Mediation as a Nothing to Lose Mode for Alternative Mode of Dispute Resolution in Construction Works * By Abdul Rani Bin Kamarudin**

Abstract In any dispute whether it is between entrepreneurs or otherwise, the court would seem to be the final adjudicator as to who is right and who is in the wrong. In other words, the party at fault will lose, pay damages and cost to the winner. One way or another, the time taken to know the outcome of the dispute, often than not, is too long and too slow, and can even be a painful experience even for the winner. Of late, arbitration has taken quite a dynamic leap as to how disputing parties resolve their disputes. This could have been due to the considerable time taken by courts to come to an ultimatum on the disputing parties obligations, or could also be due to parties unwittingly have arbitration as a standard clause in their contract in the event of any dispute.1 For hundreds of years it has been accepted that litigation was the way to solve disputes. Arbitration came along to find an alternative. While arbitration as an alternative dispute resolution has been gaining grounds, and disputing parties select the arbitrator of their choice, it is basically no different from a court, as once the parties submit to arbitrate their case before an arbitrator (quasi-judicial), their fate is either win or lose, and parties relation may be severed beyond repair. This process too, has been found to be costly, prolonged and may perhaps only be more appropriate for commercial disputes. It is still a win-lose situation, not a win-win situation with the disputing parties having no say as to how they should resolve their disputes. In short, litigation in the courts or
1

The traditional method of dispute resolution has clearly failed to dissolve disputes speedily and this is largely due to backlog of cases. Trial judges are too preoccupied with far too many cases and judgments to write. They no longer have the luxury of time to produce well researched and authored judgments. Time has really changed. The pressure of work and the demand for quicker and speedier justice has created this dilemma among trial judges. Clearing the backlog of cases has become the top priority with the result that judges nowadays tend to give short and over simplistic non speaking judgments. This is something which must be viewed with grave concern. This has to be resolved. (per Balia Yusof Bin Haji Wahi J in Jennifer Anne Harper (mendakwa untuk sendirinya & sebagai wali Estet Bernard Alfred Harper, simati) v Timothy Theseira (unreported, 16 December 2008; Rayuan Civil No 12-201-2005), [2008] MLJU 810.

arbitration proceedings is costly, time-consuming with unpredictable outcomes and above all, the winner takes all and this, inevitably, has the potential to damage irreparably the relationships between the parties, for example, in matrimonial and labour disputes, among others. This paper is on mediation, an effective and affordable complement to litigation. Mediation may be opted for in a wide range of subject matters, such as in civil and commercial disputes, matrimonial, personal injury, environmental and labour disputes, among others. It is a nothing to lose alternative dispute resolution, and why disputing parties should resort to it as their first option, and for them to determine for themselves how their disputes should be resolved, particularly so for disputes in construction projects where disagreements must be resolved as quickly as possible to meet the project time line. Introduction Mediation is completely voluntary, non binding, private and structured dispute resolution process.2 The Malaysian Mediation Council defines mediation as an informal process where parties are encouraged to cooperate in good faith to resolve dispute. A neutral third party elicits the parties cooperation to discuss their dispute openly and facilitates their understanding, encourages them to put aside their legal rights for a moment and to focus on their relationship, their needs and their objectives. In doing so, the Mediator assists parties to find common ground and from there to negotiate and achieve as mutually satisfactory solution.3 The Mediator merely helps or facilitates disputing parties to negotiate for themselves the settlement. It is very important to maintain status quo of the parties rather than straining it if the matter was litigated. Take for example, the recent controversial
2

