■ What Is Consensual Settlement?

This chapter will look at those processes that involve the parties seeking agreement between themselves: a consensual approach. The following chapter will look at those processes that involve the parties submitting the dispute to an independent and impartial third party whom they authorise to make a decision on their behalf, which they agree to be bound by: third party determination. The key options within both of these routes can be seen in Figure 3.1.

Figure 3.1: Methods for settling a dispute through a third party

It should be noted that in addition to the processes described here, hybrids of these, as well as other alternatives, are also practised, though much less often. A full description of these hybrids would necessarily be incomplete and is beyond the scope of this book.

Consensual settlement as a way of settling disputes, should really be the parties’ first port of call should something go wrong. The single most important advantage of consensual settlement is that it enables the parties to retain control over the process of achieving settlement and its outcome. It enables them to consider settlement options that are beyond the power of a court or tribunal to order and to adopt procedures and timescales that would not be possible within the more formal rules governing the processes of third party determination.

The disadvantages relate to the difficulty of maintaining an objective approach to issues that may be charged with emotions such as disappointment, anger and frustration. If it appears that difficulties such as these may prevent a resolution, however, it is possible to involve a third party, not with the intention of imposing a binding determination of the issues but to help the parties overcome the difficulties and reach an agreed settlement in spite of them.

■ Informal Discussion

The most straightforward and direct method of settling a dispute consensually, or avoiding a dispute arising at all, is through informal discussion. This enables both parties to have their say but also requires them to listen. This is not always easy.

We naturally want our clients and others to think favourably about our abilities and the services we provide. Unfortunately, when first signs of dissatisfaction or criticism are voiced, this desire often prompts an assertion of why we are right rather than a proper consideration of why the dissatisfaction has arisen. This tends to result in an increase in dissatisfaction and a spiral of hardening of attitudes on both sides. When this happens, the effects of emotion, pride and esteem may complicate matters that are capable of resolution by relatively simple, practical steps. These effects are much more difficult to resolve and, without outside assistance, may block the route to a settlement and lead to often intractable complications and the costs (associated with bringing or defending a case) that extended confrontation will introduce (see Court Case 3.1).

It may be trite, but it is certainly true to say that it is better to avoid a dispute than to resolve one.

Overcoming the instinct to be defensive and the desire for vindication may be difficult, but the following considerations may help you to maintain an objective viewpoint.¹⁶

Reasons to Prefer Discussing to Disputing

Resolving an issue by discussion is likely to allow you to:

• focus on doing the job you want to do: to produce a great design and delight the client
• avoid the stress, expense and aggravation that are an inevitable part of resolving a full-blown dispute
• preserve long-term relationships, which can promote further business through recommendations and an enhanced reputation
• preserve good working relationships, which allow for comparatively stress-free projects
• save time. Even a formal complaints procedure will involve staff and partner time that could be spent more profitably elsewhere. More complex procedures will involve much more time (as was seen in Court Case 3.1). In some cases, staff members may need to be allocated to the dispute full-time for several weeks or even months, as Case Study 3.1 demonstrates.

It may be difficult or impossible to quantify the value of a good reputation and therefore the cost of damage to, or loss of, it. However, the fact that it does have a value is frequently demonstrated when businesses with a good reputation are sold and a premium is charged for ‘goodwill’. The existence of a dispute and, perhaps more importantly, the inability to settle it, is likely to harm a good reputation. The longer arguments drag on without resolution, the more likely it is that the existence of the dispute will become known and the inability to settle it apparent. This may be particularly damaging for practices that obtain a significant part of their work through repeat business from long-term clients or from recommendations made by those clients.

Essentials for Productive Discussions

If it is to be successful, informal discussion must be approached with a willingness to:

• settle rather than seek vindication
• be objective and try to see the matter from both sides
• adopt a spirit of cooperation and compromise.

Essentially, this approach reflects the principles embodied in Articles 2.1 and 3.1 of the RIBA Code of Conduct. Article 2.1 of the Code requires its members to act impartially when dealing between parties and states that:

It may be difficult to maintain an impartial point of view when one of the differing or opposing demands is your own, but being able to do so may be key to resolving a disagreement before it develops into a dispute. Article 3.1 of the Code requires members to respect the opinions of others and states that:

Adopting this approach does not mean simply accepting a different point of view without question for the sake of avoiding an argument. Indeed, the empathy rather than sympathy for a differing opinion or viewpoint that may be achieved by maintaining a flexible approach and a broad perspective may help to construct a more persuasive argument for a position that you believe to be correct. In practical terms, this is likely to mean:

• listening to, and understanding, the opposing point of view
• avoiding assertions that your view is the correct view
• looking for common ground between the viewpoints
• looking to extend that common ground
• accepting an outcome which meets your interests rather than your perception of your rights.

