Disputes can arise on a construction site from day one, and they must be resolved quickly so that the work can proceed and the parties can be legitimately compensated. Regardless of the source of a conflict-an alleged change in program or a modification in site conditions-project owners have every reason to find a fast solution to any dispute potentially generating a monetary claim that could give rise to the registration of a legal hypothec of a person who has taken part in the construction or renovation of an immovable.¹ There are different means of resolving disputes open to the parties, be they the project owner, principal contractor, or a subcontractor or equipment supplier. They are:

• negotiation
• mediation
• arbitration, and
• court remedies, in essence opening up the whole range of recourses available to the parties.

• the scope of the conflict;
• the quality of communication between the parties;
• the inclusion or exclusion of a dispute resolution mechanism in the contract.

Negotiation

It's clearly to the parties' advantage to resolve a dispute of a technical nature by means of negotiation. If a disagreement on a technical matter is not settled, the work could be delayed, partially suspended or totally interrupted.

That's why many contracts stipulate that for disputes concerning a technical matter, the decision of the appropriate professional will take precedence and not allow the contractor to delay the work-even if it means eventually resolving the disagreement under the mechanism provided for in the contract or during a legal battle taking place upon completion of the work, for example, following the registration of a legal hypothec.

The different models of contracts provided by the Canadian Construction Documents Committee (CCDC) contain an obligation for the parties to make a reasonable effort² to resolve any disputes by means of negotiation on a without prejudice basis.

For negotiation to be successful, it must be marked by frankness, candidness and openness, and be conducted in good faith. The parties must disclose all relevant facts and documents that can facilitate the negotiation process. The primary reason the parties should favour negotiation as a means of resolving a dispute is essentially the cost associated with the other options, i.e. mediation, arbitration and court remedies. Recourse to other mechanisms may also have a considerable impact on the work and payments, not the mention the possible intervention of the guarantor, if there is one.

Who should negotiate? In the case of a construction site, the best people to conduct negotiations would be those in charge of the site for each of the parties involved in the dispute. These individuals have a good knowledge of the facts and can be assisted, if need be, by someone with a thorough understanding of the terms of the contract and experience in conflict management.

Any non-disclosure of relevant information during the negotiation process will create obstacles to the swift resolution of the dispute.

If negotiations are conducted on a without prejudice basis, it is essential that any agreement reached by the parties be immediately documented in a site record signed and countersigned by all those involved. It is also important that any change order or addendum resulting therefrom be quickly prepared and signed by all the parties as well.

If, and only if, negotiation fails should the parties consider resolving their disagreement through another mechanism, i.e. mediation, arbitration, or court remedies.

Mediation

As previously mentioned, many contracts based on those provided by the CCDC³ provide for mediation and arbitration mechanisms, and favour them over court remedies. In many cases, mediation is a mandatory process the parties must undertake before they can even consider going to the next step, i.e. arbitration. While mediation may be mandatory in some cases, it can be completely academic if one of the parties jeopardizes the process by merely going through the motions.

Let's take a look at mediation and its features, which are different from those of arbitration.

The parties can agree on their own rules of mediation or refer to those in Standard Construction Document - CCDC 40-1994.

What is mediation? Mediation is a process that requires the will of the parties to resolve their dispute, with the help of a facilitator or "mediator" who attempts to find a basis on which they can agree. The mediator, chosen jointly by the parties, must be neutral, independent, and have a reputation for being able to get parties to agree based on his or her past experience. The mediator should ideally have experience in the construction industry so that he or she understands the ins and outs of the matter at issue when dealing with the parties.

The people most often called upon to act as mediators in the construction industry are lawyers with experience in construction law, retired judges, engineers, and construction professionals specializing in this type of initiative. Various organizations, in Québec and outside, are able to provide lists of mediators and arbitrators.⁴

Legal knowledge is certainly an asset for a mediator. Although the mediator may not render a legal opinion, he or she can suggest what the legal risks and probable outcome of the dispute will be in the event that a judge has to decide the issues. It is important to understand that mediation does not lead to a decision or judgment that will end the dispute. Mediation is a mechanism that will result in an agreement resolving the dispute, or in the absence of an agreement, that will lead to the initiation of other mechanisms.

The mediator's remuneration is assumed equally by the parties. Mediation, by its very nature, is conducted quickly (from the outset of the process) and is limited in time (under the mediation agreement). In fact, the mediation agreement should always provide for time limits. And as with arbitration, the parties must scrupulously comply with the time limits specified in the agreements providing for these procedures, so that they don't lose their rights.

Although not desirable at the negotiation stage, the parties may be represented by a legal counsel during mediation.

Mediation generally takes place as follows:

• a notice of mediation is sent by one of the parties;
• a mediator must be appointed within a specific time period;
• the mediator's mandate and fees are determined as well as the schedule;
• the parties are notified by the mediator to appear at meetings;
• the mediation meetings are held;
• a written settlement is prepared or a document establishing that mediation has failed.

