Mediation v Litigation PDF

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MEDIATION VERSUS LITIGATION FROM THE PERSPECTIVE OF A CLIENT This paper examines the benefits of mediation compared to litigation from a clients’ perspective. I INTRODUCTION The mediation process offers disputing parties an inexpensive, timely, flexible, interpersonal, and cooperative problem-solving approach to resolving disputes, as an alternative to litigation. In this dissertation I will examine the advantages and challenges of mediation, in comparison to litigation. A

Mediation

Mediation is a facilitative process whereby an impartial third party, the mediator, assists parties in their negotiations to identify issues in dispute, generate options and consider alternatives in attempt to reach consensual agreement which accommodates the interests of the parties. The mediator has no advisory or determinative role in regards to the content or outcome, but may determine the process of mediation.1 Participation in mediation may be voluntarily, statutory, court-ordered or by contractual agreement. 1

The Advantages of Mediation

(a)

Procedural Flexibility, Affordability, Informality and Reduced Settlement Time

Empirical evidence broadcasts the advantages of informal processes and supports claims as to the comparative high settlement rates, timely resolution, low cost and improved access, to mediation. Parties to mediation are not restricted by the formal rules of procedure and evidence, in which issues are tightly constrained as defined by pleadings and only relate to relief at law. In contrast, the flexibility and informality of mediation allows parties to discuss any related issues in dispute, and as agreed between the parties. Discussing outstanding unresolved underlying issues, helps transform the relationship between parties, leading to better chances for the resolution of any ongoing conflict. (i)

Party Participation, Voluntariness, Self-Determination, & the Early Resolution of Conflict

Party participation in mediation leads to higher satisfaction with the process and with outcomes. Another fundamental principle of mediation is it is a voluntary process, in the sense that parties may withdraw from the process at any time. Similarly, reaching agreement in mediation is voluntary and parties retain the right to take their dispute before a judge. The mediation process encourages communication, mutual understanding, shared responsibility of the problem and outcome, trust building, and provides the opportunity to be heard. Mediation can accommodate 1

NADRAC, Maintaining and enhancing the integrity of ADR processes – From principles to practice through people, Report 2011; NADRAC The resolve to resolve: embracing ADR to improve access to justice in the federal jurisdiction, Report 2009.

disputes that may lie beyond the scope of the legal system, which may be necessary in allowing parties to move forward in resolving the dispute. In contrast, the adversarial process focuses on facts and rights. Within this setting interpersonal issues are ignored, and indeed often inflamed, leading to heightened and entrenched conflict, the breakdown of relationships and the protraction of disputes. (ii)

‘Win/Win Outcome – Self-Determination, Compliance and Enforceability of Agreements

Parties are more likely to comply with agreements they have negotiated themselves, as opposed to orders imposed on them. This reduces further conflict and enhances parties’ ability to resolve future conflict. As parties have formed their own agreement, issues of compliance are also unlikely to arise. Thus unless the agreement contains ambiguities, enforcement will not be in issue. Where this in issue, the agreement will be binding and enforceable as a contract. This will require a court to review the validity of the contract by considering the requirements for the formation of a ‘binding’ contract,2 or evidence of what transpired at mediation, that provides vitiating factors indicating a defect in consent, making it void or voidable. Such action may impinge on the confidentiality of mediation in circumstances where a party has agreed to a settlement at mediation and has later changed their mind. 3 (iii) Interest-Based Negotiation ‘Negotiation’ is loosely defined as a procedure by which parties engage in to discuss matters of mutual concern and attempt to resolve disputes that have arisen between themselves. ‘Interests’ are needs a party wants satisfied. Interests fall into three categories: (1) Substantive interests, which are objective needs such as financial remuneration, property, or performance; (2) Procedural interests, which relate to the process for resolving conflict and implementing an agreement, such as opportunity to present one’s story, the need to avoid litigation, or preference for a particular problem-solving approach; and (3) Psychological interests, which relate to emotional needs met by interaction with another party. The mediators’ role is to assist parties to move from initial ‘positions’ to ‘interests’. In doing so, the mediator may be an agent of reality to assist parties to consider the consequences of not shifting from their fixed position by casting doubt on the accuracy of assumptions held as to perceived legal entitlements and likely litigated outcome. (iv)

Maintaining Continuing Relationships

The non-adversarial nature of the mediation process and focus on cooperative problem-solving and improved communication through the exploration of a wider range of issues, not provided for in a legal

2

Tapoohi v Lewenberg [2003] VSC 410 at 35.

