An Anatomy of Voluntary Construction Dispute Mediation

自願調解建築糾紛的剖釋

Student thesis: Doctoral Thesis

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Award date8 Aug 2023

Abstract

Construction projects involve parties from different organisations. There are inherent conflict of interests among them. Coupled with the intense market competition and unforeseen risks, disputes appear to be inevitable. The COVID-19 pandemic has also presented unprecedented challenges to the global construction industry, one of which is the surge of disputes. Adversarial resolution methods for construction disputes have posed an enormous burden on construction parties. In fact, construction is identified as litigious. Alternative dispute resolution (ADR) methods, such as mediation, adjudication, and early neutral evaluation (ENE), have been promoted as more time-efficient and cost-effective alternatives. Mediation is the most commonly used form of ADR in Hong Kong. There are several notable advantages, including being less costly, speedy and greater privacy. Moreover, the demand for mediation services has not been as promising as expected. A gradual decline in recent years has been recorded in Hong Kong.

Voluntary participation has been considered as a necessary condition for the conduct of mediation. Nevertheless, the prevailing practice is the inclusion of mediation as part of the standard dispute mediation contract clauses. Other uses may be court-encouraged or being unilaterally raised. Pure voluntary participation is therefore rare. This study aims to examine the value of voluntary participation in construction dispute mediation. The study has five objectives:

1) to review the current practice of construction dispute mediation;

2) to identify the characterising design of construction dispute mediation;

3) to examine the suitability of the design of voluntary construction dispute mediation;

4) to examine the impact of potential vitiating contracting conditions that work against voluntary participation; and

5) to propose strategies for construction practitioners and mediators to maximise the benefits of voluntary construction dispute mediation.

For the fulfilment of objectives one and two, a detailed literature review was conducted to examine the practice and pillars of successful mediation. The review informed the key mediation attributes and manifestations of voluntariness in construction dispute mediation. Scale rating by construction professionals was employed to establish mediation attribute importance ranking as well as the representativeness of manifestation of voluntary participation. "The exchange of critical information is effective" and "The disputant considers the mediator trustworthy" were ranked as the two most important mediation attributes, thus suggesting the importance of having a conducive environment for genuine communication. It is therefore found that voluntary participation is considered as a necessary condition to create a collegial atmosphere. "Working cooperatively with the mediator" and "Preparing settlement options before attending the mediation" are the top two ranked manifestations of voluntary participation. These findings raise the caveat when disputants are asked to attempt mediation that may erode voluntary participation. In fact, the unequal footing of the disputing parties can be a negating factor against voluntary participation. Prior mediation research mostly studied the determinants of mediation, the choice of mediation tactics, and the outcomes of mediation which is quite descriptive. Associated with unequal footing, power asymmetry between the disputing parties may deter genuine voluntary participation. As for the prevailing practice, quasi-imposition can also negate the will to mediate voluntarily.

For objective three, voluntary participation (VP) has been identified as one of the most characterising features of mediation. This part of the study further identified four potential mismatches between contracting arrangements with the conditions for voluntary participation. These are i) principal-agent relationship; ii) power asymmetry between the parties; iii) quasi-imposed adoption; and iv) biases of the disputing parties on the process. It is projected that voluntary participation can be derailed by the afore-stated conditions. Power asymmetry and quasi-imposition are further analysed their paradoxical relationship with voluntary participation.

To address objective four, the influences of power asymmetry and quasi-imposition on voluntary participation were examined in detail. Would power asymmetry (PA) between the contracting parties marginalise the value of voluntary participation? To address this, constructs of voluntary participation, power asymmetry and prerequisites of successful mediation were developed. PCFA was performed on data collected from the construction dispute resolution community to explore the underlying structure of the constructs. The relationships between the constructs were tested by structural equation modelling. VP is found to be an important attribute of mediation. PA is also found to be inherent in construction contracting. Three forms of PA were found: Resource, Information and Expectation. Moreover, PA would not marginalise the value of voluntary participation in fostering the attempt of construction dispute mediation. As such, VP remains one of the key attributes of mediation, notwithstanding the presence of PA between the contracting parties. The instrumentality of VP in fostering an attempt of mediation is confirmed. This part of the study empirically supported that notwithstanding the power asymmetry between the disputing parties, the flexible approach of mediation is instrumental in overcoming the inherent paradox between VP and PA.

The influence of quasi-imposition on voluntary participation of construction mediation was examined from the perspective of fairness. It is advocated that a sense of unfairness can be a barrier against settlement. For example, while a contractor considers himself being underpaid, the client instead believes that the work has not been completed satisfactorily. Another issue that can lead to the perception of unfairness is the timing of proposing mediation and the time allowed for preparation. The impact of unfair perception on dispute resolution can be explained by Machiavellianism, which describes immoral manipulation, control, win-lose strategy, and distrust being practised by organisations. In mediation, Machiavellianism should be avoided. Quasi-imposition in mediation refers to the application of external pressure, such as the use of standard mediation clauses or court directives to engage parties' participation. Perception of fairness can stem from four main factors: i) impartiality of the proceedings; ii) distributive justice; iii) interpersonal propriety and transparency; and iv) accessibility of information. This may undermine the voluntary nature of mediation. Mediation aims to create idiosyncratic deals that are unique and specific to a particular dispute. Exchange of concessions therein can only be possible through voluntary participation. This part of the study investigates the perception of fairness, timeliness and Machiavellianism in moderating the paradox between quasi-imposition and voluntary participation in construction dispute mediation.

Most construction contracts make voluntary mediation a condition precedent to arbitration or litigation because of the need to have alternative ways to resolve construction disputes. With increasing use of contractual mediation and court-encouraged mediation, the voluntary element of construction mediation appears to have been eroded. This study aims to examine if voluntary participation is necessary for its wider adoption. The principal-agent relationship between developers and contractors is subject to their asymmetric conditions and opportunism due to high asset specificity and risk uncertainty. In these contexts, this study found that notwithstanding that disputants are having inherent diverse interests and they may be 'asked' to mediate. The fact that both PA and QI are quite common in construction contracting, this study contributes to the CDM study by reaffirming the need to keep CDM ‘Voluntary’ and according to maximum flexibility. Moreover, their voluntariness to mediate will not be seriously eroded. As such, voluntary participation shall have its role in asserting a sense of autonomy whereby disputing parties would not refrain from mediating. To accomplish objective five, it is suggested that the flexible arrangement of mediation, including voluntary participation should be maintained. To overcome the potential incompatible conditions that may deter the instrumentality of mediation, in addition to the facilitation of settlement, the skill set of mediators should embrace balancing power differentials as well as minimising the impact of quasi-imposition. Mediation can be enhanced from a 'nothing to lose' to a 'worthy' alternative dispute resolution mechanism. The empirical work conducted in this study aptly supports this proposition. This study further found that PA & QI would not nullify or marginalize the value of VP. It was found that the flexible process design with a readily available exit route, and the conducive mediation conditions brought by VP remain instrumental in soliciting an attempt of mediation.