Should Mediation of Building Disputes be Compulsory by Law? 3

Tuesday, November 17th, 2015
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Why isn’t mediation made mandatory before Tribunal proceedings are issued in domestic building dispute resolution institutions?

It is said that 90 per cent of cases settle before trial. It follows that settlement will have occurred as a result of negotiations or mediation. As mediation has increasingly become entrenched in tribunals and courts of law, one wonders: if it is mediation that is generating settlements, why does one have to go to court in the first place?

Furthermore, why can’t Acts of Parliament be proclaimed to make mediation compulsory before one is given permission at law to issue legal proceedings in a court of law or tribunal?

Even though the west has historically embraced the adversarial approach to dispute resolution, it is anathema in certain societies. Japan is one such society; in that culture, those who are at odds with one another negotiate, mediate, solve, and move on.

But to enshrine mediation as a front-end dispute resolution institution would require a seismic shift in governmental policy. It would require legislation where, through force of law, mediation is made compulsory. In other words, it would require the promulgation of mediation legislation.

If such a statute were enacted, it would provide that disputes were to be be referred to mediation at once. The mediators would need to be qualified and accredited by government authorised nominating bodies to “immunise” the process against the infiltration of the odd charlatan. Since mediation would as a result of parliamentary compulsion be catapulted into a higher or exalted status in terms of its paramountcy as the dispute resolution imperative, regulation of professional mediators would be a must.

If a new act of Parliament were enacted, it would generate a regime that would encompass some important procedural elements such as:

  • Having to mediate as a prerequisite for litigation where litigation would not be permissable at law unless the mediation failed.
  • The requirement for disputants to furnish succinct, written reckonings of their grievances and grounds of dispute.
  • Giving the mediator the power to nominate a venue for both the mediation and procedural directions. At such meeting, the mediator would be able to traverse housekeeping considerations such as the generation of additional information considered germane to the dispute. The mediator, with the assistance of the parties, would also identify those whom would be well advised to attend the mediation.
  • Making it obligatory for the disputants to attend the mediation.
  • A requirement that the mediator be on remunerated on a 50/50 basis so that Treasury would not have to underwrite the institution. In a post-GFC world, fiscal constraint is unfortunately encouraged in non-core governmental contexts.

If the mediation were to fail, then the Mediation Act would provide that the matter be referred to a court of law, a tribunal or arbitration, but that referral would require the signing of an instrument by the mediator stating that the mediation failed.

Mediators would need to be well qualified, bound by carefully crafted codes of ethics and approved by recognised and established nominating bodies.

Another option: regulating by contract

An option would be to regulate and introduce compulsory mediation by contract. In the Australian states of Victoria and NSW, there are acts of Parliament that regulate residential building contracts and the way by which owners and builders contract with one another with respect to the undertaking of domestic building work. These statutes also prescribe the judicial forums that have an exclusive legislative mandate to resolve domestic building disputes.

It would not be a quantum leap for acts of Parliament such as the Home Building Act NSW or the Victorian Domestic Building Contracts Act to mandate the inclusion of a mandatory mediation clause in the prescribed building contracts along the above lines.

This idea takes back to my early thirties, when I was briefed by the Law Institute Of Victoria and the Victorian Law Reform Commission to prepare a plain English residential building contract. The then VLRC Deputy Commissioner Jude Wallace worked closely with me on the drafting of the contract. The dispute resolution clause made it mandatory to mediate before one went to court, and it was only if the mediation failed that the parties could proceed to court.

The contract was very well received by consumers in particular, as its simplicity and fast track dispute resolution procedure resonated. It was not, however, backed by statute and absent statute it started with a bang and petered out as some of the established competing forces in the market that produced contracts with arbitration clauses were able to capture the contract production and distribution market.

The LIV Law Reform Commission contract was introduced against the backdrop of much consumer disquiet concerning the mandatory arbitration regime that was in vogue, as most building contracts in the early 90s made arbitration compulsory. There was a vocal consumer group called the “Victims of Builders Society” (whose Secretary was one Ross Delahunty) who were particularly vociferous in its view that contracts at the time were biased toward contractors.

