieved by well set plans, collaboration and cooperation between private, non-profit organizations, and legal bodies.

Disputes in Construction

Construction industry is plagued by disputes which arise from the complex nature of the industry and wrong practices. Regardless of the causes, disputes have detrimental impact on the construction industry. The volume and intensity of construction disputes have increased over the last decades of the twentieth century. In 1994, the UK government commissioned an investigation committee led by Sir Michael Latham to investigate the perceived problems with the construction industry. Sir Latham report described the construction sector as ineffective, adversarial, fragmented and incapable of delivering for its customers. (2) 

Alternative Dispute Resolutions (ADR) and Construction

Historically, litigation, a natural right to the plaintiffs under all jurisdictions, was almost the only ultimate resolution to construction disputes. In view of the significant increase in the number projects and consequently, the number of disputes, the courts become overloaded with cases. This resulted in an unprecedented increase in the timeframe required to litigate and associated cost as well. To overcome this dilemma, experts and governments began to urge or compel the disputing parties to attempt resolving the disputes through an ADR method prior to having right to litigate. 

Arbitration is the oldest and most legally supported ADR. It gained huge popularity due its cost and time efficiency compared to litigation. Many disputants still prefer arbitration over other ADR mechanisms because of the two characteristics; first, the enforceability of awards, and second, the avoidance of specific legal systems and national courts (3). Nonetheless, the latest trends in construction disputes indicate that arbitration popularity may be diminishing. Arcadis Global Construction Dispute 2019 shows that mediation is now the ‘second most used ADR’ after party-to-party negotiation while adjudication occupies the ‘third most used ADR’ (1). This could be attributed to the unsatisfactory time and cost efficiency of arbitration albeit being more time and cost efficient than litigation.

Adjudication was introduced to the UK legal system through the “Housing Grants Construction and Regeneration Act 1996” statute. It is a cheaper, and more rapid option compared to arbitration. It is currently popular particularly in common law jurisdictions but has less popularity in the civil law jurisdictions due to absence of any legal supportive provisions. Nonetheless, adjudication finds its way to these countries through the standard forms of construction contracts (5).  

Arbitration and adjudication have more common characteristics than disparities. Despite the dissimilar timeframe and cost each mechanism takes, both are adversarial in nature, focus on the dispute, without consideration to the broader commercial interests of the parties, and the resolution to the dispute is determined by a third party. In view of the drawbacks of arbitration and adjudication, a new mechanism, developed in 1980s in the United States, started to take popularity in the construction industry. Unlike arbitration and adjudication, mediation is non-adversarial, adopts a prospective approach, and looks beyond the dispute. According to the 2019 Arcadis Global Construction Dispute, mediation is the second most used ADR, after party-to-party negotiation in the USA, Continental Europe, and globally. (1).

Mediation in the construction industry

Mediation (in the Construction Industry) is Different

Mediation is a voluntary process through which a neutral third-party “mediator” attempts to assist the disputing parties find common grounds and reach a negotiated settlement driven by their needs and interests. After nearly two decades of use, mediation offered a speedy and cost-efficient resolution to dispute that surpasses what arbitration and adjudication offer.

Confidentiality is a common characteristic between mediation, arbitration and adjudication. Away from its superiority in time and cost efficiency, mediation has its own unique attributes that, perhaps, have been behind its recent increased popularity. Mediation is voluntary, not obligated by law or contract terms, and non-binding until the settlement agreement is signed. It is also performed without prejudice i.e. any offers, concessions, and proposals made by the parties during the negotiation cannot be used by any party in any other proceeding in case a settlement is not reached.

The paramount feature of mediation is that resolution to the dispute is not enacted by a third-party, rather, parties freely determine the appropriate settlement to their dispute and without necessary reliance on the legal and/or contractual framework. This implies that the disputants can save substantial amount time and cost required to investigate, analyse, assess the dispute. Additionally, significant costs of preparation of claims and defences, cross examination of evidences, etc will also be saved. 

Mediation is flexible process where parties have considerable influence over all aspects of the process. This includes the timeframe, the selection of the mediator, and the preferred style of mediation. There are several styles and types of mediation that can be utilized. The choice of the mediation style depends on the preference of parties, the nature of the dispute and the qualification of the mediator. The most used styles include; facilitative mediation, evaluative mediation, transformative mediation, and other hybrid styles.