Approached in this way, informal discussions – held as dissatisfaction or criticism arises – can help to focus attention on the resolution of practical necessities rather than the preservation of pride.

What to Discuss and When to Stop

Almost anything that is causing dissatisfaction or a problem may be discussed. Typically, discussions might cover:

• clarifications or misunderstandings relating to the scope of services
• the nature of the roles of other parties
• the requirement for, and nature of, client inputs
• specific practical matters that may affect the achievement of the brief, such as design constraints or regulation constraints.

Discussions should be continued as long as they remain constructive and make progress towards agreement. However, if it becomes clear that neither side is prepared to make any further movement in their position, if the same arguments are repeated, or if the matter requires factual information that neither party has in order to resolve it, then it is time to consider an alternative means of progressing the issues.

■ Complaints Procedure

A complaints procedure is a formal procedure for addressing and resolving complaints. It is a specific requirement of both the ARB and RIBA Codes of Conduct that architects have such a procedure in place. Article 3.5 of the RIBA Code of Conduct states that:

Standard 10.1 of the ARB Architects Code states:

RIBA Code of Professional Conduct Guidance Note 9 offers a little more detail:

• Ensures that clients are informed of whom to approach in the event of an problem with the professional service provided; and
• Handles disputes and complaints promptly.’

What Are the Benefits and Drawbacks?

For the client, the benefits are that the procedure is likely to:

• demonstrate that any complaint will be taken seriously
• set out the method of addressing and dealing with complaints
• provide a method of dealing with complaints at an early stage before a dispute arises.

For the architect, the benefits are that the procedure is likely to:

• demonstrate a professional approach
• give clients confidence that complaints will be taken seriously and dealt with effectively
• save time and reduce stress by providing a pre-arranged structure to follow
• provide a method of dealing with complaints at an early stage before a dispute arises.

Rather than being seen as something to put in place simply to satisfy the requirements of the Codes of Conduct, however, it is worth recognising that such a procedure offers potential benefits to both architect and client. If something does give rise to dissatisfaction, then a formal complaints procedure may allow the matter to be resolved in a structured manner that helps to exclude emotion and avoid the establishment of entrenched positions. It is difficult to see any drawbacks to having an effective complaints procedure in place.

When Is It Appropriate to Use a Complaints Procedure?

A formal complaints procedure is typically used when a client is dissatisfied with specific aspects of the service provided by the architect. Examples may include:

• delays to the production of design or construction information
• queries related to amounts invoiced
• poor performance or unacceptable behaviour on the part of specific staff members
• matters that have been the subject of informal discussions which recur or are not completely resolved.

How Should I Approach It?

Ensuring the client is aware of the procedure

The first requirement is awareness that the procedure exists. You may refer to the procedure on your practice website, although you may choose not to, unless the site contains a lot of information about other aspects of the administration of the practice. In any event, you should refer to the process, and how to initiate it, in every letter of appointment.

Putting in place an independent complaints manager

The key to an effective complaints procedure is to have the matter considered by someone who was not involved in providing the service that is the subject of the complaint. The objectivity that a third party may be seen to bring to the matter may be enough to resolve the issue satisfactorily.

For a sole practitioner this may mean arranging for another architect, perhaps on a reciprocal basis, to act as the point of contact and arbiter for the complaints procedure.

Ensuring simplicity

The procedure itself should be simple to use. It need do no more than provide the contact details for the person to whom the complaint should be made (the complaints manager) and set out a number of basic requirements, such as that:

• the practice should be notified that a formal complaint is being made
• the details of the complaint are provided in writing
• the practice will make a written response
• the complaints manager will consider both written submissions
• a face-to-face meeting may then be held in the presence of the complaints manager
• the resolution of the complaint should be recorded in writing
• any actions agreed should be recorded in writing
• the procedure will not affect the right of either party to take further action if the matter is not resolved.

■ Negotiation

Where a situation has arisen that goes beyond the ambit of informal discussion or a complaints procedure, for example because some change to the agreement between the parties is required, such as amounts of money to be paid, time to be taken or scope of work to be carried out, then a more formal negotiation process may be called for.

Negotiation is about persuading the other party to resolve the differences between you in a manner that most closely approaches your ideal resolution. There are no formal rules and no formal process. However, most negotiations progress through the following phases.

Opening: where the parties set out their position and their expectations of the process and the outcome. Negotiators are able to assess the others’ style and attributes.

