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.

[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. Part 5 CPA provides for mediation of proceedings. 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 (issued 9 March 2018). 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 Court has a Joint Protocol arrangement (set out in paragraphs 19-35 of Practice Note SC Gen 6, above) with five mediation provider organisations suitable to mediate Supreme Court cases 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).

Whether an agreement reached at mediation is final and immediately binding to resolve proceedings, rather than conditional or an in-principle agreement, will depend on the parties’ objective intentions as disclosed by the facts and circumstances including how the terms of the agreement are expressed to the parties: Masters v Cameron (1954) 91 CLR 353 at 360; GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 at [634]. In BJP1 v Salesian Society (Vic) [2021] NSWSC 241 at [88]–[91], the mediated agreement was held to be immediately binding and conclusive as the plaintiff’s solicitors were properly and adequately instructed and authorised to enter into a full and final settlement of the proceedings which they confirmed to the mediator and the defendant; and the plaintiff’s solicitors’ correspondence indicated they had entered into a “full and final settlement”.

[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

Part 5 CPA provides for court-referred arbitration of proceedings. There is funding available in the Supreme Court for this. It is advisable to check the status of such funding in the Supreme Court with the Executive Director/Principal Registrar before referring a case for arbitration. The District Court no longer runs an arbitration scheme. The Local Court runs an arbitration scheme funded by the court. The Department of Justice pays the arbitrator according to a scale of fees. The criteria for a case to be referred for arbitration is confined to the following:

  • the case does not involve complex issues of law or fact

  • the hearing time is 3 hours or less

  • the case does not involve allegations of fraud.

The court will choose an arbitrator from a list of arbitrators appointed by the head of jurisdiction.

[2-0588] Jurisdiction and rules of evidence

Section 37(1) provides that the jurisdiction conferred on the arbitrator for referred proceedings is part of the jurisdiction of the court that referred the proceedings. The arbitrator may exercise all the functions of the court but only for the purpose of determining the issues in dispute in referred proceedings, for the making of an award in the referred proceedings and related purposes: s 37(2) and (4). While proceedings are before an arbitrator, a tribunal has no jurisdiction in respect of any issue in dispute in the proceedings being arbitrated: s 37(5).

Subject to the uniform rules, evidence in referred proceedings before an arbitrator is to be given and received in the same way as it would be given and received before the referring court: s 51(1). Referred proceedings are taken to be judicial proceedings for the purposes of s 327 (Offence of perjury) of the Crimes Act 1900: s 51(4).

[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.

[2-0595] Arbitrations under the Commercial Arbitration Act 2010

The Commercial Arbitration Act 2010 (CAA) provides for the resolution of commercial disputes for both court-referred and private arbitrations . The functions of an arbitral tribunal must be exercised, so that the paramount object of the CAA is achieved. The paramount object of the CAA stated in s 1C is “to facilitate the fair and final resolution of commercial disputes by impartial arbitral tribunals without unnecessary delay or expense”. The Act aims to achieve this by:

(a) 

enabling parties to agree about how their commercial disputes are to be resolved (subject to subsec (3) and such safeguards as are necessary in the public interest), and

(b) 

providing arbitration procedures that enable commercial disputes to be resolved in a cost effective manner, informally and quickly.

The CAA is substantially based on the provisions of the UNCITRAL Model Law on International Commercial Arbitration (as adopted by the United Nations Commission on International Trade Law on 21 June 1985 with amendments as adopted by that Commission in 2006).

[2-0598] Role of the court under the Commercial Arbitration Act

Where litigation is brought in a matter the subject of an arbitration agreement, a court must, if a party so requests not later than when submitting the party’s first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed: s 8 CAA. In construing the terms of an arbitration agreement, the court will have regard to the context and purpose of the deeds, including the circumstances in which they were made as reflected in the text of the deeds: Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13 at [27]; [36]; [83]. In Rinehart, the High Court dismissed an appeal to the validity of settlement deeds containing arbitral clauses and stayed the proceedings pending arbitration. The evident object of the deeds was to maintain confidentiality and ensure no further public airing of claims brought by the appellants. It was inconceivable that a party to the deed could have thought that any challenge to it would be determined publicly in court: at [44]–[49].

Section 9 CAA provides that “it is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant the measure”. As this section is confined to interim measures designed to facilitate and protect the arbitration process, s 9 does not confer any jurisdiction on a court: Ku-ring-gai Council v Ichor Constructions Pty Ltd (2019) 99 NSWLR 260 at [57], [62].

If an arbitrator becomes in law or in fact unable to perform the arbitrator’s functions or for other reasons fails to act without undue delay, the arbitrator’s mandate terminates if the arbitrator withdraws from office or if the parties agree on the termination: s 14(1) CAA.

If the parties do not agree on the termination and a controversy remains concerning any of the grounds specified in s 14(1), any party may request the court to decide on the termination of the arbitrator’s mandate: s 14(2). Section 14(2) is directed to a particular controversy and the decision of the court resolves that controversy. The court’s decision under s 14(2) is final and not subject to an appeal: s 14(3); Ku-ring-gai Council v Ichor Constructions Pty Ltd at [67]–[75]; [87]; [88]. The legislature intended only a limited form of review should be available under the Act: at [71].

[2-0600] Finality of arbitrator’s 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)

  • Civil Procedure Regulation 2012 cl 16

  • Civil Dispute Resolution Act 2011 (Cth)

  • Commercial Arbitration Act 2010 (NSW), ss 14, 17J, 27D

  • 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

  • TF Bathurst, “The future of alternative dispute resolution” (2020) (Autumn) Bar news 50

  • U Tahur, “Does mandatory ADR impact on access to justice and litigation costs?” (2019) 30 ADJR 31.

  • 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