Module 8Commercial Dispute Resolution

Focus: Within Australia

Winter 2013

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This presentation and Copyright therein is the property of Maureen Noonan and is prepared for the benefit of students enrolled in the Commercial Transactions course conducted by the Law Extension Committee and is available for their individual study. Any other use or reproduction, including reproduction by those students for sale without consent is prohibited.

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Is this topic examinable?

Yes, either --by a short direct question on this topic in Q6 of

the exam. The appropriate answer would be descriptive.

Or--as one part of a problem question. e.g. if this

matter were referred for mediation, what would be the process and likely outcome of mediation?

Or--as the whole subject of a problem question if

Semester Focus-Winter 2013-Mediation.

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Disputes

Valuable things at risk, such as:• Time • Money for expenses incurred trying to resolve

dispute, lost earnings• Business relationship and future earnings• Loss of market to competition• Loss of reputation• Freedom if a criminal offence and dispute is with

authorities/society.• Political issues between states and countries

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Methods of dispute resolution

Prevent the dispute by risk managementAvoid some disputes by drafting contracts wellNegotiationCapitulationMediation and conciliationExpert determinationArbitrationLitigationOther: e.g. Toss a coin, force etc

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Methods of dispute resolutionPolicy and community attitudes to cost

demand change, repositioning of profession

Resolution preferred over determination

Courts overworked and congested

Opportunities to use diverse skills instead of purely “legal” skills

Important to choose most appropriate method for particular issue/dispute

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Role of the lawyer• Risk management especially in larger

companies.• Advising clients of alternatives for resolution and

during processes.• Establish dispute resolution function for an

organisation.• As a professional mediator, arbitrator.• Management of international arbitrations for

exporters/importers/multinationals.• Role in international organisations.• Often a compulsory first step to litigation

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Role of Risk Management

Identify legal risk

Monitor risk

Identify AppropriateManagement Technique

for each risk and plan

for overall management

Apply Management

Technique

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Legal role in Risk Management

• Objective is to avoid dispute or minimise damage resulting from a dispute

• Must understand business• Conduct due diligence to ascertain main areas

where dispute/legal liability likely to arise• Appreciate bargaining position and

opportunities/limitations• Appreciate legal position as part of

understanding bargaining position and advising on likely outcomes of various alternatives.

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Likely areas of dispute

Product or servicePriceDeliveryChanges in physical environmentChanges in economic environmentChanges in legal environmentBusiness or financial failure of one partyCauses outside the control of a party

Some Exporter Legal Risks

Customer does not pay-unpaid seller

Unable to recover /enforce rights in foreign country

Product liability-wrong item, quality, quantity, unsafe, late, incomplete

Unable to produce/acquire-breach contract

Loss in transit-who bears loss?

Competition cheaper-buyer defaults so they can take advantage of cheaper opportunity

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Some importer legal risks

Goods or services inappropriate, not what was ordered-claim for compensation available?

Supply does not meet local standards/lawsCrime –bribing foreign officialsTax, customs issuesUnfamiliar with particular free trade treaty

provisionsUnable to enforce rights /recover money in a

foreign countryUnable to sell items purchasedVulnerability to local customers for problems

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Some manufacturing risks

Raw material problemsMachineryFinanceDeliveryQuality/quantity issuesDamage to othersFailure to sell productsTitle issues

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Alternative dispute Resolution (ADR)

Defined by ADRA (Australian Dispute Resolution Association Inc.) as:

Dispute resolution by processes which encourage disputants to reach their own solution and in which the primary role of the third party neutral is to facilitate the disputants to do so.

Generally includes negotiation, independent expert appraisal and mediation, but not arbitration; which is an adjudicative process where the parties agree that the decision of the third party is binding.

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ADR

Old story to illustrate:

2 people argue over an orange. One wants the juice and the other the peel. If they go to court, only one party can “win” and get the orange, but if ADR used, tailored “win-win” solution possible.

Problems with court litigation

• Cost• The time it takes• Exposure of confidential information or

embarrassing deficiencies for an organisation.• Result may be of little use to either party• Expertise may be required to understand e.g. IT

performance, functionality, system defects, project management issues

• Loss of important, even dependent relationships

The courts and ADR- resources.