Exploration: where the parties exchange information, explore factual issues and try to determine the relative strengths and weaknesses of their different positions. They may try to narrow the issues and assess the likelihood of reaching an acceptable settlement.

Bargaining: where the parties begin to recognise that some movement on their part will be required in order to reach a settlement. This involves considering what concessions they might be prepared to make.

Settlement: where the parties have made concessions and the likely terms of a settlement are becoming clear and need to be finalised and recorded.

What Are the Benefits and Drawbacks?

The benefits of negotiation are:

• if successfully concluded, the process leads to a mutually agreed settlement
• there are no pre-set formalities
• there are no pre-set solutions
• there are no limitations as to what matters may be included in the negotiation.

The drawbacks of negotiation are:

• the parties may not have equal bargaining power
• an overbearing personality may achieve an inequitable agreement
• there is no referee and no formal rules to guide behaviour.

When Is Negotiation Appropriate?

Negotiation is most appropriate where the items to be agreed are clearly identified and understood by both parties. For example, where sums of money, periods of time or specific responsibilities are at issue.

How Should I Approach It?

Negotiation will require the same approach as that described above for informal discussions. Furthermore, the same considerations will help to maintain attitudes that are conducive to success. An additional point to consider is the choice of negotiator. Just as an effective complaints procedure requires consideration of the complaint by someone not involved in the matter, so negotiations will be less emotional and therefore more likely to succeed if the negotiators are not directly involved in the matters in dispute.

■ Expert Evaluation

EXPERT EVALUTAION is the evaluation of the issues in a dispute by a neutral third party who has expertise and experience in the subject of the dispute. Typically, it will involve appointing an independent expert to:

• review the arguments presented by both sides
• review any documents that the parties rely on or refer to
• form a view on the relative strengths and weaknesses of both arguments
• form a view on the likely outcome of any third party determination of the matter
• advise the parties of these views.

Armed with these independent views, the parties may then enter, or conclude, negotiations with a proper understanding of the issues and the risks involved in proceeding to a third party determination of the matter (see Chapter 4).

What Are the Benefits and Drawbacks?

The benefits of expert evaluation are:

• independent assessment may introduce a sense of reality into the parties’ expectations
• an understanding of issues that may have been unclear previously may help with realistic negotiations
• an understanding of the risks associated with the dispute being determined by a third party may encourage the parties to reach a settlement, however unpalatable it may seem.

The drawbacks are:

• cost – the independent expert is likely to charge by the hour, and will often charge a higher rate than for an architect’s normal services
• finding an independent expert that both parties find acceptable
• both parties may find the evaluation unacceptable and therefore unhelpful in moving the negotiations forward.

When Is Expert Evaluation Appropriate?

Expert evaluation is appropriate when the parties are already involved in informal discussions or negotiations, and find that they cannot make progress because of uncertainty over a matter which is outside their knowledge or expertise.

For example, expert evaluation may be beneficial in projects where agreements between the parties are either non-standard or informal. In such situations, each party may have a different view of what was agreed and this can present a barrier to negotiation of a settlement. An informed and neutral opinion regarding the proper interpretation of the agreement, and perhaps of the likely liability and its quantum, may either form the basis of a settlement or at least allow the start of a constructive negotiation or mediation.

How Should I Approach Expert Evaluation?

There are no hard and fast rules as to the use of an expert in this way. However, the basic requirements are:

• an understanding that discussions or negotiations have stalled
• a willingness on both sides to resolve the matter rather than have it develop
• agreement to the use of expert assistance
• identification of the type of expert that may be able to assist
• agreement on the identity of the expert to be appointed.

Choosing and approaching an expert

The appropriate expert may be identified by reference to the relevant professional institute or to a specialist institute such as the CHARTERED INSTITUTE OF ARBITRTAORS, (CIARB), or the ACADEMY OF EXPERTS (see Chapter 5 for sources of experts).

The initial approach to your chosen expert may be informal, but they are likely to require the following in order be able to provide a proper evaluation:

• an agreement between the parties and the expert in which the parties agree to be jointly and severally liable for the fee of the expert
• a brief description of the background to the negotiation or discussion
• a description of the matter on which the expert evaluation is required
• a timescale within which the expert evaluation is to be provided.

■ Mediation

MEDITAION is the most formal of the consensual methods of dispute resolution. It is a process whereby an impartial third party, the mediator, helps the parties to find a settlement arrangement to which they can both agree.

The process is structured, though flexible, and typically involves a number of joint and private meetings during which the mediator will help the parties to clarify the issues, understand the strengths and weaknesses of each other’s arguments, and come to terms with what they need, as opposed to what they might want, in order to come to an acceptable settlement. However, unlike an expert evaluator, the mediator will not express any views on the merits of the respective arguments or on any likely outcome at a third party determination.

