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Council of Ontario

Construction Associations

Annual General Meeting & Conference

January 26, 2006

MEDIATE – DON’T LITIGATE

Submitted by

Stanley Naftolin, J.D., Q.C., Counsel to Goldman Sloan Nash & Haber LLP

Partner – Team Resolution, a division of GSNH Consulting Inc.

250 Dundas Street West, Suite 700

Toronto, ON M5T 2Z5

Telephone (416) 597-9922

Facsimile (416) 597-3370

E-mail:

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Most dispute resolution that takes place in this day and age deals with disputes that have already blossomed into a conflict, which will be resolved only through mediation, arbitration or litigation. These disputes have escalated to such an extent that a conflict is now raging and it becomes necessary to resort to traditional alternative dispute resolution techniques, to attempt to achieve a resolution. Some of the benefits of mediation revolve around the ability to be creative, flexible and to adapt. This enables the mediation to be effective in several different ways.

Mediation is a highly varied process with elements that differ from one mediation to the next, and indeed, from one mediator to the next. There have frequently been debates as to what style of mediation to use, what skills should be emphasized and what the goal of the mediation should be.

It is trite to say that a goal of the mediation is to bring the parties together so that some or all of the issues relating to their particular dispute are resolved. The more difficult unresolved issues, if any, can be resolved at a later date, either by way of further mediation, arbitration by a private arbitrator or trial by a Judge or a Judge and Jury.

It certainly has been my experience that mediation has been a successful tool for resolving construction disputes. A mediator encourages meaningful dialogue but also promotes creative problem-solving. In that regard, a skilled mediator may help the parties evaluate the merits of their claims for themselves and that can be done in caucus. In caucus, providing a neutral evaluation is sometimes needed and that need arises in order that the particular party who appears to be resistant to a resolution, will be given a reality check in terms of having their case evaluated by the mediator. Some mediators will not venture into a neutral evaluation. I disagree with this approach.

Basically, there are two types of mediation. One type is that of a facilitator (the facilitative approach) and that may be broken down into narrow and broad facilitation. The other type is that of an evaluator. Again, that can be broken down into narrow and broad evaluation. Both are more commonly known as an interest based mediation and a rights based mediation. An interest based mediation [or facilitative mediation] will not deal with the hard facts and what the ultimate outcome might be. Regardless of the facts and what may be the outcome of the disputed issues based on those facts, the parties resolve their issues because it is in their interests to resolve the matter and often it is done for business reasons.

A rights based mediation deals with the facts of the dispute and the probable outcome of the dispute in the event that the dispute proceeds beyond mediation, on to arbitration and/or trial before a Judge. An evaluative mediator has opinions and is not afraid to express those opinions. A facilitative mediator may not have the qualifications to form an opinion, but in any event, would not express the opinion. The facilitative mediator encourages discussion and exploration of the interest of the parties. That is, the non-legal reasons for settlement that allow the parties to find their own settlement for non-legal reasons. In this regard, contrary to the prevailing facilitative approach, I am certainly of the view that experience and knowledge of the subject matter of the dispute is absolutely essential if you want to truly achieve a mediated settlement.

So why should you mediate as opposed to litigate? What you are trying to do when you mediate is to resolve the case through negotiation as opposed to continuing on with what may promise to be a very lengthy process which would include preparation time for understanding the case, preparation time for delivering of pleadings, preparation time for examinations for discovery and attendance at examinations for discovery, interim motions dealing with any number of matters that crop up in litigation, preparation for and attendance at trial, preparation for an appeal if one is launched and of course, attending at the appeal.

Often, one of the major reasons for mediating as opposed to litigating is the cost of litigation. Another reason is preserving business relations if this can be achieved. My comments will be confined to construction mediation and litigation since that is the area that I specialize in and therefore, feel very comfortable providing what I have previously stated as an evaluative assessment of each party’s case.