Protracted disputes tie up a lot of time and resources. In State of Tasmania v. Leighton Contractors Pty Ltd (2004-4 decisions), Tasmania sued Leighton under a liquidated damages clause for delay in a contract for a road. L claimed the delay was due to them insisting on a significant change, not in the contract. Longest civil trial in Tasmania with 3 years of preparation, armies of lawyers and 6 months preparation time. L won, but Tas appealed everything and no decision on quantum. New CJ made it clear he could not let litigants tie up the judicial resources of Tasmania and insisted on further mediation (despite the fact that 2 previous mediations had failed). It worked and most issues settled or agreed and final point of appeal was heard in one day.

Court litigation now

Emphasis on resolution of dispute, rather than winning or losing, right or wrong.

ADR a precondition to commencing litigation

Lawyer therefore needs skills to advise clients on alternatives, participate, discuss, recommend.

Can be consequences if they do not…in costs orders

Commonwealth

• Cth Civil Dispute Resolution Act…received assent April 2011.

• Purpose is to seek to resolve disputes at the most appropriate level-earliest opportunity and where possible, outside the courts and the stressful, expensive and adversarial culture of litigation.

• An applicant, when filing a Federal Court (& Fed Magistrate) matter will also have to file a statement outlining the “genuine steps” they have taken to attempt to resolve the dispute.

• See Second Reading Speech of Robert McClelland 16 June 2010, House of Representatives Federal Parliament and Bill itself.

Civil Dispute Resolution Act 2011April 2011

Section 3.

The object of this Act is to ensure that, as far as possible, people take genuine steps to resolve disputes before certain civil proceedings are instituted.

Civil Dispute Resolution Act (Cth)What are “genuine steps”? Examples s.4a) Notifying the other person of the issues…offering to

discuss them, with a view to resolving the dispute.b) Responding appropriately to any such notification.c) Providing relevant information and documents to enable

the other person to understand the issues involved and how the dispute might be resolved.

d) Considering whether process facilitated by another person could help, including ADR.

e) If such process agreed, agreeing on person and attending

f) If process conducted but unsuccessful, considering a different method.

g) Attempting to negotiate.

Superior IP International Pty Ltd v. Ahearn Fox Patent and Trade Mark Attorneys [2012} FCA 282

First substantive consideration of the “genuine steps” requirement.

In this case, FC took non compliance with CDRA into account when exercising existing case management powers and in exercising discretion as to costs.

Justice Reeves set aside a statutory demand because there was a genuine dispute in relation to most of it and the remaining debt fell below the statutory minimum.

Judge so appalled by failures of lawyers that he joined them as parties to the proceedings on the question of costs and a copy of his reasons were given to clients and to Queensland Law Society, Bar Association of Qld and the Legal Services Commission.

.

Failures in Superior IP case

Judge adjourned – To allow parties an opportunity to resolve dispute (consistent with Civil

Dispute Resolution Act)– Directed party lawyers to notify clients how much it would cost in legal

fees…more than twice the claim!– Drew Part VB of Federal Court of Australia Act and duties to conduct

litigation having regard to the overarching purpose of “the just resolution of disputes according to law and as quickly inexpensively and efficiently as possible”

To no avail.

There were over 400 pages of affidavit material, largely irrelevant to existence or not of a genuine dispute about the debt and a lot of time was taken up in objecting to that material….

This “reflected a complete lack of appreciation by the 2 lawyers ..as to what it was they had to direct their minds to…”

NSW

Note that implementation of Pt 2A NSW Civil Procedure Act delayed, then repealed.

AG said no reliable statistical data yet to inform on likely efficacy because Cth provisions only new. Want any reforms to improve rather than hinder resolving civil disputes in a just, quick and cheap way.

Still sensible to take reasonable steps to resolve dispute or narrow issues.

Pt 2A NSW Civil Procedure Act

s.56• Overriding purpose of just, quick and cheap resolution

of real issues in dispute or proceedings.• Court must seek to give effect to overriding purpose.• A party to civil proceedings is under a duty to assist the

court to further the overriding purpose• Party to civil dispute (one that may lead to civil

proceedings) or civil proceedings is under a duty to take reasonable steps to resolve or narrow the issues in dispute in a way consistent with overriding purpose.