3

Hart v Cuna [1999] VCAT 626 at 17.

process, promotes better relationships and/or the amicable cessation of a relationship. Many commercial contracts now include pre-litigation mediation clauses, requiring parties to attempt to resolve disputes at mediation before initiating legal proceedings. Courts have showed a willingness to enforce such clauses by staying proceedings until mediation is completed. The fact that mediation is a private and confidential process also ensures the avoidance of adverse publicity, damage to reputation, and limitations on actions that would otherwise result, is also an attractive characteristic of mediation for commercial disputes. This attribute of mediation is also of particular importance in family law disputes over children, as parties’ parental relationship will continue long after the marital relationship ends. Furthermore, the parent/child and parent/parent relationship is not legal in nature, and as such, a non-legal response to relationship issues, as is provided by the mediation process, is preferable to an adversarial legal response, which frustrates any possibility for continued relationships by the win/lose approach of the adversarial system. (v)

Confidentiality and the ‘Without Prejudice’ Privilege Relating to Settlement Negotiations

Mediation is private and confidential, which means communications made, verbally or in writing, during the mediation process cannot be used as evidence in a court or disclosed to a third party, without the consent of the parties. There are two aspects of confidentiality which relate to mediation here. The first relates to disclosures made by a client in confidence, in the absence of the other party. The second relates to disclosures made during a joint mediation session, which will not be admitted for the purpose of any evidentiary proceedings. ‘Confidentiality’ refers to protection from disclosure. Confidentiality is a fundamental tenet of mediation, and may arise by: contractual agreement;4 at common law5 or equity;6 by legislation;7 or professional codes of conduct. ‘Inadmissibility’ relates to whether evidence of statements or admissions made in mediation can be admitted into evidence in legal proceedings and relied on by parties to proceedings.8 ’Confidentiality’ and ‘Admissibility’ are not mutually exclusive and will be used here synonymously to refer to both. Evidence of communications made and documents exchanged in mediation are confidential and inadmissible in any proceedings before any court, tribunal or body.9 Such protection is

4

Note: Agreements to Mediate contractually protect confidentiality.

5

See Farm Assist Ltd (in liquidation) v The Secretary of State for the Environment, Food and Rural Affairs (No 2) [2009] EWHC 1102 (TCC): common law duty protected confidentiality of communications made in mediation where an express agreement to confidentiality existed.

6 7

Doe v ABC [2007] VCC 281: If a breach of confidence cause damage to a party, they may be entitled to equitable relief. See Boulle, above n 1. The Evidence Act 1995 (Cth) s131 protects communications and documents made in mediation from being adduced as evidence. Lewis v Nortex Pty Ltd [2002] NSWSC 1245. See also the Family Law Act 1975 (Cth) s19N; Family Court Act 1997 (WA) s53; Supreme Court Act 1935 (WA) s72; Native Title Act, ss94D (4); Pinot Nominees Pty Ltd v Commissioner of Taxation [2009] FCA 1508, in NADRAC, above n 2.

8 9

NADRAC, above n 1. The Evidence Act 1995 (Cth) s131; Pepsi Seven-Up Bottlers v Commissioner of Taxation (1995) 132 ALR 632. But see 789TEN v Westpac Banking Corporation [2004] NSWSC 594 and Poulet Frais Pty Ltd v Silver Fox Company Pty Ltd [2005] FCAFC 131: Contracted confidentiality may not preclude information being adduced, in NADRAC, above n 2. Exceptions under s131 (1) of the Evidence Act 1995 (Cth) include: where there is risk to the safety of a person or property, or to prevent the commission of a serious criminal offence.

necessary to ensure full and frank discussion in mediation and protects parties in the event a settlement is not reached and protects against opportunities for parties to use the process as a ‘fishing expedition’ . Thus, the greater the assurance of confidentiality, the more likely parties will participate in mediation without reservation, and the greater the prospect of agreement. However, recent case law has cast uncertainty about the existence and scope of confidentiality. In Rastall v Ball [2010] FMCAfam 1290 Riethmuller FM held communications made in screening and assessment were not confidential under s10H or inadmissible under s10J of the Family Law Act 1975 (Cth).10 In Garcia & Vibbard [2012] FMCAfam 1413 at 55 Scarlett FM held documents relating to previous settlement negotiations were admissible under s 131 (2) (f) of the Evidence Act 1995 (Cth). In Silver Fox Co Pty Ltd v Lenard's Pty Ltd (No 3) (2004) 214 ALR 621, Justice Mansfield held confidential information, including offers to settle,11 disclosed during settlement negotiations may be adduced, in determining liability for costs,12 pursuant to s131(2)(h) of the Evidence Act 1995 (Cth).13 Accordingly, a rejected offer to settle, unless unreasonable,14 may entitle a party to an award of costs on an indemnity basis, as per the principles set out in Calderbank v Calderbank [1975] WLR 586, requiring the other party to pay that parties’ legal costs. The ‘without prejudice’ privilege is the protection offered to all settlement conferences. At common law, communications made during the course of genuine negotiations, conducted with a view to settling an existing dispute, are inadmissible in subsequent proceedings.15 The privilege attaches before the commencement of formal proceedings and also applies to negotiations undertaken to narrow the issues in dispute, as opposed to reach settlement.16 The privilege has also been found to apply to mediation.17 The policy reason for the privilege is that law should endorse parties’ endeavours in reaching private settlement