Facilitative and evaluative mediation are the most widely used styles. In facilitative mediation, mediator will facilitate negotiation by encouraging the parties to find a resolution by exploring their interests. The mediator does not analyse the parties’ positions and does not express his professional views. In contrast to facilitative mediator, the evaluative mediator, analyses the parties’ positions, express opinion and more likely makes suggestions and recommendation (6). Accordingly, the evaluative mediator does not only rely on exploring the parties’ interests and needs but also help the parties assess the reliability and solidity of their arguments and positions. Due to their complex technical and legal nature, evaluative mediation is probably more appropriate for construction disputes compared to facilitative or transformative styles.

Promoting Mediation in the Middle East’s Construction Industry

Mediation is not an alien ADR to the Middle East construction industry, but still underutilized. Pushing mediation forward will allow the region’s construction industry to further benefit from the attractive values mediation can offer (7). Achieving this goal requires collaboration and cooperation between the governments, non-profit organizations, and other relevant institutions. The ultimate objective is to address the factors that might be hampering the use of mediation. Such factors may include; lack of supportive legislations, lack of awareness, lack of trained mediators, lack of organized mediation bodies, etc.

The benefits of ADR are recognised and explored within all jurisdiction in the Middle East (7). However, mediation does not receive the same legal attention of arbitration for example. Additionally, only very few countries in the Middle East have signed the ‘UN Convention on International Settlement Agreements Resulting from Mediation’. In comparison very few countries have not signed the ‘United Nations 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.’

Success of mediation is dependent on the qualification of the mediator. Training of mediators is provided by few reputable international organizations including the Royal Institute of Chartered Surveyors (RICS) and the Centre for Effective Dispute Resolution (CEDR) (7). Mediation services are offered by these international organizations, local ADR institutions, and some private legal firms. Local ADR institutions in each country can play a major role in promoting mediation through:

  • improving the mediation division within the institution,
  • organizing awareness campaigns and seminars, and
  • enhancing cooperation and integration of services with the international organizations and the private entities.

Conclusion

The advantages of mediation are not fully explored and recognized in the Middle East particularly in the construction industry. This can be attributed to many factors including lack of awareness and misconception of the process. The local alternative dispute resolution organizations and the government can play a major role in fostering mediation. If enough efforts are put by relevant bodies, popularity of mediation in the Middle East construction industry can be improved and can match those levels of the developed countries.

Bibliography

1.      Arcadis. (2019). Global Construction Disputes Report 2019. Retrieved from https://www.arcadis.com/en/united-states/our-perspectives/2019/global-construction-disputes-report-2019/

2.      Latham, M. (2000). Constructing the team: final report July 1994: joint review of procurement and contractual arrangements in the United Kingdom construction industry. London: Stationery Office.

3.      Friedland, P. (2018, May 9). 2018 International Arbitration Survey: The Evolution of International Arbitration. Retrieved from https://www.whitecase.com/publications/insight/2018-international-arbitration-survey-evolution-international-arbitration

4.      Arcadis. (2015) GLOBAL CONSTRUCTION 2015DISPUTES REPORT. Retrieved from https://www.arcadis.com/media/2/8/9/{289321DC-B266-4A13-82FA-CCBD54B6F535}Arcadis Construction Disputes Report 2015.pdf

5.      FIDIC AND DISPUTE ADJUDICATION BOARDS (DAB(s)). (n.d.). Retrieved from https://fidic.org/sites/default/files/webinar/PresentationCSeppFIDICandDisputeAdjudicationBoards.pdf

6.      Harvard Law School (2019, November 7). Types of Mediation: Choose the Type Best Suited to Your Conflict. Retrieved from https://www.pon.harvard.edu/daily/mediation/types-mediation-choose-type-best-suited-conflict/

7.      Mediation in the UAE – Al Tamimi & Company. (n.d.). Retrieved from https://www.tamimi.com/law-update-articles/mediation-in-the-uae/

About AfiTaC

AfiTaC.com is the blog on commercial and contractual subjects for the Project Businesses (Construction, Infrastructure, Oil & Gas, Power & Renewable, Water Supply & Sanitation, etc). Its objective is to stimulate reflection, learning, convergence to balanced contracts and positive dispute resolution. You can subscribe to our newsletter by writing to “newsletter@afitac.com”. You can also connect to our LinkedIn page. Engagement with the readers is what keeps us going. So, don’t hesitate to exchange with us by commenting here below, liking our publication on LinkedIn and writing to us “info@afitac.com”. 

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