During the mediation session, the mediator generally proceeds as follows. Each of the parties makes an opening oral statement and submits documents which the mediator has previously studied to familiarize himself or herself with the parties' allegations. The mediator then asks the parties to go into separate rooms, where he or she sits down with them, raises questions, and emphasizes thestrengths and weaknesses of their arguments. After going through this process with both parties and reflecting on the matter at issue with them, the mediator strives to see whether or not agreement is possible. In some cases, the parties may request time to think, in which case the mediator must notify them to appear at another meeting. If the parties take too much time to think, the success of the process may be jeopardized.

Either of the parties may, at any time, withdraw from the process, and the mediator simply evidences the failure to reach an agreement in writing. Here are some guidelines to ensure mediation is successful:

• make sure the case is well documented;
• have a thorough knowledge of the case;
• obtain the employees' version of the facts;
• identify the reasons for and causes of the dispute;
• carry out an objective analysis of the claim;
• evaluate the impact of litigation on the company, in particular, the
  • time,
  • costs, and
  • financing;
• be prepared to forgo something;
• set objectives;
• identify the best person in the company to speak on its behalf, someone who:
  • is articulate
  • is calm but convincing
  • has a good knowledge of the facts and contractual documents
• make sure that the company representatives at the mediation session are able to make an immediate decision and commit the company under a settlement.

Arbitration

Should mediation fail or should the parties decide to proceed directly with arbitration, the arbitration process is set in motion. Arbitration is a mechanism of private justice; the parties agree to comply with it, under a contract they have signed or under a subsequent agreement, in order to avoid court remedies.

An arbitration agreement, according to article 2638 of the Civil Code of Québec is "a contract by which the parties undertake to submit a present or future dispute to the decision of one or more arbitrators, to the exclusion of the courts".

Arbitration has the advantage of being faster and more expeditious than court remedies for the following reasons:

• the hearing date is agreed upon by the parties with the arbitrators;
• there are no delays in holding the hearing due to an accumulation of cases pending before the courts;
• the availability of the arbitrators is known before they are appointed; and
• there is no appeal of an arbitration decision, since once it is approved or homologated it becomes final.⁵

Contrary to what is sometimes indicated, arbitration is not less costly than court remedies. In fact, the parties must share the arbitrators' fees equally, in addition to assuming their own attorney's fees. They are also occasionally required to absorb one-time costs, such as the rental of the room where the arbitration hearing is held.

Be that as it may, arbitration has the advantage of being private. Thus, any decision rendered will not fall within the public domain and will not be subject to media coverage⁶ -two non-negligible benefits. Some contractors and professionals consider this to be a plus: if the arbitrator were to find against them, their image and thus their ability to obtain other mandates would not be affected.

While the essential qualities sought in a mediator are good communication and facilitation skills, those emphasized in an arbitrator are experience, knowledge of the industry, and legal expertise. Some parties tend to choose an arbitrator with a known favourable disposition toward contractors, professionals and owners, while others will steer clear of them.

The parties will provide for mandatory arbitration or arbitration in the alternative, in their contract. If arbitration is mandatory, it will be clearly indicated in the contract (mandatory arbitration clause), and the parties will have no choice but to proceed with it; they will not have the option of going to court to resolve their disagreement. Once again, the time limits provided for in the arbitration agreement must be carefully complied with.

Many contracts in Québec are, as mentioned, based on the model provided by the CCDC or refer to the provisions of the Code of Civil Procedure of Québec found in article 940 and those following.

The arbitration process is generally initiated by the notice of arbitration, which includes a description of the contract, the nature of the matter at dispute, a request for the dispute to be referred to an arbitration tribunal, as well as a somewhat exhaustive description of the claim, and the names of the suggested arbitrators.

The parties may appoint a sole arbitrator or three arbitrators under an agreement modeled on that of the CCDC or under the Code of Civil Procedure. Their agreement generally stipulates in which case arbitration will be conducted by one arbitrator or three. The choice of one or three is often based on the monetary value of the claim involved.

When a sole arbitrator is to be appointed, the parties must agree on the appointment and will seek someone as independent as possible. When three arbitrators are to be appointed, the party that has sent the notice of arbitration will likely indicate in the notice the arbitrator that he or she intends to choose. The choice of arbitrator will often be guided by an analysis of the person's past experience and ability to understand the allegations of the party appointing him or her. The other party will then proceed to appoint an arbitrator according to similar criteria. Once the two arbitrators have been appointed and no conflict of interest is raised by either party, the parties will appoint the third arbitrator, who will preside over the tribunal. The standard appointment scenario is as follows: each of the parties appoints a construction industry professional, i.e., an engineer, architect or former project manager, who together choose a legal counsel as chair of the tribunal. However, should legal issues constitute the greater part of the dispute, the parties may opt to proceed conversely, that is to each appoint a legal counsel, who will likely choose a construction industry professional to preside over the tribunal.