10 NADRAC, above n1. 11 See also Simply Irresistible Pty Ltd v Couper [2010] VSC 505: evidence of offers made at mediation were held to be admissible. 12 See Forsyth v Sinclair (No 2) [2010] VSC 195: ‘relevant to costs’ exception to the ‘without prejudice’ privilege s131 of the uniform Evidence Act. See also Bloom v Mini Minors (Unreported, Supreme Court of New South Wales, 28 August 1996); Bruinsma v Menczer (1995) 40 NSWLR 716. 13 Such information may be admissible despite agreements between the parties to the contrary. 14 See Brown v Owners Corporation SP021532U [2013] VSC 127 and Strategic Property Resorvoir Pty Ltd v Condec Pty Ltd [2013] VSC 29 for a contrasting consideration of ‘reasonableness’ of rejecting an offer to settle. 15 Cutts v Head [1984] 1 All ER 597; Norwich Union Life Insurance Society v Tony Waller (1984) 270 EG 42; Lim Tjoen Kong v A-B Chew Investments [1991] SLR 188. Field v Commissioner for Railways (NSW) (1957) 99 CLR 285; AWA Ltd v Daniels (t/a Deloitte Haskins and Sells) (1992) NSWSC (Rolfe J): does not protect documents or facts pre-existing mediation. Rodgers v Rodgers (1964) 114 CLR 608; the Evidence Act 1995 (Cth) s131.See alo GPI Leisure Corporation v Yuill (1997) 42 NSWLR 225: a letter headed ‘without prejudice’ which indicated a preparedness to settle but did not offer an option of settlement was held not to be a genuine attempt to negotiate a settlement. 16 Lukies v Ripley (No 2) (1994) 35 NSWLR 283 (Young J). 17 AWA Ltd v Daniels (1992) 7 ACSR 463; Wong Nget Thau v Tay Choo Foo [1994] 3 MLJ 723. But, where legal proceedings are not contemplated, or on foot, the applicability of this is less clear. See Austotel Management Pty Ltd v Jamieson (Unreported, FCA, 7 June 1995).

without fear of legal consequences. This is necessary to encourage full and frank disclosure in negotiations in the interest of resolving a dispute without harming a parties’ formal position. Exceptions apply,18 including where settlement has been reached, as the policy of the law here is to promote the enforceability of negotiated agreements.19 (vi)

The Role of the Mediator - Impartiality and Neutrality

‘Impartiality and ‘Neutrality’ are terms often used interchangeably to refer to a mediators legal and ethical obligations to remain ‘independent’20 in relation to the parties, and the content and outcome of mediation. ‘Impartiality’21 refers to a mediators’ disinterested position in relation to the parties, and includes having no vested personal interest in the outcome of a mediation, avoiding conflicts of interest, and the equal treatment of parties, which requires a mediator to ‘disengage’ to ensure the avoidance of perceived bias. ‘Neutrality’ refers to a mediator being free from bias, and describes mediators’ behaviour, actions and interventions in conducting a mediation in a manner that ensures procedural fairness, and upholds the independence of the mediator. A related issue is mediator immunity (see below), which helps ensure mediator independence. A mediators’ role is thus purely facilitative. Mediators’ do not take sides, do not give advice, and do not make judgements. Rather, the mediator’s role is to maintain control of the process in providing a safe and fair environment for the parties’ to move towards resolving their dispute. 2

Challenges

(a)

The Integrity of the Mediation Process – Involuntary Participation & Mediator Neutrality