If we take a relatively simple $100,000.00 construction litigation case, a contractor sues an owner for the balance due and owing under a contract and extras to the contract plus, perhaps, for alleged delays occasioned by the owner, the costs tend to escalate quickly. In all likelihood, a counterclaim would be launched by the owner against the contractor for deficiencies, unfinished work and delays occasioned by the contractor. In this hypothetical case, you must consider the costs to be incurred by the client from the initiation of the action which includes the original interview and drafting of pleadings, including any claims for lien and certificates of action, to the rendering of a decision, either by an arbitrator or a Judge of the Ontario Superior Court. There may also be fees for experts and for disbursements. The costs involved as I portray them, would not consider costs with respect to appeals or enforcements of Judgments. The enforcement of Judgments is often time consuming and can be quite expensive. I am attaching a graph showing the cost of a $100,000.00 construction litigation case which will show fees and disbursements and opportunity costs. You may think that the numbers are somewhat exaggerated, but in fact, the numbers are fairly accurate if this case is slightly complex and there are many issues to resolve. There is also a graph attached which shows the fees and disbursements dealing with lawyers’ time only. Please note that lawyers’ fees are based on an amount of $2,000.00 per lawyer per day or $250.00 per lawyer per hour. Certainly, many senior construction lawyers are charging far more than $2,000.00 per day or $250.00 per hour and this is something that you must consider. The attached schedule is something that you have to consider when you are deciding whether to mediate or litigate.

As a mediator, the case is not the mediator’s fight. Whether you settle or not has no impact upon the mediator but it does and will have an impact on you. Usually, depending upon the nature of the mediation, the mediator is not there to decide issues. The mediator is there to attempt to facilitate an understanding of the issues to help the parties achieve the settlement and move on to more productive things in their respective corporate business lives. In that regard, a key reason for mediating as opposed to litigating is the amount of time that you would have to spend on your case and the amount of time that you will be required to spend if the case goes forward on to litigation. There is your preparatory time, your trial time and your appeal time. If you do not make an attempt at mediation, which in my respectful opinion, is the very least you should do, the time you spend moving the case forward will be significant and for all of you who are business people, it is not productive time. It is time you will have lost for which there is no compensation. Keep in mind, and as a rule of thumb, that it usually takes up to one day of preparation for each day of examination for discovery and the same rule of thumb applies with respect to trials. You must think about how much time that is and the cost to you to get to the end of the trial and perhaps, onward to an appeal.

Mediation is all about seeking to reconcile your dispute. It is not a process that seeks to adjudicate your dispute in any formal sense. A successful mediation is a win/win result and not a win/lose result.

Also, keep in mind, there are no real rules to which you are bound. If the mediation proceeds as planned, the parties to the mediation are the ones who will decide whether to reach an agreement or not. No mediator has the power to hand down a decision. That is not the role or function of a mediator, regardless of whether the mediator is an evaluative mediator or a facilitator.

Keep in mind one further key factor. I trust most of you, in your business lives, have retained very capable counsel with respect to your construction disputes. As good as your counsel may be, I am sure that none of them have guaranteed that you will win your case. A risk analysis should be undertaken, but as soon as you mention the word “risk”, that is the problem that you have to deal with for the purposes of a trial. When you think about risk, that’s when you start to think about mediation because mediation can eliminate the risk of a trial. You will, in a mediation, attempt to satisfy your interests and concerns and enter into an agreement. Agreements do not define concepts of right and wrong. Judgments define concepts of right and wrong and that may be what you are trying to avoid because of the uncertainty of what the trial Judge may do - another good reason why you should consider a mediation.

What the mediator should attempt to do, in my respectful opinion, is to cause a reconciliation of the many disputed issues by examining the facts and then reconciling the issues to help you reach and develop terms of an agreement that will satisfy you. Keep in mind that a mediated settlement is not convincing another party to buy into a settlement that would mirror a Court victory. Winning in a mediation process is not making the other side lose.

A good mediator will put you into a position to make a meaningful choice between continuing down the path which will lead to a trial or accepting the best possible settlement option available. In that regard, you must keep in mind that if you do not settle, you leave your destiny to a Judge and in some instances, to an arbitrator, but let’s deal with a Judge. The Judge may not have the expertise and probably does not have the expertise that will be required to deal with what will usually involve very complicated, technical issues that arise in a construction dispute. As well, you have no idea what mood the Judge will be in during the course of a very lengthy trial and, most importantly, how that Judge will react to your witnesses.

Many parties feel that their experts will carry the day for them. Experts have recently been treated in our courts with some degree of disdain, to the extent that their reports and evidence have been rejected in their entirety. You just never know what a Judge is going to think of an expert’s report and the expert’s evidence that is offered at trial. I can give you a litany of issues that have arisen in many cases across the country where Courts have declined to accept the evidence of experts for various reasons but that is the subject matter of another paper another day.