Once the arbitrators have been appointed and their remuneration determined, an agreement binding the parties to the arbitration tribunal is signed establishing essentially the terms under which arbitration will be conducted and specifically the schedule for the production of written pleadings and supporting documentation. The arbitrators' fees will be shared equally by the parties and paid following receipt of a bill issued by the chair of the tribunal, who will see to the appropriate fee breakdown.

As soon as an arbitrator signs the arbitration agreement with the parties, the arbitrator automatically becomes independent regardless of which party originally appointed him or her. The arbitrator must act with complete integrity in analyzing the evidence and producing the reasons for the decision he or she will render. Arbitrators obviously come with their experience and biases, but their appointment by either of the parties should not, as a general rule, affect the honest and scrupulous analysis of the evidence.

Arbitration is conducted in a slightly less formal setting than a proceeding in a court of law. The rules of evidence, which may occasionally be relaxed, must nonetheless follow the rules of natural justice and allow each of the parties to assert their allegations, in accordance with mechanisms for the submission of evidence similar to those of the courts. The witnesses are sworn in and must relate the facts in an honest and open manner. Their credibility is challenged during cross-examination; the arbitrators have ample opportunity to ask the appropriate questions.

As in a court of law, the parties may produce expert reports; once they have been filed, the experts are heard. The parties present their arguments to the arbitrators, according to their analysis of the evidence and authorities (statutes, case law and doctrine), then they submit their conclusions.

The arbitrators normally render a written decision, determine the merits of the claims and grant, where pertinent, the appropriate sums of money, in accordance with the schedule and terms provided for in the arbitration agreement. They may rule on the interest on such sums as well on the hearing costs and legal costs, provided the contract contains provisions to that effect. Some authors suggest that to prevent arbitrators from being able to grant punitive damages, the parties should exclude such a provision from arbitration agreements.

After the arbitration decision has been rendered, if the losing party fails to comply therewith, the winning party may go to the Superior Court of Québec to have the arbitration decision approved or homologated in order to make it enforceable. The homologation by the Court of an arbitration decision rendered in a foreign jurisdiction is appealable as of right, whereas if the decision is made by a Québec arbitration tribunal, it may be appealed only with leave.⁷

Court Remedies

Unless the contract binding the parties contains a mandatory arbitration clause, the parties can always rely on the courts to assert their rights and claims.

We have one of the best legal systems in the world. However, a court battle can be a long and costly process-but a process with the advantage of allowing for appeal. Error is human and is possible both in arbitration and in a proceeding before a court. Being able to appeal is often reassuring for clients who are concerned that an arbitrator may find against them.

The time required to actually get to court can take more than two years. The fees involved are spread over the same period and will be subject to spikes. If the judgment at first instance is appealed, the time taken from the application instituting proceedings to the final judgment is generally close to seven years.

Unlike arbitration, the parties have no say in the choice of judge. Knowledge of the construction industry will vary from one judge to another. In some cases, the parties will have to provide more explanation to enable a less specialized judge to understand some of the technical matters.

In Conclusion

Any resolution achieved through negotiation is a win-win solution for both parties. Mediation is not necessarily mandatory. Although it may be a contractual obligation, it will fail unless the parties are willing to forgo something.

Arbitration, although no less costly than court proceedings, has the following features and advantages:

• specialized arbitrators
• more expeditious process
• final decision difficult to appeal
• absence of publicity.

Court remedies, for all their strengths and weaknesses, are often the only real option open to the parties. The time to decide which mechanism to use is when a dispute arises: even in the absence of a mandatory arbitration clause, mediation and arbitration can always be suggested to the opposing party. The parties can then agree, together, that this is the best route to take.

Regardless of the avenue chosen, preparation and knowledge of one's strength and weaknesses remain the best assets in resolving a dispute.

1]Article 2724, paragraph 2 of the Civil Code of Québec.
2]See articles 6 and 1375 of the Civil Code of Québec.
3]See also "Conditions of Contract for Works of Civil Engineering Construction," FIDIC, 1987.
4]Including the Centre d'arbitrage commercial national et international du Québec, the Institut de médiation et d'arbitrage du Québec, and the American Arbitration Association, for example.
5]There is, however, the possibility of judicial review and of challenging. homologation in rare cases, as we will see further on.
6]Unless homologated.
7]Anyone who wishes to appeal from a judgment on a motion for recognition and enforcement of a foreign decision does not need leave to appeal, since recognition of the decision of foreign jurisdiction is the essence of the underlying motion, whereas recognition of its enforceable nature is incidental.
Bourque v. Compagnie de fiducie du Groupe Investors ltée, A.E./P.C. 2001-729 (C.A.); J.E. 2001-364 (C.A.); REBJ 2001-22780 (C.A.).
The appeal of a judgment on a motion for homologation of an arbitration award must be authorized by a Court of Appeal judge, since the primary objective of the homologation procedure is to put the arbitration award into compulsory execution. Québec (Ministre de la santé et des services sociaux) v. Association des chirurgiens dentistes du Québec, REBJ 2002-30033 (C.A.)