How Does It Work?

Most mediations take place over the course of an often very long day. Typically, the process begins with a joint meeting between the parties, their representatives, and any experts that the parties have appointed, chaired by the mediator. After an introduction by the mediator, each party or their representative may present a brief statement outlining their position with respect to the dispute. Following this meeting, the parties will commonly retire to separate rooms. The mediator will spend time with each party in turn, gaining an understanding of their positions and their interests/objectives, setting tasks designed to stimulate a critical analysis of both sides of the dispute and testing established arguments and positions. Further joint meetings may take place if it appears that these may assist in producing an agreement.

Because the outcome of the mediation depends upon agreement between the parties rather than the imposition of a decision by a third party, it is essential that each party has someone in attendance who is authorised to make a decision on their behalf.

If a settlement is reached, then a formal SETTLEMENT AGREEMENT should be drafted and signed before leaving the mediation. A settlement agreement sets out the settlement terms between the parties. If court or arbitral proceedings have already started, then this agreement will be in the form of a CONSENT ORDER or a TOMLIN ORDER, where the actual terms of the settlement are kept confidential by means of a separate schedule which is attached to the order (see ‘What are the benefits of mediation?’ and ‘What are the drawbacks of mediation?’ on pp. 67-69).

If the mediation does not result in a settlement, then the alternative is likely to be litigation, adjudication or arbitration; all processes where a court or tribunal will form its own view of the issues, based upon evidence presented to it, and impose a binding decision on the parties. The mediator will help each party to understand the risks involved, and the range of possible outcomes in these proceedings should the mediation not resolve the matter.

What value does a mediator add to the negotiation process?

The mediator will listen to all aspects of a party’s case, the common sense and emotional arguments as well as the legal ones. This enables the mediator to gain a thorough understanding of each party’s position, their perception of what the issues are, and which are most important to them. It also allows the parties to express the matters that are important to them in terms of common sense and emotion rather than legal argument. This can be important because it is likely to reflect more closely the way people have seen the issues develop over time and to allow them to describe the issues in language with which they are comfortable.

Having understood the situation, the arguments and the emotions, the mediator will test and challenge each case and each point of view. This is inherently less confrontational than argument between the opposing parties and can help each party to come to terms with the compromises that will be inevitable if a settlement is to be reached.

Finally, based upon the mediator’s understanding of the parties’ arguments and concerns, the full range of possible remedies will be explored, rather than just the legal and financial ones.

What Are the Benefits of Mediation?

The main benefits of mediation are that:

• It is a confidential process. No one who is not directly connected with the dispute will have any access to information associated with it. This may be important to the parties for commercial and/or personal reasons.
• It is conducted on a ‘WITHOUT PREJUDICE’ basis. This means that discussions, admissions or offers made during the mediation may not be used in any subsequent litigation or arbitration proceedings.
• The parties maintain control of the procedures. The format of the mediation process is flexible and may be adapted by the parties to suit the particular circumstances of their case.
• The parties maintain control of the outcome. Any settlement must be the result of agreement between the parties. It is not imposed by a THIRD PARTY NEUTRAL, who is an independent and impartial party appointed by parties to hear the cases, consider them and make a decision on the resolution.
• It offers a wide range of remedies. The remedies available to a court or arbitral tribunal are generally limited to financial compensation. Mediation may offer a wider range of remedies, for example apologies or other statements relating to the issues in dispute, or discounts on future transactions.
• It may preserve business relationships. The range of remedies available and the fact that mediation is unlikely to lead to a ‘winner takes it all’ outcome means that it may be possible to achieve settlements that restore or preserve trading relationships.
• It can avoid expense and stress. By achieving a settlement relatively early in the dispute resolution process, mediation may avoid drawn-out proceedings.
• Mediation achieves a high rate of settlement. There are no formal statistics but anecdotal evidence from mediators and lawyers involved in mediation suggests that between 70% and 80% of mediations settle either on the day or very shortly afterwards.

What Are the Drawbacks of Mediation?

Although there appear to be few drawbacks to mediation, there are some circumstances that might prevent the achievement of a fair settlement, such as the possibility of INEQUALIT Y OF ARMS. This phrase describes a situation where one party is in a much stronger position than the other, irrespective of the relative merits of their cases. The inequality may relate to the skills and experience of the respective legal teams, or more simply to the relative financial positions of the parties, as Case Study 3.2 illustrates.