You just do not know how a Judge will decide and that is a tremendous risk that the parties to the dispute take. What you do know in a mediation is that you can control the outcome of all the issues and the outcome of the dispute. In a mediation, you arrive at your own settlement – you make the decision – not an outsider.

Mediation provides a critical opportunity for all parties to see all sides of the story contrasted with each other. You will see the issues presented in their best light and it is trite to say that there are always two sides to every story and in most instances, it is like night and day. Mediation will assist the parties to bring them to a point where they can see the light and conclude a settlement that is in their best interests. That settlement may be arrived at as a result of several evaluative sessions taking place during the course of the mediation.

What a mediator brings to the table is neutrality. As previously stated, a mediator has no stake in either side winning or losing and as such, a mediator’s evaluation may very well be helpful. What the parties must understand is that when you ask for a neutral evaluation, you may not like what you hear. Usually, evaluations are given in caucus so that the other party will not know what the mediator’s evaluation is with respect to your case.

Let me say that mediators should not offer an early neutral evaluation of the case. I let the parties have their own catharsis in the first caucus session. You have to be a good listener. At the next caucus session, a good evaluative mediator will explore the correctness of one party’s position which is standing in the way of a possible settlement. It is at this time that an evaluation of the case in my respectful opinion, becomes absolutely necessary in order to continue on with the mediation process to arrive at a negotiated settlement. Martin Teplitsky, Q.C., in his paper, Mandatory Mediation, calls this type of an approach “confronting the reality of your alternatives.”

Many parties are concerned that what is disclosed in caucus will be disclosed to the other side. In caucus, the mediator meets with each side separately to discuss all issues and at some point in time, as previously stated, will provide an evaluation of that party’s case. What you tell a mediator in caucus is kept in the strictest of confidence unless the party who provides the information authorizes the mediator to disclose that information to the other side. Therefore, you do not have to be concerned, in my respectful opinion, as to what is said in caucus.

As well, in the caucus sessions, I encourage the parties to do an exercise and ask that they consider how they think the other side sees the dispute and what the other party would consider a fair settlement. As well, I suggest that the parties think about estimating the chances of a liability finding against them and of the various levels of damage awards that may be awarded. This is a very useful process, in that, it forces the parties to think outside the box and outside of their own particular case. This is a very useful process that one goes through in a mediation. Otherwise, you may not go through it in any detail if you are like a bull in a china shop heading down the litigation road.

Mediation is a time to make good, sound business decisions with respect to the issues at hand. Sound business decisions can be made as a result of both a facilitative and an evaluative approach being undertaken with the help of the mediator.

I am a big fan of mediating construction disputes and you may want to give consideration to mediation even before the litigation process starts.

In many of the contracts that you enter into, there are provisions for a project mediator to be appointed. You should consider appointing that project mediator at the outset or at least, as soon as a problem arises on site. It has been my experience, acting as a project mediator, that you can resolve the issues fairly quickly while they are still in bud and have not blossomed into a full-scale war.

Although some lawyers will argue that mediation is not all that it is made out to be, and in some cases, that may be accurate, I am reasonably confident that if your mediator is an expert, that mediator can lead you down the road to a successful resolution of the issues without the necessity of incurring prohibitive costs dealing with the alternative, proceeding with the litigation. You have to have a positive approach to the mediation. Where the mediation is a voluntary mediation, the chances of settlement increase dramatically.

It is my recommendation that the business people and their counsel should be looking into techniques for preventing, controlling and achieving early resolution of disputes. This is one of the reasons why I referenced the appointment of a project mediator to deal with disputes as they arise on site. If you move the mediation process away from the litigation track and deal with the sources of the dispute, you are in a far better position to deal with the causes of the dispute and not simply the symptoms of the dispute. If you are able to accomplish this feat, you will eliminate a number of costly procedures that construction disputes breed and all parties will be better off in the long run.

Thank you for allowing me the opportunity of presenting this topic to you. I hope that it has given you some insight into the mediation process.

If there are any further questions or concerns that you may have, I would be more than pleased to address those issues for you.

All of which is respectfully submitted, this 12th day of January, 2006.

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Stanley Naftolin, J.D., Q.C.

snaft\papers\COCA Jan.26-06 – mediate don’t litigate