Upcoming Mallesons seminars
Alternative dispute resolution (including arbitration, mediation and conciliation) in Australia has a long and distinguished history. The framers of Australia’s federal constitution expressly included “conciliation” as a head of legislative power for the resolution of industrial disputes.
In turn, alternative dispute resolution processes underpinned Australia’s workplace relations system throughout the 20th century, and thus played a key role in some of the most bitterly-fought legal battles Australia has witnessed.
The development of mediation in Australia
Australia is a federation of six States and a number of Federal Territories. It was formed in 1901. By virtue of its British colonial origins and lessons from the American experience of the 1800s, it has a legal system that mixes elements of the Westminster and United States constitutional systems. In particular, like its American counterpart, the Australian judicial system comprises a federal branch and separate institutions in each of the States, each with its own administrative culture and traditions. This is important when examining the extent to which alternative dispute resolution (ADR) is accepted and implemented in Australia, particularly since courts are increasingly taking the lead in referring disputes to mediation and expert consideration. In the field of building and construction litigation, for instance, the use of mediation is increasing rapidly and is now firmly established as a preferred dispute resolution tool. It is now rare to have a case proceed through the lower Australian courts unless the case has first been to mediation or pre-hearing conference.
There have been perhaps two principal drivers for the popularity of mediation in Australia. The first is the perceived benefit of using flexible negotiation processes to address complex technical issues. In fields such as building and construction, this is an important motivator because it reduces the risk involved in submitting fine factual disputes to the rather blunt remedies available at law. In commercial markets such as construction, where there are increasingly few significant players following a decade of mergers and corporate rationalisation, mediation also has the advantage of preserving relationships for the future and minimising publicity.
“The full-scale trial can no longer be regarded as the paradigm method of dispute resolution, even for complex disputes involving subjects of high value ... alternative means of dispute resolution, conducted pursuant to the private agreement of the parties, can be expeditious, flexible and tailored to particular needs.” Sir Gerard Brennan, former Chief Justice, High Court of Australia
The second driver of mediation in Australia has been the courts’ determination to use ADR for the purpose of relieving strains (both in terms of time and cost) generated by steadily-increasing rates of litigation. In a concerted attempt to counter these pressures, the courts today exert much greater control over the formal processes of litigation. Judicial administration of case lists is now common. Largely gone are the days when cases drift towards trial in accordance with court rules whose application depends on the diligence of practitioners. Now the courts supervise their processes through the use of regular opportunities for setting timetables as to pleadings, discovery or disclosure of documents and the filing of evidence. In appropriate cases, key steps such as pleadings and discovery may be excised altogether from the process. More and more Australian courts are requiring mediation at an early stage, before massive legal cost is incurred, to seek a more economical and rapid resolution of disputes.
The process of adoption of mediation prior to trial has been assisted by a recognition among governments at all levels that the courts need help to reduce the backlog of cases. Indeed, the rush by governments to introduce ADR procedures into the traditional legal system has been described as a “legislative avalanche”.1 It started in New South Wales (NSW), Australia’s most populous State, when in 1980 a Community Justice Centres (Pilot Projects) Act was introduced. Under the Act, infrastructure was established for the mediation of small civil and criminal disputes by specially-trained mediators. This experiment in state-sanctioned private mediation, designed to reduce the number of proceedings filed in the lower NSW courts, was subject to a sunset clause giving it a three-year opportunity to demonstrate its worth. In 1983 the project was made permanent. Significant investment was undertaken in the establishment and maintenance of Community Justice Centres to facilitate the greater emphasis given to mediation in the NSW justice system. Now, the Community Justice Centres can be used for the resolution of neighbourhood, family, environmental and employment disputes. In the State of Queensland, by 1998 there were 28 different Acts or Regulations which provided for ADR, typically mediation.2
It is not just courts and governments that have pushed for greater emphasis on ADR in Australia. In the mid-1980s, commercial lawyers awoke to the benefits of mediation and began to influence the development of ADR regimes. As a result, in 1986 we saw the establishment of the Australian Commercial Disputes Centre, and in 1989 a private network of practitioners formed Lawyers Engaged in Alternative Dispute Resolution (LEADR). The membership of LEADR had increased from 815 in 1993 to 1385 in 1996 and 1822 in 1999 (including approximately 500 New Zealand members).3
“The government firmly believes that mediation and alternative dispute resolution should be the norm rather than the exception.” Daryl Williams, Attorney-General for Australia, Press Release dated 6 April 1998
Australia’s second-largest State, Victoria, was only slightly behind NSW in adopting mediation as a central plank of its legal system. In 1983, mediation was implemented into the rules of the Building Cases List of the Victorian County Court (the court immediately below Victoria’s superior court, the Supreme Court). In 1992, with a new State government and Attorney-General, the Supreme Court commenced a “Spring Offensive” to reduce its list of cases, a key component of which involved the reference of 250 proceedings to mediation before senior legal practitioners throughout the State. This was an important step in bringing ADR to the attention of Victorian lawyers and judges, and was supported two years later by an “Autumn Offensive”, which saw the reference of a further 150 matters to mediation. By that stage, many legal practitioners had participated in mediation training practices, so that mediations had become considerably more sophisticated. 79.35% of cases subject to the “Autumn Offensive” settled at mediation.4
Mediation is also a key form of private dispute-resolution at the federal level in Australia. For example:
- Family Law Act 1975 (Cth) (Family Law Act) s 16A — The Court must, if it considers it is in the best interest of the parties or their children to do so, direct or advise either or both parties to attend counselling.
- Federal Court of Australia Act 1976 (Cth) s 53A — The Court may order a proceeding, or any part of a proceeding, to a mediator for mediation, with or without the consent of the parties to the proceeding.
In 1991, the Courts (Mediation and Arbitration) Act was introduced, facilitating court-sponsored mediation and arbitration in the courts of federal jurisdiction, namely the Federal Court and Family Court. In the Federal Court, forms of “assisted” dispute resolution such as mediation are typically undertaken with the involvement of a Registrar or Justice of the Court, and if a mediation is successful, the outcome is reflected in orders of the Court. The Court has reported that between 1994–95 and 1998–99, an average of 220 matters were referred to mediation5 each year, with 347 matters referred to mediation in 1998–99.6
Views on the success of mediation in Australia
Mediation in Australia has undeniably been very successful in resolving disputes. While reliable statistics about this are notoriously difficult to locate (since they may exclude settlements after an “unsuccessful” mediation, to which the mediation process contributed), it is clear that success rates have been significant. In particular:
- the Victorian Supreme Court’s “Spring Offensive” produced a success rate of 54% (according to a study completed the following year)7
- recent studies conducted by the Building Lists of the State courts indicate a settlement rate above 75% 8
- according to Managing Justice, a comprehensive report by the Australian Law Reform Commission (ALRC) in 2000, research data shows that, of cases completed in the Federal Court, the Family Court and the Administrative Appeals Tribunal (AAT - a body capable of reviewing bureaucratic decision-making), the majority are resolved by negotiation between the parties, either with or without their engagement in formal ADR procedures. Australian Law Reform Commission research indicated that only 5% of family law cases, 35% of Federal Court cases and 34% of cases heard by the AAT go to judgment now 9
- the Federal Court reports that the cases settled after court-annexed mediation between 1994 and 1999 averaged 55%, but this figure excludes cases that were privately mediated (parties are not required to inform the Court of a private mediation.) 10
- anecdotally, experienced practitioners usually credit mediation with a success rate between 60% and 85%.11
Importantly, proponents of mediation in Australia have pointed out that settlement rates should not be the only indicia by which the success of the process should be measured.
“Many matters which do not settle proceed to trial with issues better defined, or on the basis of agreed facts, the facts being settled in cooperation with the mediator. In some instances the parties also agree that the Court should only be asked to determine liability or quantum.” Federal Court, Annual Report 1998–99
Despite the high rate of success, doubt has been expressed in some quarters about the effectiveness of mediation in relieving the caseloads of traditional courts and providing a cheaper recourse to justice. Critics maintain that ADR processes remain expensive in Australia, especially for the more skilled commercial mediators. And scepticism remains about whether mediation is a cost-effective alternative to ordinary commercial negotiations between parties, especially when mediation is required by courts as a pre-requisite to a trial. One Federal Court judge has called for caution about the use of mediation by Australian courts:
“Our experience is that not every case is suitable for mediation. It is often better to let a case run. Many cases settle without the need for any settlement or mediation conference. One needs to have an appreciation of which cases are likely to be helped by mediation and which are not. If one sends cases indiscriminately for mediation, one will impose on parties the burden of unnecessary and wasted expenditure. This is something of which the judges of this Court are very conscious.” A DeGaris, “The role of federal court judges in the settlement of disputes” (1994) 13 University of Tasmania Law Review
Concern has also been expressed that the eagerness of courts to refer matters to mediation may be preventing important cases from adding to the body of Australian law. In its submission to the Australian Law Reform Commission for the Managing Justice report, the Australian Competition and Consumer Commission (ACCC) argued that law enforcement agencies should not be subject to compulsory mediation. The ACCC has the role of enforcing Australian competition and consumer protection laws at the Federal level. The ACCC said that many of its cases may have precedential value and are brought for that purpose. In those circumstances, compulsory mediation may sometimes be inconsistent with a party’s objectives and priorities.
Mediation moving forward
Despite scepticism among some practitioners, mediation will doubtless continue to establish itself as an indispensable part of the Australian legal system. The increasing disposition among courts to refer cases to mediation before trial is likely to broaden throughout the State and Federal judicial systems, and to affect more types of disputes.
Recent examples
A recent example in which I have been involved, highlights just how pervasive mediation has become in the Australian courts.
It is the well reported case of State of Tasmania v Leighton Contractors Pty Ltd, one of the few Australian cases in which a liquidated damages clause in a building contract was ultimately held to be a penalty. In it the State of Tasmania sued Leighton over a 10 kilometre road project in Northern Tasmania. Leighton, under a design and construct contract, had designed the road at a certain level where the road passed in front of a historic house. Unbeknownst to Leighton, the representatives of the State had promised the owner of the historic house that the road would be built in quite a deep cut. This promise was not reflected in the contract. Leightons had partly built the road when the State directed Leighton to stop, and to build the road much deeper, in a substantial cut. The landowner wanted the road 4 metres in cut. The State, after prolonged delays, negotiated a compromise depth with the landowner for the road to be at 1.5 metres in cut. Leighton claimed for the cost of the change and for its delay and disruption costs. The State maintained it had acted within its rights and claimed over $2 million in liquidated damages for late completion from Leighton. Unsurprisingly there was litigation, with the State suing Leighton. The trial became the longest running civil trial in the history of the State of Tasmania, tying up the State’s then Chief Justice, 3 QCs and a junior counsel as well as a substantial army of instructing solicitors for three years of preparation and nearly six months of hearing time, just on liability. The then Chief Justice handed down a 153 page judgment. Leighton was substantially successful, with amongst other things, the States liquidated damages clause being held to be a penalty. As the hearing had been bifurcated, with only liability issues being determined, the parties now faced an estimated further 2 to 4 months of hearings on quantum. To complicate matters, the State also appealed almost all liability findings. The case had already been to two unsuccessful mediations, before experienced commercial mediators, prior to the initial trial.
The new Chief Justice made it clear that he could no longer let the litigants tie up the judicial resources of the State. A further substantial hearing on quantum was looming before a new Judge. A substantial multi-week appeal was also pending, and with it came the prospect of 3 Appeal Court Justices being tied up for a prolonged period and the further prospect of the whole matter having to be relitigated before a new Judge (the old Chief Justice having by now retired to become the Governor of the State) if the appeal was successful. The new Chief Justice firmly put his foot down and told the parties that no aspect in the case would go any further until there was another mediation. This was strongly opposed by one of the parties, who claimed no mediation would be successful as two had already failed.
With the benefit of having the Court’s findings on liability, the whole case went to mediation before the Court’s Registrar, an experienced practitioner who had conducted many mediations over the past 10 years. After 2 days, all issues of quantum and four of the six appeal points were settled. Prior to the hearing of the Appeal, one of the two remaining appeal points was withdrawn by the State and the last appeal point went to hearing last month. The issues had by now been so confined that the appeal was heard in one day. The parties now await the decision on that final point. Whatever the result of the Appeal, the parties had agreed at the mediation that the case will not be returned back to a Judge for further consideration, but rather quantum has been agreed. The only live issue is who is to bear the quantum and that depends on the outcome of the appeal.
Even this seemingly intractable case between two well-resourced litigants (one of whom had the endless deep pockets of the State at its disposal) was finally settled at mediation.
This paper was presented at the Hong Kong Mediation Centre Conference "The Development of the use of Mediation in Dispute Resolution: A Global View", Hong Kong, 16 September 2005.
The author gratefully acknowledges the assistance of Dan Feldman, a solicitor in the Mallesons’ construction group in Melbourne, in the preparation of this article.
Footnotes
1 J Wade, “Current Trends and Models in Dispute Resolution, Part II”, (1998) 9 Australian Dispute Resolution Journal 59, 61.
2 Ibid.
3 LEADR, Correspondence, 15 July 1999.
4 GH Golvan QC, “A decade of mediation ─ the promise fulfilled?”, (2000) 18(3) The Arbitrator 136, 140.
5 This includes court-annexed mediations and external mediations recorded by the Court.
6 Federal Court, Annual Report 1998–99, 52.
7 C Bartlett., “Mediation in the Spring Offensive 1992”, (1993) 67 Law Institute Journal 232.
8 See for example Supreme Court of Victoria, 2002-04 Judges’ Annual Report, 19.
9 Australian Law Reform Commission, Managing Justice ─ A Review of the Federal Civil Justice System, Report No. 89 (2000).
10 Ibid.
11 GH Golvan QC, “A decade of mediation ─ the promise fulfilled?”, (2000) 18(3) The Arbitrator 136, 140.