Settling disputes through mediation rather than litigation will save time and money and avoid the breakdown of important business relationships.
In his novel Bleak House, Charles Dickens wrote a fictionalised account of a legal case that dragged on for so long that, by the time it was resolved, the legal costs had devoured the entire estate being contested. The case of Jarndyce v Jarndyce became synonymous with interminable legal proceedings and, while not all court cases go on for generations, cost – monetary and non-monetary – is high on the list of reasons why many corporations now look for alternatives to litigation to resolve their disputes.
“There’s no doubt there is a big shift in Australia into alternative dispute resolution (ADR) and the shift has come about in part because litigation is slow and expensive,” says retired Australian High Court judge Michael Kirby, a former president of the Institute of Arbitrators and Mediators in Australia (IAMA).
Mediation is one form of ADR that offers a range of unique and accessible benefits to corporations in dispute that might otherwise seek recourse to the courts for a resolution.
“Many, if not most, corporate disputes would be suitable for mediation,” Kirby says. “If an external regulator is involved it may sometimes be harder to mediate the dispute, but if it’s between two corporations, generally that is simply a dispute about the bottom line.”
While it might sometimes be the case that significant principles are involved, for most corporations their objective, Kirby says, “is not to play a leading role in a major case that lays down the law for the community – their objective is to make money”.
And since litigation can be time-consuming as well as potentially expensive, company executives spending long hours in a courtroom are clearly not making money. Nor is a win at trial necessarily the end of the matter, Kirby adds. The very real possibility of appeal to higher courts can dramatically extend the process and add to the already high fees incurred for solicitors and barristers.
As well as being time-consuming, litigation is unpredictable and what might seem like an open-and-shut case can easily defy initial expectations.
According to Kirby, that’s a reflection of the law, which can be “unjust, unbalanced or simply out of date”. However, mediation is fundamentally different in that parties to the dispute play an active role in resolving the issue, rather than presenting the facts and having a decision imposed on them by a third party.
“The decision should emerge from the disputants, not be imposed upon them,” Kirby maintains. “They should be in charge of the outcome.”
Effective mediation relies on a nonpartisan mediator guiding the parties to their own, often more satisfactory, resolution. It can help get to the bottom of deep-rooted problems that would not otherwise emerge in the more structured handling of a dispute in court. It can also offer a compromise that leaves neither party feeling like the losing side and enables both to continue a working relationship.
“If corporations have to continue to trade with each other it’s generally better to find a median path through which they can negotiate a settlement,” Kirby notes.
Importantly, and unlike litigation, generally the extent of the compromise required to sustain that working relationship will not end up all over the front pages of newspapers.
“Alternative dispute resolution is ordinarily conducted on condition of strict confidentiality,” he says.
Confidential or not, effective mediation needs an effective mediator and for members of the judiciary who take on the role, the first challenge is often a change of mindset. Mediation demands a different set of skills and former judges need to be wary of being too judicial.
“It’s very important to unlearn the skills you’ve had as a decision-maker and to truly respect the primacy of the parties in the mediation process,” Kirby says.
Would-be mediators can gain accreditation through courses offered by organisations such as IAMA (see breakout), but formal training is only a small part of what makes an effective mediator.
“There is no doubt there are things to be learned in negotiation and mediation,” says Professor Andrew Rogers QC, a specialist in ADR. But generally mediators are picked for their experience and expertise, rather than anything they might have learned in a classroom, he adds.
"Discourage litigation. Persuade your neighbours to compromise whenever you can. Point out to them how the nominal winner is often a real loser in fees, expenses and waste of time." – Abraham Lincoln, US President and lawyer
Former Australian Council of Trade Unions secretary Bill Kelty was recently called on to mediate between several trade unions and the BHP Billiton Mitsubishi Alliance in the Bowen Basin coal mining dispute.
“He was called in because he has a huge reputation in industrial matters,” Rogers says. “He is trusted by both sides and illustrates what makes a good mediator. Kelty is a man with a huge store of experience, but it’s unlikely that he has been on a course.”
Doug Jones, president of the Australian Centre for International Commercial Arbitration, agrees.
“The regulation and training of mediators is not a critical aspect of the success of commercial mediation,” Jones says. “Mediators are born, not trained.” Successful mediators, he says, are persistent, patient and have the ability to develop a rapport with disputing parties; skills that cannot necessarily be taught. They also need to demonstrate a degree of intellectual flexibility that allows them to think through potential solutions outside the square.
To get the best from mediation, this need for flexibility extends to the parties involved in the dispute, and that means being constantly receptive to the prospect of mediation.
“It’s never too late to deploy the mediation option,” Jones insists.
If parties have found themselves involved in expensive litigation, they should certainly never rule it out as an option. Indeed, when a court feels the matter would more appropriately lend itself to mediation it will refer it out before trial, often nominating the mediators to be involved.
Of course, waiting until the point of trial before referring the matter for mediation won’t do much to save on litigation costs.
“A lot of disputes are resolved at the last minute, so much of the cost has already been incurred,” Rogers says.
Being flexible about how much investigation needs to take place before a dispute is ready for mediation is also important in getting the most from the process.
“There is a view that you need to have a well-crystallised dispute before mediation is helpful,” Jones says. “I disagree with that.”
In a difficult case where you have discovery, a high proportion of what is discovered will play no part in proceedings, Rogers agrees. Regardless of the time spent in discovery, neither party is going to win, he maintains. Instead, they’re going to walk away with what they think is the best bargain.
Striking that bargain quickly goes to the heart of effective mediation. Indeed, deciding in advance that mediation will be the preferred process for resolving any future disputes is one way trading partners can reach a more rapid settlement. In fact, many contracts these days actually include mediation clauses, Jones points out. These do, however, raise a number of questions. For example, do you provide for mandatory mediation or just discuss its possibility, and how do you encourage parties who don’t want to mediate but are compelled to by a mediation clause in their commercial contract?
“In my experience it’s best for a dispute clause to suggest mediation,” Jones says. “This allows that no one party loses face by suggesting it.”
In practice, it is not unusual for initially reluctant parties to find themselves captured by the process, leading to the quick resolution of a dispute. Many international commercial contracts also include mediation clauses, avoiding the risk that domestic corporations will find themselves in court in foreign jurisdictions.
But there are problems unique to international commercial disputes, Jones says, not the least of which is agreeing on the nationality and identity of the mediator.
Regardless of jurisdiction, a few principles hold firm in effective mediation.
“Involve people in the process who have not been personally involved in the dispute themselves,” Jones says. “Make sure the decision-makers commit to the process, which probably means at least some executive time on both counts.”
Mediation will not replace litigation in the resolution of every dispute, but it is a real option for many corporations that might otherwise spend too much time, money and effort for too little return. Perhaps if it had been an option in Dickens’ time, the author might not have been compelled to urge those considering the courts to “suffer any wrong that can be done you rather than come here”
The National Alternative Dispute Resolution Advisory Council (NADRAC) was set up in 1995 in the wake of a report from the Australian Government’s Access to Justice Advisory Committee, which recognised the need for a national body to advise the government and federal courts on alternative dispute resolution (ADR).
Working closely with the Australian Attorney-General’s office, NADRAC carries out research, provides policy advice and acts as a point of reference for ADR-related issues.
NADRAC was closely involved in the development of the National Mediator Accreditation System (NMAS), which commenced in January 2008.
NMAS is an industry-based scheme that relies on the voluntary compliance of mediator organisations to agree to accredit mediators in accordance with set standards. These are referred to as recognised mediator accreditation bodies (RMABs).
The maintenance and development of NMAS is the responsibility of the Mediator Standards Board, which oversees the application of approval and practice standards with a view to achieving consistently high‑quality mediation services and training in Australia.
The Institute of Arbitrators and Mediators Australia (IAMA) is an RMAB founded in 1975 and is Australia’s largest independent arbitration and mediation service. It offers internal accreditation, professional development, training programs and access to other resources relevant to ADR.
Access the following CPA Library items online at CPA Australia Library
- Negotiating globally: how to negotiate deals, resolve disputes and make decisions across cultural boundaries (eBook)
- Mediation makes ground in resolving disputes, International Tax Review, February 2012
- The special mediator: an innovative approach to an old problem, by R. Fishman and G. Gouveia, American Bankruptcy Institute Journal, July 2011.
Contact CPA Library on 1300 737 373 or email [email protected]
This article is from the September 2012 issue of INTHEBLACK magazine.