In addition, the following issues may be considered to be potential drawbacks:

• Lack of good faith on the part of one of the parties. The success of mediation depends on the parties participating in good faith with the genuine intent of achieving a settlement. If a party attends simply to avoid the imposition of a cost sanction by the court in later proceedings, or in the hope of discovering more about an opposing case in preparation for a litigation or arbitration proceedings, then the time and money expended on the mediation may be wasted.
• Timing of the mediation. If the mediation is conducted before all the evidence has been disclosed and considered and before statements of position have been thoroughly researched and prepared, it is possible that a settlement may be agreed on the basis of an incomplete understanding of the matters at issue. This may be disadvantageous to one of the parties. On the other hand, if mediation is delayed, the positions of the parties may become so entrenched that it may be impossible to reach a settlement.

When Is Mediation Appropriate?

Almost any dispute that has not been resolved by informal discussion or straightforward negotiation is likely to be amenable to mediation. The size and complexity of the dispute is immaterial; mediation is used for small and simple disputes and has been employed successfully in disputes involving multimillion or -billion pound claims. PI insurers typically encourage mediation as a way of minimising the costs of resolving a dispute.

If other methods of dispute resolution have already commenced

If litigation or arbitration has commenced then mediation will be encouraged by the court or tribunal at an early stage in the hope that the formal proceedings, and the associated time, stress and expense, may be avoided. This is known as Alternative Dispute Resolution (ADR) i.e. dispute resolution methods other than litigation or arbitration. Although mediation is a voluntary process, the courts do have the means to require parties to give serious consideration to its use. According to the Jackson ADR Handbook:¹⁷

Being penalised in costs means that even though the party may win its case in court, if it unreasonably refused to attempt ADR before the trial then the court may refuse to order the losing party to pay the winning party’s costs. (The usual situation in both litigation and arbitration is that the losing party is ordered to pay most, if not all, of the wining party’s legal costs.)

Situations when it is not appropriate

There are, however, a few occasions when mediation will not be appropriate Strasser and Randolph¹⁸ identify the following examples of disputes which, although amenable to mediation, would be better resolved in court:

• a dispute involves a matter of public policy
• a court ruling is required in relation of matters of safety or procedure
• a court ruling is necessary to establish proprietary rights
• A PRECEDENT [the requirement for lower courts to follow decisions made by the higher courts] is required in interpretation of the law
• an exemplary award of damages is needed.

How Should I Approach It?

If mediation is appropriate, what is the best stage of the proceedings to undertake it and how can you prepare yourself in order to have the best chance of a successful outcome? If you are going to benefit from mediation then it is essential that you approach it, not as a contest in which there will be a winner and a loser, but as a discussion and negotiation. This presupposes that both parties will have to reduce their expectations in order to achieve a resolution, but both will benefit from ending the dispute and regaining a productive commercial life.

At what stage should I consider mediation?

Deciding exactly when to mediate is a matter of judgment and will depend on the circumstances of the particular case, the size of the project, and the complexity and value of the matters in dispute. It will also depend on the attitude of the parties.

In David Richbell’s view, ‘Mediating early, even before legal proceedings are commenced, keeps costs to a minimum, but the risks are greater.’¹⁹ The main risks associated with early mediation are that the matters in dispute have not been sufficiently identified, and that insufficient information is available to enable each party to properly understand the other’s case. On the other hand, Richbell also acknowledges that ‘… there is nothing worse than mediating a case where the costs exceed the claim (or the settlement). It becomes a mediation about who pays the costs, not the claim.’ Also, the willingness to settle, which is essential if mediation is to succeed, is likely to diminish if prolonged combative arguments lead to entrenched positions.

Preparing for mediation

It is important that both sides understand the extent and nature of the other’s case. A mediation is unlikely to be successful if new information or arguments come to light during the process. If mediation is considered, or encouraged, as part of the PRE-ACTION PROTOCOL (a series of preliminary steps) in legal proceedings, then it is likely to take place after the statement of claim (a written statement prepared and issued as a follow-up to the letter of claim) and the defence (a formal response to the statement of claim) have been served and digested. If it is considered as an alternative to litigation or any other third party determination process, then the parties should set out their respective cases in some detail before beginning the process.

The mindset for a successful mediation

An important factor in enabling a settlement is the ability of each party to come to the understanding that the terms of the settlement are likely to reflect the minimum that they need, rather than the ideal that they may feel they are entitled to and would like. Without this understanding, it will be difficult, or impossible, to make the compromises that will inevitably be necessary in order to reach a settlement that is acceptable to both sides. A good mediator will encourage and assist the parties to consider their requirements critically and carefully during the course of the mediation.

David Richbell expresses this succinctly: