Alternative dispute resolution

[2-0500] Introduction

Alternative dispute resolution, including mediation and arbitration, should be encouraged where appropriate to facilitate the “just, quick and cheap resolution” of the dispute, in accordance with the overriding purpose rule in s 56 of the CPA.

Part 4 of the CPA provides for court-ordered mediation and Pt 5 provides for court-referred arbitration.

Part 20 of the UCPR, “Resolution of proceedings without hearing”, applies to matters referred for mediation or arbitration. Practice Note SC Gen 6 explains the court’s mediation procedures under Pt 4 of the Act. Parts 4 and 5 do not apply to proceedings of the Local Court sitting in its Small Claims Division due to the operation of s 4 of the CPA and Sch 1 to the UCPR.

The Courts and Crimes Legislation Further Amendment Act 2010 introduced Pt 2A to the CPA. That Part outlined certain dispute resolution protocols and pre-litigation requirements to be observed before the commencement of proceedings. However, the operation of the Part has been postponed as discussed below.

Part 2A initially commenced on 1 April 2011 and originally applied to civil proceedings commenced on or after 1 April 2011 in relation to disputes that arose before 1 April 2011, but only if they are commenced after 30 September 2011.

However, with the assent of the Courts and Other Legislation Further Amendment Act 2011 on 13 September 2011, Pt 2A was postponed to a later “application day”, which is either a day 18 months after assent or a date proclaimed earlier. Any purported compliance with the provisions of Pt 2A before the new “application day” does not affect the validity or prevent the continuation of any civil proceeding that have otherwise been duly commenced: Sch 6 Pt 6 (cl 19) to the CPA. Clause 16 of the Civil Procedure Regulation 2012 provides that any civil proceedings in the Supreme Court are declared to be excluded proceedings for the purposes of Pt 2A.

As it appears from the Second Reading Speech to the Courts and Other Legislation Further Amendment Bill (NSW Legislative Assembly, Debates, 26 August 2011, p 4864), Pt 2A was postponed so that equivalent Commonwealth provisions that came into effect on 1 August 2011 could be evaluated. It was estimated that such an evaluation of the Civil Dispute Resolution Act 2011 (Cth) would take approximately 12 to 18 months.

The Courts and Other Legislation Further Amendment Act 2013 repealed Pt 2A and made some consequent amendments.

As appears from the Second Reading Speech to the Act (NSW Legislative Assembly, Debates, 21 November 2012, p 17670) the repeal is to provide greater certainty during the Commonwealth evaluation period which is now expected to be lengthy.

[2-0510] Mediation

Compulsory court-referred mediation has been available as “an integral part of the Court’s adjudicative processes” since 2000, see J Spigelman “Mediation and the Court” (2001) 39 (2) LSJ 63. Section 25 of the CPA defines mediation as a:

structured negotiation process in which the mediator, as a neutral and independent party, assists the parties to a dispute to achieve their own resolution of the dispute.

[2-0520] Exercise of discretion

Mediation may be appropriate for the following, amongst other, reasons:

  • to preserve the commercial and/or personal relationships of the parties and to reduce the risk of an appeal,

  • to define the contested issues, in accordance with s 61 of the CPA, should the matter proceed to litigation,

  • to settle the facts, and

  • to limit the court’s role to determining only liability or quantum of damages.

The court may make an order under s 26 to refer any proceedings before it, or part thereof, to mediation if “it considers the circumstances are appropriate”. The practice note makes it clear that mediation is not appropriate in all proceedings; however, the parties may agree to mediation, nominate a mediator and request the court to make the appropriate orders at any time: Practice Note SC Gen 6 cl 7. The court may order mediation on its own motion, on the motion of a party, or on referral by a registrar: Practice Note SC Gen 6 cl 8. The court may also refer the parties to the registrar or other court officer for an information session to discuss the suitability of the dispute for mediation: Practice Note SC Gen 6 cl 8.

The exercise of the court’s discretion is not dependent on the parties’ consent: s 26(1). However the parties are not forced to settle and may generally continue the litigation without penalty, but this is subject to the parties’: see “Parties’ obligation of good faith” at [2-0540] below.

The court’s discretion under s 26 is “very wide and the Court should approach an application for an order without any predisposition, so that all the relevant circumstances going to the exercise of the discretion may properly be taken into account”: Higgins v Higgins [2002] NSWSC 455 at [6]. By way of guidance:

(a) 

The existence of a dispute resolution clause in a contract is of marginal relevance to the question whether the court should order mediation. The question of referral has to be determined by reference to the circumstances which exist at the time of the proceedings and not at the time the parties contracted: Morrow v chinadotcom Corp [2001] NSWSC 209 at [43].

(b) 

An earlier unsuccessful attempt at mediation, and the costs to be incurred if a second mediation is ordered, is a relevant factor to consider: Harrison v Schipp [2002] NSWCA 27 and Unconventional Conventions Pty Ltd v Accent Oz Pty Ltd [2004] NSWSC 1050.

(c) 

The opposition of one or both of the parties to a court-ordered mediation is a relevant consideration, but is not conclusive: Harrison v Schipp, above; chinadotcom corp v Morrow [2001] NSWCA 82. The compulsory referral power is directed to disputants “who are reluctant starters but may become willing participants”: Spigelman J “Mediation and the Court” (2001) 39 (2) LSJ 63 at 65. See, for example, Remuneration Planning Corp Pty Ltd v Fitton [2001] NSWSC 1208.

(d) 

Compulsory mediation has been considered appropriate in disputes between family members and friends, and between former business partners, where the court is persuaded that mediation offers a plausible prospect of success: Higgins v Higgins, above; Yoseph v Mammo [2002] NSWSC 585; Singh v Singh [2002] NSWSC 852.

(e) 

In defamation proceedings, the court held that a mediation conducted in good faith could result in a public vindication of the plaintiff: Waterhouse v Perkins [2001] NSWSC 13.

[2-0530] Appointment of mediator

The parties may agree to the mediator. If there is no agreement, the court may select the mediator or appoint a person to conduct the mediation in accordance with the Joint Protocol procedures detailed in Practice Note SC Gen 6. The court may refer the proceedings to a registrar to conduct a short information session about the benefits of mediation.

Court registrars or officers may be certified as qualified mediators by the Chief Justice. The Supreme Court’s Alternative Dispute Resolution Steering Committee also has a list of professional associations with accredited mediators which provide mediation services suitable for Supreme Court proceedings as follows:

[2-0535] Community Justice Centres Act 1983

The court may refer proceedings or parts of proceedings for mediation under the Community Justice Centres Act 1983: CPA s 26(2A). No dispute shall be accepted for mediation without the consent of the Director of Community Justice Centres: s 20(3) Community Justice Centres Act.

Section 20A of that Act provides for disputes which have been referred by an order of a court or tribunal under a provision of another Act or statutory rule. The Director may accept or decline to accept such a dispute: s 20A(2). If the Director accepts the dispute, he or she must report as to the outcome: s 20A(5). If the Director declines the dispute, he or she must give notice of the decision and the reasons therefore: s 20(6).

[2-0540] Parties’ obligation of good faith

Section 27 of the CPA creates an obligation on the parties to participate in a referred mediation in good faith. There is, however, no sanction for failure to comply with s 27 except semble, a stay of proceedings where a plaintiff is in default (Aiton Australia Pty Ltd v Transfield Pty Ltd [1999] NSWSC 996), or an adverse costs order being made against the obstructive party in later court proceedings: Capolingua v Phylum Pty Ltd (1991) 5 WAR 137.

In Aiton Australia Pty Ltd v Transfield Pty Ltd, above, at [92], Einstein J suggested that the requirement of good faith is directed to the conduct of the parties, rather than mere attendance at the process and identified at [156], without being exhaustive, the core content of an obligation to negotiate or mediate in good faith.

[2-0550] Enforceability of mediated agreements

The court may make orders giving effect to any agreement or arrangement arising out of the mediation: s 29(1). However, this does not affect any other agreement or arrangement that may be made in relation to the dispute: s 29(3).

Evidence may be called from the mediator in support of an application to give effect to an agreement arising out of a mediation: ss 29(2) and 31(b).

[2-0560] Costs

The costs of mediation may be met by the parties as agreed among themselves, or as ordered by the court: s 28. The court may request that the Chief Executive Officer of the nominated mediation association consider providing the mediation on a reduced or no fee basis: see cll 25 and 29 of the Practice Note SC Gen 6. See [8-0180] item 7 “Costs reserved, or costs orders with liberty to apply”.

[2-0570] General

Mediation proceedings attract the same privilege with respect to defamation as judicial proceedings and, except with the consent of all relevant persons, nothing said at, or document prepared in relation to, a mediation session is admissible in any subsequent proceedings, other than proceedings under s 29 for enforcement of any agreement arising out of the mediation session: CPA s 30. As to the mediator’s duty of confidentiality, see CPA s 31.

[2-0580] Sample orders

[2-0585] Arbitration

There is funding available in the Supreme Court for proceedings referred to arbitration. It is advisable to check the status of such funding with the Chief Executive Officer before referring a case for arbitration. The District Court runs an arbitration scheme which is funded by the fees paid by the parties referred to arbitration. The Local Court runs an arbitration scheme funded by the court.

[2-0590] Exercise of discretion

The court may make an order under s 38(1) of the CPA to refer to determination by an arbitrator:

(a) 

a claim for damages or other money, or

(b) 

a claim for any equitable or other relief ancillary to a claim for the recovery of damages or other money.

Before making an order for arbitration, s 38(2) provides that the referring court must:

(a) 

consider the preparations made by the parties for the hearing of the proceedings: s 38(2)(a),

(b) 

as far as possible deal with all matters that may be dealt with by the court on application to the court before the hearing of the proceedings: s 38(2)(b), and

(c) 

give such directions for the conduct of the proceedings before the arbitrator as appear best adapted for the just, quick and cheap disposal of the proceedings: s 38(2)(c).

The court may not make an order referring proceedings under s 38(3) if:

(a) 

no issue in the proceedings is contested or judgment in the proceedings has been given or entered and has not been set aside: s 38(3)(a),

(b) 

the proceedings involve an allegation of fraud or are proceedings of the Local Court sitting in its Small Claims Division, unless the parties consent or the court finds there are special circumstances justifying the referral: s 38(3)(b) and UCPR r 20.8, and

(c) 

cause is shown why the proceedings should not be referred: s 38(3)(c).

The fact that a jury has been requisitioned by a party does not preclude the possibility of a referral to arbitration, as a party aggrieved by an arbitrator’s award is entitled to a rehearing, and where a jury has been requisitioned, this would include a jury trial: Karkoulas v Newmans of Kogarah Pty Ltd [2000] NSWCA 305.

The court should refrain from referring proceedings to arbitration where the amount in issue is small compared to the legal costs likely to be involved in the arbitration and any subsequent litigation, and arbitration is unlikely to resolve the dispute: Troulis v Vamvoukakis (unrep, 27/2/97, NSWCA). In the Local Court generally, only straightforward matters, estimated to take less than four hours, are referred to arbitration.

In practice, referrals to arbitration are made by the relevant registrar having regard, inter alia, to the state of the court’s list and funding available.

[2-0600] Finality of award

Subject to a party applying for a rehearing, the arbitrator’s award is taken to be “final and conclusive” and a judgment of the referring court. Where it is made by consent of all parties it is effective on the date it is received from the arbitrator by the referring court. Otherwise, the award is final at the expiry of 28 days after it is sent to all the parties: s 40 of the CPA.

There is no relief from an award by way of appeal, new trial or judicial review, unless relief is sought on the ground of lack of jurisdiction or a denial of natural justice: s 41 of the CPA.

[2-0610] Rehearings

A person aggrieved by an award may apply by way of notice of motion for a full or limited rehearing: CPA s 42 and UCPR r 20.12(1). If application is made for a rehearing before the award takes effect, that is, within the 28-day period, the court must order a rehearing: s 43(1). The court must decline to order a rehearing if the amount claimed or the value of the property does not exceed the jurisdictional limit of the Local Court when sitting in its Small Claims Division: s 43(2). The jurisdictional limit is currently $10,000. The court may decline to order a rehearing if the applicant failed to attend the arbitration hearing without good cause: s 43(3). The court may direct that the rehearing be a full rehearing or limited rehearing as it thinks appropriate, regardless of the applicant’s request: s 43(4). In the absence of a direction under s 43(4), the rehearing is to be a full rehearing: s 43(5). An order for a limited rehearing must specify the aspects which are to be the subject of the rehearing, whether by reference to specific issues in dispute, or otherwise: s 43(6). In particular, the rehearing may be limited to the issues of liability or quantum. The court may amend an order for rehearing at any time before or during a rehearing: s 43(7).

If a full rehearing is ordered, the arbitrator’s award ceases to have effect and the court must hear and determine the proceedings as if they had never been referred to the arbitrator: s 44(1). If a limited rehearing is ordered, the award is suspended and the court must hear and determine the limited matters in dispute. The court may then reinstate the award with any modifications it deems appropriate: s 44(2)(c).

The practice is for the arbitrator’s award and the request for the rehearing to be placed in the file in a sealed envelope. This should not be opened until judgment on the rehearing has been delivered, at which stage it will often become necessary to refer to it on the question of costs. However, a court is not required to disqualify itself from rehearing proceedings if it becomes aware of the nature or quantum of the arbitrator’s award: r 20.12(4).

No reference can be made to the evidence given before the arbitrator unless the material is tendered by consent: Courtenay v Proprietors Strata Plan No 12125 (unrep, 30/10/98, NSWCA).

[2-0620] Costs of rehearing

The court may make a costs order in respect of both the referred proceedings and the rehearing: s 46.

Under the old scheme (s 18C of the Arbitration (Civil Actions) Act 1983), if the applicant did not obtain a result “substantially more favourable” than that at arbitration, then the applicant would be ordered to pay the costs of other parties to the proceedings. Section 46 of the CPA does not include the “substantially more favourable” test, however, the court is entitled to promote the fact that the scheme of arbitration is intended to be a final hearing. Hence, costs may be awarded against a party who does not assist the court in furthering this scheme, for example, by not calling available evidence at arbitration for tactical reasons, but reserving the evidence for the rehearing: see MacDougall v Curleveski (1996) 40 NSWLR 430 and Quach v Mustafa (unrep, 15/6/95, NSWCA). In Chiha v McKinnon [2004] NSWCA 273 it was held that, where in a personal injuries case, a defendant improves its position on a rehearing (for example, in having the damages reduced) but the plaintiff is nevertheless successful in the proceedings, the plaintiff should not be ordered to pay the costs of the arbitration or rehearing as the plaintiff still has to prove his or her case in the rehearing. Orders for costs in favour of the defendants in such circumstances would unreasonably encourage defendants not to accept arbitration awards because they would have the opportunity of obtaining orders for costs from the plaintiffs, even if the plaintiffs were successful in the rehearings, and unreasonable pressure would be put on plaintiffs to make safe offers of compromise and to accept settlements.

In exercising the discretion to make an order for costs, such order “must be fair and just in all the circumstances of the case”: Howard v Telstra Corporation Ltd [2003] NSWCA 188 per Young CJ in Eq at [14].

Legislation

  • Civil Procedure Act 2005 Pt 4 (ss 25–34), Pt 5 (ss 35–55), Sch 6 Pt 6 (cl 19)

  • Civil Procedure Regulation 2012 cl 16

  • Civil Dispute Resolution Act 2011 (Cth)

  • Community Justice Centres Act 1983, ss 20, 20A

  • Courts and Crimes Legislation Further Amendment Act 2010

  • Courts and Other Legislation Further Amendment Act 2011

  • Courts and Other Legislation Further Amendment Act 2013

Rules

  • UCPR Pt 20, Div 1 rr 20.1–20.7, Div 2, rr 20.8–20.12

Further references

  • D Spencer “Mandatory Mediation and Neutral Evaluation: A Reality in New South Wales” (2000) 11 ADJR 237

  • J J Spigelman “Mediation and the Court” (2001) 39 (2) LSJ 63

Practice Notes

  • Practice Note: Supreme Court — Mediation SC Gen 6