Surprisingly the launching of the contract generated a fair measure of controversy and I vividly recall being invited to address a forum of lawyers, arbitrators and interested parties on the machinations of the contract. Little did I know that what I was invited to was a lynching party of sorts, a roast if you will, where I was rather slowly and fastidiously grilled.

Alas, there there were certain elements within the animated gathering who were very much opposed to a non-arbitration dispute resolution procedure and there was much animus to do with fact that the contract rocked the status quo at the time. I remember one lawyer standing up squawking “this is outrageous…outrageous.”

My unpopularity in that instance made me recall a quip by the late Bob Hope who, when recounting his early days as a stand up comedian, said such was his comical ineptitude he struggled to make ends meet and but for his excellent hand-eye coordination and his ability to catch the tomatoes and eggs that were thrown at him by the underwhelmed audience, he would have starved to death. I felt a certain empathy with the late great comedian and, like him, detected a palpable lack of appreciation.

Nostalgia aside, mention was made of the plain English contract with the mandatory mediation clause, as a reminder that mandatory mediation is not a novel concept, for it was flirted with a quarter of a century ago in Melbourne. The time may be nigh for policy makers to once again look at the idea of compulsory front end mediation. There would, I submit, be bipartisanship support from both industry and the public because a high pre-litigation settlement strike rate could conceivably save consumers and builders huge sums of money and heartache.

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  1. Wayne Carter

    G'day Kim,
    I'm a builder who went through a horror story via litigation I'd like to recount my story as I get your newsletter email regularly & find it unbiased & informative. Over 10 years ago I built a home for a couple using a raft slab method for the floor. Approx 12 months after moving in the owner called me back to observe some what appeared to be settling in the rear of the home of approx.35mm. An engineer discounted their theory of sinking by way of a full report which showed it was heaving at the 2 corners on the end of the building due to an ingress of moisture getting into the footings which were embedded into the natural ground & achieving a KPA of 100. Long story short we defended the claim over 10 days in the District Court in Sydney which specialised in building matters & was awarded the case due to as Judge Gibbs said the builder did not cause the ingress of moisture & was not responsible for the damage which was of little cost to repair anyway (under $20,000) which I offered before court. Judge Gibbs listened & understood all of our experts testimony & paid tribute to our Geo Tech as being a highly credible witness to the case & had many a scathing estimation of the plaintiffs experts. After our success the plaintiff appealed the case to the Supreme Court which had 3 judges who understood the law but unfortunately didn't understand basic building principles & subsequently overturned the decision on 2 technicalitys which had nothing to do with damage in the first place. My case sent a shock wave through the local community in general as well costing me & my company 20 years of hard work which seemingly evaporated after I was ordered to pay the costs as well. The case was Ecroplot v Wheeler & anor

  2. Mark Whitby

    This article seems to be very much along the lines of your previous two articles… and all three seem (on the surface) to be good ideas.

    But once again I felt obliged to once again warn everyone of the highly possible and unfair dangers associated with your one -liner "Mediators would need to be well qualified, bound by carefully crafted codes of ethics and approved by recognized and established nominating bodies."

    Firstly, qualified (so as to be able to be fair) must mean that such a person has regard for whatever solution he/she decides to a disputed defect (say); must be able to last a reasonable lifetime and not be merely a Band-Aid.

    Secondly, such a person's decisions should (in all fairness) be able to be appealed against in the case that such an individual did not act as bounded by codes of ethics.

    Thirdly, such a person must have a thorough definition of defect, the likes of which has been found wanting in over 90% of individuals acting in that capacity that I have come across in the Residential Building Industry… and as to nominating recognized and established bodies, I say there are none who have shown anywhere near the care and understanding that consumers expect of them. Therefore these bodies need to be created first, for this to be fair to consumers.

  3. Clive Watson

    The NSW Govt. C21 contract requires that expert determination be used in disputes: avoids litigation. The security of payments act also avoids litigation by returning payment disputes to the contract; parties to contracts should negotiate for an ADR barrier before litigation can be used.