See the Keynote Address of Yang Berbahagia Tan Sri Gani Patail, the Attorney General of Malaysia at the 13th Malaysian Law Conference at the Putra World Trade Centre, Kuala Lumpur, 16th November 2005. See also the paper Mediating Construction Disputes by Chong Yee Leong that was presented at the above said conference as well as the Arbitration Act 2005 and Arbitration: Its Form and Process by Ashgar Ali Ali Mohamed, chapter 2 of a book `Mediation in Malaysia: The Law and Practice by Mohammad Naqib Ishan Jan & Ashgar Ali Ali Mohamed, published by LexisNexis (2010). See also the Federal Court Practice Direction Note No. 5 of 2010 allowing the court to direct parties to undergo mediation at the pre-trial case management stage. 3 From materials provided during the Mediation Skills Training Workshop conducted by the Bar Council Malaysian Mediation Centre at Bayview Hotel, Georgetown held from 30th March to 3rd April 2011.

issue on the use of the word Allah in the Bahasa Malaysia version of the Herald publication the Catholic Weekly. This highly sensitive religious matter should have been settled through mediation or closed-door dialogues instead of being litigated in the Court.4 The process is confidential and on without prejudice 5 basis where any disclosures or admissions by parties shall not leave the four walls of the mediation venue should the parties failed to reach any settlement. In other words, not only privacy is maintained, admissions and disclosures too, cannot be used by one party against the other in the court of law without the latters consent. The structured process includes both joint as well as private sessions with the parties. It is cost effective, time saving and work towards win-win solutions. No writ is required but the willingness of the parties to sit together to talk out their differences with a Mediator, or more if required, between the disputing parties to facilitate the talking process for the parties in a structured and professional manner. Unlike a conciliator, a Mediator does not offer advice, give solution, make recommendation or determine for the parties on how the disputing parties should resolve their disputes.6 That is entirely for the parties to decide. In mediation, the process is flexible and informal. A Mediator invites the parties to assess their strength and weaknesses and to make them think of questions such as what if and so forth. The approach in mediation not being adversarial allows parties to talk out their points and concerns and helps to avoid damage to parties relations which is imprudent for existing or future business. Having said the above, reference is made to the application of mediation to resolve unfair dismissal cases which as will be seen,

The High Courts decision in Titular Roman Catholic Archbishop of Kuala Lumpur v Menteri Dalam Negeri & Anor [2010] 2 CLJ 208, allowing the Catholic weekly Herald to use Allah to describe the Christian God had raised tension levels in this country. It had led to attacks on churches, a mosque, a Sikh temple and a Convent school, among others. If not for the governments immediate proactive move to calm down the situation, it could have led to more serious religious conflict and thus, jeopardising the harmony and tolerance practised among the multi-racial and multireligious population in Malaysia. 5 Read Without Prejudice Negotiations by Mohd Akram Bin Shair Mohamad, chapter 7 of a book `Mediation in Malaysia: The Law and Practice by Mohammad Naqib Ishan Jan & Asghar Ali Ali Mohamed, published by LexisNexis (2010). 6 Same as footnote no. 3 - Malaysian Mediation Centre.

provides for the amicable settlement of the dispute and parties being happy with the outcome reached therein. In Lam Choon Keng v Danone Malaysia Sdn Bhd,7 the claimant was dismissed from employment by the company on 1 June 2007. An early evaluation of the case was held and for the said purpose, the case was transferred from Court 19 to Court 25. The case was mentioned in Court 25 on 9 November 2010. On 10 January 2011, the early evaluation was successful and both the parties informed the court that they had come to an amicable settlement. The terms of the settlement were as follows: (1) without admission of liability, the company agreed to pay the claimant an ex-gratia payment of RM30,000 as full and final settlement of his case; (2) upon clearance of the said payment to be made through the claimants solicitor, the claimant would have no further claims whatsoever against the company in respect of his employment; and (3) there was no EPF or SOCSO payable in respect of the award and the claimant would be responsible for his own tax, if any. Both parties confirmed that that was the full and final settlement of the matter. Accordingly, a consent award was handed down and the court expressed its appreciation to both the parties for their efforts in coming to the amicable settlement. In Wan Hum Pak v Harrisons Trading (Peninsular) Sdn Bhd & Anor,8 the claimant was dismissed from employment on 31 December 2004. On 21 October 2010, with the consent of the parties, the claimants case was transferred to Court 27 for an early evaluation by the learned Chairman. When the case was called up for mention on 17 January 2011, the parties informed the court that they had reached an amicable settlement. Accordingly, the claimant requested permission of the court to withdraw his claim against the company. In view of the settlement, the court granted the request and the claim was struck-off from the courts list. In Marilyn Radin Malleh v Redtone Telecommunications Sdn Bhd,9 the claimant was dismissed from employment on 4 January 2008. The case was transferred from Court 24 for an early evaluation. The early evaluation was held on 18 January 2011 and 25 January 2011. On 25 January 2011, the court was informed by the representatives of the parties that the case was amicably settled between the respondent and the claimant. The agreed terms of
7 8 9

[2011] 2 LNS 46 (Award No 46 of 2011). [2011] 2 LNS 100 (Award No 100 of 2011). [2011] 2 LNS 123 (Award No 123 of 2011).

settlement were recorded by the court as a consent award between the parties. The terms of settlement were that the respondent company must pay the claimant a sum of RM25,000 through the claimants solicitors, Messrs Naraendran & Suria within 14 days from the date of the award as full and final settlement of the case. In Lee Jah Hui v Terimee Beauty Slimming Academy Sdn Bhd,10 the dispute between the claimant and the respondent was related to the dismissal of the claimant from employment on 5 August 2007. The case was transferred from Court 12 to the Industrial Court for an early evaluation. On 11 February 2011, counsel for the claimant and the respondent informed the court that the parties had amicably settled the dispute. The agreed terms of the settlement, recorded by the court as a consent award, were as follows: (1) the respondent company must pay the claimant on a ex gratia basis the sum of RM6,000 as full and final settlement of the claim and there would be no other claims by either party against the other; and (2) the payment must be made to the claimant through Messrs Teh Soon Kee & Partners within 14 days from the date of the award. In Muhawad Fattaah Umar Khitab v Enhance View Sdn Bhd,11 the claimant alleged that he had been constructively dismissed from employment on 7 February 2008. The respondent however, alleged that the claimant had been guilty of misconduct and indiscipline. On 16 April 2010, the case was called up for early evaluation before the Assistant Registrar. The parties however, failed to reach an outof-court settlement. Accordingly, the case was transferred to the Industrial Court for a full trial. In the midst of the proceedings, the parties requested for another attempt to an out-of-court settlement. The court granted the request and guided the parties through the negotiation. After a brief negotiation, the parties agreed to a final settlement of their differences. Accordingly, a consent award in the sum of RM12,000 was entered in favour of the claimant as full and final settlement of the claimants case. In Christopher Kam v Kenangan Cergas (M) Sdn Bhd,12 the dispute between the parties was related to the purported dismissal of the claimant by the respondent on 30 November 2005. On 17 May 2010, in a mention before the Assistant Registrar, the parties agreed to a final settlement of the case namely, the respondent
10 11 12

[2011] 2 LNS 203 (Award No 203 of 2011). [2010] 2 LNS 627 (Award No 627 of 2010). [2010] 2 LNS 0981 (Award No. 981 of 2010).

agreed to the payment of RM9,600 to the claimant. Accordingly, a consent award was entered in the said sum in favour of the claimant. Lastly, in Aliadin Abdul Samat v Amsteel Mills Sdn Bhd,13 the dispute arose out of the dismissal of the claimant by the respondent on 7 March 2005. On 19 May 2010, in a mention of the case before the Assistant Registrar, the parties agreed to a final settlement. The respondent agreed to pay the claimant a sum of RM2,500 and accordingly, a consent award of the case was recorded. The said payment was made by the respondent without any admission of liability on its part. With the settlement, the claimant withdrew the case against the respondent with no further claims against them.14 As from the above cases, it is noted settlement out of court through mediation had been adopted to resolve the dispute between the parties instead of going through a full hearing of the matter and a decision imposed on the parties by the court. Parties should be encouraged to resolve their dispute vide mediation rather than directing it to the court for a decision or an award. The urgency for parties to settle disputes outside court is no less urgent in the construction industry. In the unreported case (June 2010) between International Islamic University Malaysia (Public Works Department) and Mars Trading & Construction (M) Sdn Bhd, the company had defaulted in the construction of a project in IIUM with 40% left uncompleted. The company requested for mutual termination rather than outright termination. If it is outright termination, the company had to make good to IIUM any additional cost including cost overrun to complete the said project as a result of IIUM having to engage a new contractor. The additional cost would be somewhere in the region of RM12 million or 70% of the original project cost of RM18 million. If the company is terminated outright and by not mutual termination, it stands to be blacklisted and would forfeit the estimated payment sum of RM14 million from
13 14