• Persons must not cause a party to be put in breach of a duty…solicitors, barristers, any person with relevant interest (gives assistance or exercises direct or indirect control or influence over the conduct of proceedings or a party).

NSW Civil Procedure Act

s.18JDuty of legal practitioners to:Inform client about pre litigation

requirements to dispute including need to file a dispute resolution statement

Advise client about alternatives, including ADR

Sanction can be costs order against them if they do not comply.

ADRA

www.adra.net.auFormed 1987 with objectives:• To promote and encourage ADR in Australia• To encourage exchange of ideas and information re

ADR• Providing and supporting education, research• Printing, publishing and circulating ADR info• Enhancing professional skills of ADR practitioners• Represent ADRA members• Cooperate with others to achieve objectives

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Early dispute Resolution (EDR)

Reference: Law Society Task Force Report on Early Dispute Resolution and Law Society Dispute Resolution Committee.

EDR is concept and process of intervention in the formal dispute process to resolve that dispute early, effectively and legitimately

To enable EDR, need for changes in attitude by profession, clients, the litigation process and an increase in ADR initiatives

Complexity and inefficiency of legal system in part due to Commonwealth/State division

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Institutionalised EDR / ADR

The Administrative Decisions Tribunal NSW (ADT)See Judge Kevin O’Connor AM, President ADT, address to ADRA Conference 2007 on ADRA website: Institutionalised Dispute ResolutionADT deals with state tax appeals, FOI merit reviews, professional discipline of legal profession and others, retail leases.

Chapter 6 of Administrative Decisions Tribunal Act 1997 empowers Tribunal to engage in 2 forms of ADR-mediation and neutral evaluation and Tribunal can determine its own procedures. It can engage assessors, conduct preliminary conferences and can dispense with hearing and determine matter on the papers.Mediation means a structured negotiation process in which mediator as neutral and independent party assists parties to achieve their own resolution. It is voluntary and mediators are encouraged to adopt uniform practice.Neutral evaluation means a process in which neutral evaluator seeks to identify and reduce the issues of fact and law in dispute. The role includes assessing relative strengths and weaknesses of each party’s case and offering an opinion as to the likely outcome of proceedings.Assessors can be very helpful where special knowledge or experience is required e.g. veterinary surgical techniquesNot always appropriate? e.g. occupational licensing, professional discipline and tax appeals. Once a public decision has been made e.g. to suspend a licence Judge O’Connor is of the view the process should remain public and open.

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Industry based dispute resolution

Financial Services Ombudsman

Telecommunications Industry Ombudsman

Energy and Water Ombudsman NSW

Superannuation Complaints Ltd

Law Society of NSW

Arts Law facilities for members

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Domestic ADR

The Australian Commercial Dispute Centre Ltd formed in 1986 by AG and Sir Laurence Street. Established to introduce and encourage non adversarial dispute resolution into Australia. Works with ACICA and 2003 Memorandum of Understanding means ACICA focuses on international disputes and ACDC on domestic disputes and mediation.

Compulsory mediation has been introduced into many disputes in the regular court system.

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Negotiation

Win/win mentality means both parties must come out of the negotiation with an improvement in their situation. Skill lies in formulating such an outcome by finding common ground.

Win/loss means that one side is better off and one worse off with little or no common ground. This might lead to loss of relationship, or retaliation later, or an outcome which suits neither.

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Win/win examples

Deliver later at higher price…buyer gets timing required and vendor is compensated for storage/delay of receipt

Pay earlier at cheaper price

Long term contract in return for fixed price

Return unsold items in return for prime display position

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Negotiation Strategy

Are you clear about what your clients wish to achieve?

What are the strengths/weaknesses of legal position?

Is it just really all about money?Distinguish “interests” from legal “rights”.Is other side a reasonable person?Who is best person to deliver position?Who is best person to sell outcome?How well prepared are you?