Since 2001, all jurisdictions in Australia have the authority to compel parties to attend mediation. 22 Such ‘compulsion’ of participation in pre-action mediation23 in attempting to resolve or narrow the issues in dispute and awarding of costs against parties failing to comply,24 may undermine the integrity of the once ‘voluntary’ mediation process, and acts as a bar to relief. Many commentators define mediation as a 18 See the Model Rules of Professional Conduct and Practice 2002 (LCA), r 3.1.3; and the Legal Professional Conduct Rules 2010 (WA), r 9(3)(d), 9(3)(e) – permits the disclosure of confidential information to avoid the commission of a serious offence; the Australian Solicitors’ Conduct Rules, r 9.24, 9.25 – to prevent imminent serious physical harm to a person. See the Evidence Act 1995 (Cth) s 131(2). See also Pihiga Pty Ltd v Roche [2011] FCA 240 – case illustration the ‘without prejudice’ protection is not absolute. See Unilever plc v Proctor & Gamble Co (2000) 1 WLR 2436: the court listed circumstances in which the ‘without prejudice’ privilege will not apply; and Hall v Pertemps Group Ltd [2005] All ER 15. But, where a mediation is court-ordered, the privilege is absolute, see the Federal Court of Australia Act 1976 (Cth), s 53B. 19 Biala Pty Ltd v Mallina Holdings Ltd (1990) WAR 174 (Supreme Court of WA), in Boulle, above n1. See also Walker v Wilsher (1889) 23 QBD 335; Tomlin v Standard Telephones and Cables [1969] 1 WLR 1378. 20 NADRAC, Australian National Mediator Standards 2007 (‘Practice Standards’), s9.12;; mediators must ‘conduct mediation in a procedurally fair manner’ 21 Ibid, s 5.8: mediators must ‘conduct mediation in an impartial manner’. 22 Boulle, L, ‘Revisiting the mediation referral order’ (2001) 4 The ADR Bulletin 4; Sourdin, T, ‘Mediation in Australia: Impacts on Litigation’ (2006), in Alexander, N, Global Trends in Mediation (eds) (2nd ed, Kluwer Law Int., 2006). 23 Under the Civil Dispute Resolution Act 2011 (Cth), action cannot be iniated in the Federal Court of Australia unless parties have taken ‘genuine steps’ to resolve their dispute. Under the Family Law Act 1975 (Cth), similar provisions apply to parenting matters. 24 See for example s117 of the Family Law Act 1975 (Cth); Forsyth v Sinclair (No 2) [2010] VSC 195; s131 of the uniform Evidence Act.

‘voluntary’ process, and suggest ‘voluntariness’ is a fundamental tenet of mediation. Parties can no longer be said to enter into mediation voluntarily. Parties’ willingness to negotiate in such circumstances is questionable, as parties are forced to engage in mediation as a procedural requirement and are just going through the motions of exploring settlement before a matter is able to proceed to court. Similarly, the flexibility of mediation is being somewhat eroded by conduct obligations. This is particularly true in Family Dispute Resolution (FDR), where a Family Dispute Resolution Practitioners’ (FDRP) impartiality is compromised by s60I of the Family Law Act 1975 (Cth), which requires practitioners to act as ‘gatekeepers’ in determining whether parties’ have made a genuine effort.25 Issuing a certificate under this section of the Act has consequences other than permitting a party to initiate legal proceedings, such as being taken into account by the Court in making costs or other orders.26 Such obligations towards the Court conflict with the FDRP’s ‘independence’ and compromise an FDRP’s ability to act impartially. It also carries the risk that FDRP’s, in determining whether a party has made a ‘genuine effort’ to resolve the issue/s in dispute, may coerce or influence a party into making ‘reasonable’ offers to settle. This risk is exacerbated by the fact that the Act fails to define what constitutes a ‘genuine effort’, and as such, an FDRP must make a subjective discretionary decision as to whether a party has satisfied this requirement. Additionally, FDRP’s impartiality is further challenged by the directive and advisory role required by FDRP’s in ensuring parenting arrangements are in the best interests of a child.27 Issues of immunity, which has been repealed for FDRP’s, can also undermine the integrity and legitimacy of mediation.28 (i) Parties’ Duty to Negotiate in ‘Good-Faith’29 In mediation, parties and their representatives conduct is regulated by guidelines, contract and/or legislation. ‘Good faith’ is the most commonly used standard, which, whilst being prescribed by statute, is not statutorily defined. Judicial interpretation has also failed to provide any objective criteria. As such, one is required to look to the case law,30 which is also largely unsettled on this issue.

25 Under the ‘genuine effort’ provisions of the Family Law Amendment (Shared Parental Responsibility) Act 2006; and the Family Law Act 1975 (Cth), s60I: 26 S60I (10) court may consider making order to attend such a process, s13C of the Act, at court’s discretion, or costs order, s117 of the Act 27 See the Family Law Act 1975 (Cth)...