[2010] 2 LNS 0982 (Award No. 982 of 2010). See also Herwan Jones v Wawasan Aktif Sdn Bhd [2010] 2 LNS 1192 (Award No 1192 of 2010); Valerian Punsus Dalus v Kenangan Cergas (M) Sdn Bhd [2010] 2 LNS 1195 (Award No 1195 of 2010); Magala Sabapathy v Graphic Press Group Sdn Bhd [2010] 2 LNS 1215 (Award No 1215 of 2010); Rohayu Hamzah v Affin Bank Bhd [2010] 2 LNS 1231 (Award No 1231 of 2010); Chong Choon Koh v CIMB Bank Bhd [2010] 2 LNS 1290 (Award No 1290 of 2010); Ang Oi Leng v CIMB Bank Bhd [2010] 2 LNS 1326 (Award No 1326 of 2010; Rahmatullah Zinin v Pos Malaysia Bhd [2010] 2 LNS 1363 (Award No 1363 of 2010).

its other previous contract works with the government. This would mean that the company cannot pay its subcontractors and without any further projects from the government through the Department of Public Works, it too would have no means of ever paying IIUM or the subcontractors. Based on the advice of the Universitys Legal Adviser, the Ministry through IIUM opted for mutual termination. Hopefully and slowly, IIUM could recover the liquidated damages from the company. Thus by looking at the underlying needs not sticking to rights or positions, parties settle on terms they agreed, and relations are not irreparably damaged for future 15 collaborations. In another case between IIUM (Department of Public Works) v Nasmie Engineering Sdn Bhd, Nasmie was appointed as consultant to the construction of the Female Students Residential College 7 in IIUM Gombak campus with the original project cost being RM30 million. The main contractor defaulted by completing only 70% (RM21 million) of the construction. When it was retendered, the tendered price was RM23 million or 76 % of the original project cost which was an additional sum of RM21 million instead of RM7 million had the terminated company completed the construction. Department Public Works contended that the consultant company had already been paid its consultancy fees for the 70% work done by the terminated company leaving the remaining consulting fees of RM56,114. Further, since the consultant company had completed its consultancy during the tenure of the terminated company, it cannot claim for more than the remaining sum of RM56,114. The consulting company argued that it was involved in the tendering work process and was entitled to claim RM264,786 for its consultancy scale of fees as a result of the retendering. The consulting company averred that work for the retender process was tedious and required it to perform additional services in connection with the resumption of his professional services such as particularize the items of works left to be done, the drawings and bill of quantities to be varied among others. The Department of Public Works was certain that the retendered package did not involve any new design work. The dispute is currently being arbitrated as it is stipulated in the agreement.16 Mediators Opening Statement to Disputing Parties
15 16

The Legal Unit, Office of the Rector, International Islamic University Malaysia. Same as footnote 15.

On the prescribed day, time and venue, the Mediator eagerly welcomes both the disputing parties as follows, more or less, and makes his opening speech Good morning/ afternoon/ evening. My name is .................. and you are .................., and I believe you are .............................How would I address each of you? I am pleased that both of you have chosen mediation to come to an amicable solutions. I am a qualified Mediator registered with the Malaysian Mediation Council established under the patronage of the Malaysian Bar Council. I have couple of years of experience as a mediator. Allow me to explain to both of you what is mediation and the role of the mediator. Mediation is a wholly voluntary process and no one is under any compulsion to agree to anything. If this mediation is not bringing both of you anywhere forward, feel free to inform me. We could adjourn or time out to cool things down, and if necessary, to conduct with each of you for a private session. Both of you have signed the mediation document where you have agreed to appoint me as a mediator. Let me emphasis that both of you have agreed that this mediation is confidential and conducted on without prejudice basis. That means any admission or disclosure by one party, the other party cannot use it against him in a court of law without his consent should this mediation failed in reaching any amicable settlement. As a mediator, I do not offer advice, solution or recommendation, or decide how both of you are to resolve your differences. The matter is entirely up to both of you. I listen and facilitate the discussions and to help both of you to generate and explore for a way out. Both of you have made yourselves free this whole day? And both of you too, have the mandate/ authority to settle? Before we start this mediation, there are ground rules that both of you should first agree upon. Each of you will be given equal opportunity to make an opening statement to me. When one party is opening his case, I will appreciate if the other would listen and not interrupt him. I would advise that you jot down the points of objections and raise it when your turn comes. Is that agreed? Please do not use 8

abusive or offensive language nor there be any need to shout or yell. Is that agreed? It is important too, to put your phone in the silent mode. Good then. Who would like to start first?

Joint Session/ Private Session During the joint session, a mediator must look for common ground, need or interest of the parties. The Mediator should not interrupt unless to get clarification. When one party is done with his opening case, the Mediator summarises with words such as if I am correct, your concerns are ......... to indicate that his concerns had been noted. The same applies to the other party. When both parties are done with their opening case, the Mediator then summarise to both the parties the positive achievements or points of agreement, and determine the agenda such as friendship, business relations or good working or good living environment. An agenda with toxic connotation such as compensation and damages should be reworded or rephrase into something conducive or non-toxic. The Mediator must always strive to discreetly induce the parties to move away from their rights or positions and to focus on common interest or needs, the underlying issues, and what each party is willing to give and take. By highlighting the parties common concern, the Mediator is maintaining the momentum that the discussion is progressing. A Mediator should remain impartial by giving each party relatively equal time and acknowledgement of concerns such as I understand how frustrating it can be for you, I can see you feel hurt about it or I understand why you are upset about it, thus making the person feel important and empathising with him. A Mediator has to generate options for the parties, probe their matters of concern, recognising their needs, goals, objectives and do reality testing with the parties with words such as: - If you were him, how would you react or feel? - What if.. - Have you consulted with your lawyer? - What are your chances? - If you were him, would you accept it? 9

The parties are encouraged to ask themselves whether they are better off or worse off should mediation failed, taking into consideration the cost, time, damage relations, etc should the matter goes to court. Are there better alternatives should mediation fail? A Mediator should not make any suggestion, ask one question too many, moralising, pressuring, advising, prejudging, stereotyping, threatening, closed sentences and the like that block communication between the parties. Eye contact and body language through matching or cross matching that generates trust with the parties can be utilised to indicate that the mediator is keen and is patient in listening and trying to understand the situation. Often than not, the Mediator may have to conduct private session with the respective parties to break any deadlock or impasse. It may well be that some facts are too sensitive or too detrimental to be openly said to the other party. In the private session, the Mediator must again build rapport and trust with the parties in order for them to speak freely, and assured them that the session is equally confidential. Interest Based as Opposed to Position/Rights Based A Mediator should probe for needs, goals and objectives of the parties and move them away from rights or position. An easier issue may be resolved first whereas the difficult issue would be thrashed out later. If there is an impasse, the Mediator may bring it to the attention of the parties and urge them to provide alternatives or solutions that each party can offer to the other. Martha v Sally is a leading case used as a classic illustration in mediation training by mediation trainer on interest versus rights. Two young sisters fighting over one orange. The frustrated mother solved the problem by cutting the orange in half. The first sister ate her half and threw away the rind. The second sister threw away her fruit and used the rind for baking. In actual fact, the first sister wanted the pulp to make the juice whereas the other sister wanted the rind to make the cake. If the mother had taken the sisters interest rather than their rights, both of them would have obtained the maximum benefit from the orange.17

17

Same as footnote no. 3 - Malaysian Mediation Centre.

10

The private session with the parties are then followed by another joint session. There is no rule to say that there cannot be more than one private session. It all depends on the situation at hand. However, after each private session, there must be a joint session again to recoup the degree of progress by trying to focus or negotiate on actual needs rather than rights or positions. A Mediator has to generate options for the parties to consider by looking at their actual needs rather than their rights or positions. The parties may, at the end of the mediation consent to an agreement that is legally or non-legally binding or points of the agreement subject to further documents or confirmation. A Mediator may write down the terms of the settlement. However, if their lawyers are present, it is advisable to let their lawyers prepare the agreement. A Mediator should be mindful that he also owes a duty of care to the disputing parties especially as to how he prepared the agreement and he could be sued for negligence if the agreement was poorly or badly drafted to the detriment of the parties. Open Door Concept A Mediator is trained to be mindful that he should not come to the mediation process with the prejudgment that he must succeed in making the parties come to a settlement. If everything fails, the Mediator is trained to thank the parties for considering mediation and leave the door open for future resolution by saying: I really believe this can be settled. In everyones best interest we can reach an amicable settlement. Numerous potential and advantageous options have been identified and some have been agreed upon. You may be better at settling this matter on the terms you know better rather than letting the courts decide for you. I think more time can be taken in reconsidering the issues not settled. Come back if any of us have new options. Is that all right?18 Conclusion The Federal Court Practice Direction Note No. 5 of 2010 acknowledged the benefit of settlement by way of mediation in that it is accepted by the parties, expeditious and final. In addition, good relationships are restored and maintained for future undertakings.
18

Same as footnote no. 3 - Malaysian Mediation Centre.

11

There is already an additional move by the government to pass the Construction Industry Payment and Adjudication Act to deal with chronic problem of delayed and non-payment in the Malaysian construction industry. The proposed act ensures that everyone in the construction industry pays the appropriate amounts due in a timely manner. The propose Act ensures another fast and economical dispute resolution method for the construction industry.19 Disputing parties are now beginning to realize that mediation, conciliation, arbitration and the proposed adjudication are alternative modes of dispute resolution other than being expeditious and down to earth. *A paper presented at the Seventh International Conference on Multi-National Joint Venture for Construction Works in the Institute Technology of Bandung (ITB), Indonesia, 28th-29th September 2011 collectively organised by the Institute Technology of Bandung (ITB), Kyoto University, Japan and International Islamic University Malaysia (Kulliyyah of Architecture and Environmental Design). ** Lecturer in Ahmad Ibrahim Kulliyah of Laws, International Islamic University (1992 >); Director of the Legal Unit, Office of the Rector, IIUM (2009 >); LL.B (Hons) IIUM 1988; MCL (IIUM) 1990; PhD in Law (Exeter: UK) 2002; Advocate & Solicitor of Malaya (19911992); Peguam Syarie: KL & Negeri Sembilan (1996); Email: rani@iium.edu.my; The Presenter had completed a 40 hour Mediation Skills Training Workshop conducted by the Bar Council Malaysian Mediation Centre. This workshop is recognized by the Bar Council Malaysia to be empanelled as a Mediator on the panel of the Bar Council Malaysia Mediation Centre.

19

For further reading please read Construction Industry Payment and Adjudication Act Reducing Payment-Default and Increasing Dispute Resolution Efficiency in Construction by Sr Noushad Ali Naseem Ameer Ali, President, The Institution of Surveyors Malaysia & Chair Construction Industry Working Group on Payment (WG10). He can be contacted at email: naseem@pd.jaring.my this article may be viewed at http://www.cicqs.com.

12