The Negotiation process

• Prepare-Formulate desired outcome, research possible solutions

• Choose diplomatic/respectful language• Refrain from adversarial, bullying language.• Consider position of the other side and any

cultural issues relevant such as importance of saving face

• Avoid insults, name calling, emotional abuse• Meet personally on “without prejudice” basis-at

lower level first / higher level first, neutral ground• Exchange of emails, telephone, correspondence

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Capitulation

Sometimes there is no better alternative

e.g. in the wrong

No gain/point in spending time/money

No chance of success

Better use for resources

Best to preserve relationship for now and do something about it later.

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Mediation

A third party facilitates resolution of a dispute by the parties.

Third party does not decide. Parties do.

Compulsory mediation

For NSW family provision claims -under the Succession Act

Generally-s.26 NSW Civil Procedure Act 2005….court may order mediation with or without consent of parties.

In view of potential consequences re costs, best practice to use as a pre trial procedure.

Mediation

• Parties appoint a person who assists them to reach a negotiated resolution.

• Often a person with skills to work out win/win solution to particular issue

• Puts someone in between warring parties and can dilute poisonous atmosphere to enable productive consideration of issues

• Not binding on parties unless reflected in a formal settlement agreement

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Benefits of Mediation

• Parties determine outcome, not third party

• Parties do not have to decide who is right and who is wrong/who wins who loses.

• Can be quick

• Confidential rather than a public process

• Informal, flexible, can bend to needs

• Can preserve relationships

Mediation-is it appropriate? Not always

1. Does client want to resolve the matter?2. Intellectual mental or emotional capacity to pursue an agreement?3. Does client want to create a legal precedent?4. Does client have capacity and willingness to pay legal costs of litigation?5. Does client suspect other party is hiding information, lying or otherwise acting in bad

faith?6. Does client trust that other party would comply with settlement?7. Is there a fear of violence or intimidation?8. Is there any scope for compromise? Is client prepared to make concessions?9. Is there information that one party could provide to improve understanding?10. Could some aspects be resolved now?11. Do parties share interests?12. Is mediator likely to enhance negotiations? Have the parties tried themselves?13. Does the client want to participate directly?14. Has communication been a source of conflict?15. Any non-legal interests of client?16. Is a quick resolution in client’s interests? Does either party have an interest in delay?17. Is continuation of dispute affecting commercial or reputational interests?18. Would an apology help?19. Is privacy / confidentiality important?

Mediation Agreement

• Confidentiality

• Payment of the mediator

• Exclusion of liability and indemnity

Compulsory mediation

See NSW Civil Procedure Act 2005 Part 4 and Uniform Civil Procedure Rules 2005

Parties must participate in “good faith” s. 27

Court can refer without consent. S.26

Note cost consideration: Court annexed mediation-no charge for mediator or room. Private-have to find and pay for both.

Mediation Schemes

Great variety, many courts, tribunals.Law Society Mediation Program. See

Mediation and Evaluation Information Kit (2007) on website….mediators are qualified solicitors who meet stringent selection criteria and undergo advanced mediation training.

Australian Mediation Association…www.ama.asn.au

Mediator Selection

What style of mediation?Sole mediator? More than one?Court connected mediator or private?Level of influence of mediator? Settlement,

Facilitative or Transformative model?Expert advisory panel?Wise counsel model?Tradition based model?With or without caucuses?

Qualities in a MediatorOpen minded

Persistent

Good listening skills

Sense of humour

Honesty, integrity

Patience

Flexible

Creative

Able to work with highly charged emotions

Qualified….-in what?

Respected

Perceptive

Attentive to detail

Respectful

Friendly

Intelligent

Even tempered

Organised

Articulate

Gender and race

Most suitable type of mediator

Various types of person suitable….

Non legal trusted Individual with experience

Legal training?-Solicitor, barrister, former judge

Specialist skills relevant to dispute?-family/relationships, psychologist, engineer, building/construction, franchise, accounting, IP, Biotech, Mining, trade, banking.

Stages of MediationOpening statements-problem, facts and issues 30

minutes….

Identification of issues and setting agenda

Preparation and study of mediation position papers

Exploration and discussion of issues

Private sessions (and discussion with lawyer?)

Generation of options or offers

Evalutation of options or offers

Negotiations

Finalising agreement (assisted by lawyer?)

The private sessions

• Usually mediator conducts separate sessions with each party to ascertain points at issue and respective positions

• Mediator reflects on those sessions and formulates possible solutions

• Mediator explains likely outcomes if dispute continues (if adequate skills to do latter) to both parties separately

• Mediator presents possible solutions at joint session. (Sometimes further separate sessions beforehand).

• If settlement reached, mediator formulates basic agreement terms for lawyer to translate into agreement or, if a lawyer, drafts settlement agreement.

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Mediation and ConfidentialityIs there an Agreement covering

confidentiality?Who is bound? Parties, mediator, lawyers,

others.What Information is covered?-admissions,

offers, facts, documents, notes, agreements

Limits of confidentiality, enforcing confidentiality-Use of information for other purposes including legal proceedings.

Role of Lawyer in Mediation

• Research problem and issues, obtain information, assemble and prepare,

• Advise client on requirement, process and costs.• May or may not be present.• May speak for client or coach client as to opening

statement, participation, process.• May ask questions on behalf of client• May generate options.• May advise in relation to offers• May negotiate on behalf of client• May assist with documentation of settlement• Extent may depend on whether client can afford it

Professional responsibility of a lawyer involved in mediation

Legal Services Commissioner v. Mullins [2006] QLPT 12

Barrister guilty of professional misconduct at a mediation in connection with negotiations for compromise of an insurance claim…knowingly misled insurer and lawyers about life expectancy of client.

Approved in Legal Services Commissioner v. Voll

[2008] QCA 293.”

Probity is essential to utility of mediation.

International Mediation Institute

Not for profit organisation which seeks to devise global standards for mediation and other collaborative methods of dispute resolution.

See http:imimediation.org

IMI Survey Jan-March 2013

Survey of in house dispute resolution Counsel in US & Europe

Attitudes and approaches to mediation and arbitration.

Criteria for selecting a Mediator

Experience as a mediator 99%

Experience as a lawyer 56%

Expertise in core issue of case 85%

Evidence that competency independently assessed 83%

Mediators ranking in league tables 38%

Independently verified feedback 88%

Recommendation of law firm/adviser 78%

Mediator’s personality, attitude 93%

Past experience with mediator 97%

Mediator subscribes to Code of Conduct 77%

Gender of mediator 4%

Culture of mediator 38%

Criteria for selecting an ArbitratorExperience as an arbitrator 95%

Experience as a lawyer 89%

Experience in sector to which case relates 96%

Evidence competency independently assessed 84%

Arbitrator’s ranking in league tables 38%

Independently verified feedback from users 87%

Anonymous user quotes on website 15%

Recommendation of law firm/adviser 83%

Arbitrator’s personality and attitude 85%

Past experience with particular arbitrator 91%

Arbitrator subscribes to Code of Conduct 72%

Role of Mediator

Mediator should not be purely facilitative but adopt a proactive idea generating role, including proposing solutions and settlement options

IMI Survey-77% agreed

Ouside lawyers are often an impediment to mediation

IMI Survey-47% agreed

Training for lawyers

Expectation that arbitration and litigation counsel be trained in mediation advocacy skills

IMI Survey-80% said yes.

Expert Determination

• Sometimes resolution of a single issue at base of dispute can resolve dispute

• Does dispute involve a technical issue? e.g. standards, compliance, quality specification, existence of a substance or state of affairs, a legal/accounting/scientific opinion on a particular matter, quantification of loss or difference.

• Parties nominate an expert or panel to give opinion on that single matter

• Can agree on “papers only” or independent tests, as appropriate.

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Expert determination and IT

Examples:

Agreed a measurement system, which as contract goes on, no longer exists, works or suits and real time processing becomes impossible. Expert could identify problems and an appropriate replacement.

If problem extends beyond expertise of expert, mediation may be better with limited expert determination on technical issues only.

Expert determination in court system

Judges may refer questions to assessors or special referees.

For example, in a building dispute, questions for the architect or engineer.

Family court-family report after interviews of family members

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ARBITRATION

• Parties agree to resolve disputes by arbitration in accordance with nominated Rules.

• Parties appoint Arbitrator or panel

• Arbitration conducted

• Decision made by Arbitrator

• Binding on the parties

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Arbitration process

• Can be similar to a court process• Can be informal• Can be remote• Can be on “papers” only, i.e. written materials and no

oral hearing• Parties can choose an arbitrator with expertise in their

business• Usual to choose 1 or 3 arbitrators so no deadlock

possible• Usually confidential, so limited precedent bank to consult

/ research.• Important elements are a process, rules defining how

that works, and a timetable to keep it moving along.

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Framework for Domestic Arbitration

States have Commercial Arbitration Acts-largely uniform and regulate domestic arbitrations

Supreme Court has power of overall supervision.Public policy prevents parties from agreeing to

oust jurisdiction courts. Scott v Avery clauses seek to get around that by making arbitration a condition precedent to legal proceedings. So, not ousting, just delaying or not primary method. However, Commercial Arbitration legislation prohibits any clause trying to make it a condition precedent.

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Powers of the Court

Under s. 53 Commercial Arbitration Act 1984 (NSW) and Supreme Court Rules court has power to refer a matter to arbitration on application of a party or its own motion.

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Domestic Arbitration

Subject to legislation and court review on points of law or manifest errors of fact. This can result in dispute ending up in court anyway, with even more time and cost than if one had gone there straight away.

Consider appropriateness and type of arbitration.

Qantas Airways Ltd v. Dillingham Corporation (1985) 4 NSWLR113,122

Construction of Qantas Centre. Q brought legal proceedings against D claiming that because D found the building contract onerous, it was attempting to force Q to renegotiate by wrongful means such as delay, inducing labour unrest, conspiracy to hinder work and fraudulently misrepresenting that design problems made work impracticable. D applied for a court order to send it for arbitration by an architect and a builder or by an arbitrator mutually appointed as set out in the Scott v. Avery clause in the contract.

The court agreed with D and stayed proceedings effectively giving effect to arbitration clause and noted that “It is now more fully appreciated than used to be the case that arbitration is an important and useful tool in dispute resolution. The former judicial hostility to arbitration needs to be discarded and a hospitable climate for arbitral resolution of disputes created”

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Advantages of arbitration

• Neutrality

• Flexibility

• Efficiency

• Confidentiality

• Enforceability

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Arbitration Clause

ACICA recommends:“Any dispute, controversy or claim arising out of, relating to or in connection with this contract, including any question regarding its existence, validity or termination, shall be resolved by arbitration in accordance with the ACICA arbitration rules. The seat of arbitration shall be (location). The language of the arbitration shall be (language). The number of arbitrators shall be (1,3 or Article 8 of rules).”Note also need for choice of law clause.

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Arbitration Rules

Arbitrations are conducted in accordance with rules chosen.

See for example ACICA Arbitration rules at www.acica.org.au. Selections follow.

Procedural as with civil/criminal procedure court system rules.

For other rules, see appropriate organisation

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Attitude of our courts

Mainly support

Care must be taken when drafting to avoid multi-party, multi-contract and multi-venue disputes.

If arbitration clause too narrow, it may limit range of disputes that can be settled by arbitration

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Advising clients

• Choices-litigation, arbitration (if agreement), mediation, other.

• Pros and cons of each, estimates of cost and time

• Opinion as to which method most appropriate

• Preparation

What method is appropriate?Would client prefer negotiated settlement or to go to Court?

Is it important to preserve business relationship?

Is any criminal matter involved?

Does client need a binding legal interpretation of an important contract clause? Set a precedent?

Does contract require a particular method?

Legal issue to be decided, or practical commercial issue?

Is cost an important/critical matter?

What are the relevance and consequences of time, and timing?

Is confidentiality important?

Is there an industry body which offers cost effective methods?

References

• Hardy and Rundle, Mediation for Lawyers, CCH 2010 (Checklists used in these notes), Law Society NSW mediation kit.

• Mediation Today Pty Ltd. 6 Steps to Successful Resolution. Available at www.mediate.com.au