Construction Disputes Belong In Mediation, Not A Courtroom

By Mallory Hendry

Four decades in construction law, one conviction: settle it before a judge ever sees it

Ask Anna Esposito where construction disputes belong, and she'll tell you one thing for certain: not in a courtroom. The Pallett Valo LLP certified specialist in construction law and mediator brings nearly four decades of experience to that conviction. These cases, she argues, are particularly well-suited to mediation.

Deeply technical by nature, when the mediator and parties share construction expertise, “all players speak the same language,” Esposito explains. A judge assigned to a construction file, on the other hand, may have just completed a criminal or family law case and may not have working knowledge of what's at stake in the construction context.

Then there's the multi-party reality. Construction disputes tend to pull in everyone who may have touched the problem, including owners, lenders, insurers, sureties, contractors, subcontractors, suppliers, and lien claimants, sometimes across multiple jurisdictions.

Ask Anna Esposito where construction disputes belong, and she'll tell you one thing for certain: not in a courtroom. The Pallett Valo LLP certified specialist in construction law and mediator brings nearly four decades of experience to that conviction. These cases, she argues, are particularly well-suited to mediation.

Deeply technical by nature, when the mediator and parties share construction expertise, “all players speak the same language,” Esposito explains. A judge assigned to a construction file, on the other hand, may have just completed a criminal or family law case and may not have working knowledge of what's at stake in the construction context.

Then there's the multi-party reality. Construction disputes tend to pull in everyone who may have touched the problem, including owners, lenders, insurers, sureties, contractors, subcontractors, suppliers, and lien claimants, sometimes across multiple jurisdictions.

“Instead of waiting for the judges to determine it separately down the road, a mediated forum brings all parties together to apportion liability,” Esposito says. “That increases the likelihood that you can get a settlement, from the key players at the very least.”

Perhaps the most underappreciated advantage is the creative latitude mediation affords. Courts and arbitrators can only award money; mediation opens an entirely different toolkit, where resolution can be whatever the parties wish. Noting that “it’s as much psychology as it is substantive law,” Esposito explains a significant aspect of this work is understanding people’s mindsets.

In one case, a senior contractor felt disrespected by a younger subcontractor and that, not dollars and cents, was the real heart of the problem. Once an apology was worked in, the settlement got made. In another, parties were $10,000 short of a deal with neither side willing to move. The resolution: one party made a charitable donation to a charity of the other's choosing, saving face on both sides.

Other common construction settlements involve partial payments now with additional payments contingent on future events such as correcting deficiencies or closing out building permits. Extended warranties can also stand in where performance concerns linger.

Where multiple parties are involved, the work becomes something closer to what Esposito calls “horse trading in a bazaar.” If enough agree to contribute a modest sum, it can build a pool sufficient for the claimant to walk away. Even a party with little or no liability may find it worth contributing; the cost-benefit analysis often makes a small payment the better option over pressing forward.

The business case is straightforward: earlier resolution is almost always cheaper and faster. But mediation doesn't have to be all-or-nothing to be worthwhile. Resolving even a few issues out of many is still a meaningful win.

“You've taken those tentacles of the octopus out of the equation; you can focus your resources on the big-ticket items and litigate those if you have to,” Esposito notes. “Parties also walk away with an industry expert's insights and assessment of the strengths, weaknesses, and costs of their position — laying the foundation for settlement down the road.”

Engaging in mediation meaningfully

To get the most out of mediation, lawyers should prepare clients for an open and frank discussion that's without prejudice. As Esposito puts it, "what happens during the mediation stays in the mediation."

"Be vulnerable, be open, suggest things that are outside the box; it either will work, which is excellent, or it will not and if it doesn't, it's like it never happened. So why wouldn't you test the waters? It's a no-brainer."

Counsel should also keep materials brief as mediators read only enough to understand the parties' positions and the stage of proceedings. Esposito encourages objectivity: key facts only, no hyperbole, no disparagement.

Charts are a particularly useful inclusion. Construction accounting, including the base contract price, change orders, and unresolved claims, is often central to disputes yet Esposito says she's repeatedly surprised by how often it hasn't been done.

“There have been many times when I'm the one pointing out accounting irregularities for the first time in a mediation,” she recalls. “The parties sometimes don't even agree on how much was paid in respect to the contract. Go through the math, break it down in a straightforward way.”

Equally important, and equally overlooked, is a clear grasp of both liability and quantum of damages. Has the causal connection between the act and the damages been demonstrated? Is there documentation supporting the quantum, broken down item by item?

“It doesn't make it a $1 million claim just because you say so in a statement of claim,” Esposito says, adding it's also critical that there's no glossing over of who breached the contract first.

“How are you going to prove it? That needs to be a fulsome discussion. If you're hearing about it from me as the mediator for the first time, that's not good.”

Finally, bring participants with real decision-making authority. If limitations exist, disclose them upfront.

If all else fails, bring a ‘mediation mindset’ to litigation

When the other side won't cooperate, the court may be the only path forward in Ontario. As the adage goes, “you can lead a horse to water, but you can't make it drink.” Sometimes, you can't even lead it to water. But many of mediation's best features can still be applied in the litigation arena.

Esposito's advice holds: adopt the same attitude and go through the same motions with your client as you would for mediation. She also points to tools like the Scott Schedule, a structured table used in construction matters that clearly presents disputed allegations alongside supporting documents, allowing the judge and both parties to work through each item systematically.

"You can't force a difficult other side to respond, but prepare it anyway for your own purposes," Esposito advises. If both parties do engage, it can quickly develop into a negotiated resolution.

“It focuses your effort. You’ll see very clearly that a $5,000 item is well documented, while a $100,000 item is sparse. It lays out visually, line by line, what needs attention.”

Counsel can also make their own. What’s stopping you from making a chart, spreadsheet, or chronology, Esposito asks? It’s a way to sift through, pare down and concentrate resources on the big-ticket items. It is a lawyer’s duty to think about settlement each step of the way, so no need to hold your cards too close to your chest, she says.

A deal today beats a judgment tomorrow

Another adage is apt here: a bird in the hand is worth two in the bush. If you take your matter to court, several years later you get a judgment. Unless security was posted, it’s a piece of paper that’s subject to appeal meaning another few years will go by. A lot can change in that time that may mean you never see a dime. A mediated resolution, by contrast, is a deal concluded today. Whatever the settlement is, money passes hands and it’s done.

At its core, Esposito says, it's all risk analysis. Clients and counsel alike must apply a business mind to the problem. Litigating principles gets expensive very quickly and you can’t predict the end game. There’s a practical, negotiated resolution somewhere, she insists.

“Every time parties reach a deal between themselves and conclude it today, no matter what it is, I still believe it's 100 times better than a judgment a long way down the road, at great expense, that a judge pronounced on that particular day.”

 This article was produced in partnership with Pallett Valo LLP