Australia: Alternative Dispute Resolution - Mediation, Early Neutral Evaluation ("ENE"), Expert Determination and Arbitration: Trends, Traps and Benefits

Last Updated: 1 August 2012
Article by Graham Maher
  1. Introduction Historically, in Australia Alternative Dispute Resolution ("ADR") has largely been perceived as a non-judicial function. Indeed, ADR has been described as "a process of solving problems without the assistance of the Courts." 1 More recently however, cost pressures and the search for greater efficiencies and fairness has led to a greater focus on ADR processes in the context of the litigation process, a trend which has been driven by both the legislature and the Courts themselves. This paper provides a brief overview of the main forms of ADR processes and their respective benefits and limitations. It then considers recent developments in ADR within the Courts and finally, raises some issues for consideration in the drafting of ADR clauses.
  2. Forms of ADR While there are numerous forms of ADR, some of which appear to be merely subtle variations of one another 2 , this paper will focus on the following:
    • Mediation
    • Early Neutral Evaluation
    • Expert Determination
    • Arbitration
  1. Benefits and limitations of ADR generally
    1. Benefits
      1. Offers a quicker and cheaper alternative to litigation (no court fees, high costs of lengthy trial, cost of lawyers, expert witnesses etc);
      2. confidential results: option that parties can agree that information disclosed during negotiations cannot be used later in proceedings. The final outcome can also be made private, as opposed to trial which is open to the public;
      3. enables the parties to maintain control of the dispute resolution process.
    2. Limitations A resolution is not guaranteed (with the exception of arbitration, although an arbitrator's decision may still be appealed). There is the potential that parties may invest time and money in trying to resolve a dispute out of court, and then still end up having to go to court.
    3. Mediation Mediation involves a trained mediator facilitating a negotiation, but not making binding decisions. If mediation proves ultimately unsuccessful in terms of reaching a settlement, it is usually a good way of narrowing the issues in dispute. The advantages of mediation are that the parties do not have to meet and lawyers can be present or not. Further advantages are as follows:
      1. the introduction of the third party mediator enables parties to appraise their cases in confidence;
      2. the process is focused on the interests of the parties rather than on their legal rights alone – additional factors come into play such as external commercial pressures, personal emotions and other surrounding circumstances;
      3. the process is conciliatory by nature – there is not an imposition of a solution – it is a mutual and consensual outcome;
      4. scope for non-monetary remedies including the provisions for services, payments in kind and apologies. This may be contrasted with the fixed remedies available in litigation – those being damages, specific performance and injunction etc;
      5. quick, cheap and confidential. The process is conducted under the "without prejudice" head of privilege. Further, discussions in mediation cannot be discussed in litigation or arbitration proceedings;
      6. a more 'reflective' approach to solving disputes – the process provides parties with an opportunity to focus on the issues in dispute, consider the true economic costs and risks and will 'provide an opportunity to reestablish lines of communication which are often broken when the dispute escalates. However, mediation may be negative in that:
      7. It is not appropriate where a court remedy is necessary e.g. injunctions, specific performance;
      8. The mediator has no power to impose a binding decision on the parties; and
      9. Mediation rarely produces a satisfactory resolution unless both parties to a dispute are committed to a resolution.
    4. Early Neutral Evaluation ("ENE") ENE is a non-binding ADR process where a neutral party gives non-binding evaluations on the merits and flaws of a dispute. Apart from the general advantages over litigation that ADRs offer, specifically ENE is advantageous in that the opinions of a mutually respected neutral individual may assist in the negotiations and the opinion from a QC/retired judge etc can assist the parties to break deadlock. Disadvantages include the fact that the process is non-binding and parties can ignore an opinion that they do not agree with.
    5. Expert Determination Expert Determination is a process whereby an independent third party, with recognised expertise in the subject matter in dispute between the parties, assists the parties to resolve their dispute.
      1. Advantages:
        • can be effective where the parties anticipate a specific type of technical dispute arising in which the expertise of the decision maker will be critical, such as technical engineering disputes;
        • quicker/cheaper than litigation/arbitration;
        • confidential;
        • gives parties a greater knowledge of how the factual evidence is likely to be decided if the case goes to trial
      2. Disadvantages:
        • expert has no power to force his findings on the parties. The parties may provide that the determination of the expert is final and binding upon them, but recourse to the Courts is still necessary to enforce any determination.
    6. Arbitration Each of the States and Territories have introduced uniform Commercial Arbitration Acts. In NSW this is the Commercial Arbitration Act 2010. Arbitration is when the matter in question is determined by a professional arbitrator who is usually given the power to impose a binding decision on both parties. Arbitration can, in that sense, be seen as a direct replacement for litigation and is usually complex and potentially expensive. The advantages of arbitration is that it avoids using the courts and is confidential. It is therefore advantageous for companies wishing to continue a business relationship after the dispute or looking to minimise negative publicity. In comparison to litigation, it is speedier and more informal, and the exclusionary rules of a hearing do not apply (in other words, everything can come into evidence so long as it is relevant and non-cumulative). Furthermore, there is limited discovery, since it is controlled by what the parties have agreed upon. The disadvantages mainly concern costs with arbitrations potentially taking a similar amount of time to litigation. An arbitrator's award may only be appealed on the limited grounds of manifest error of law on the face of the award, where the question is one of the general public importance and the decision of the arbitrator is at least open to serious doubt or misconduct. 3
  1. ADR in the Courts In 1996 Lord Woolf, Master of the Rules, published a report on access to civil justice in the United Kingdom. Included within this report were recommendations as to the adoption of pre-litigation protocols to encourage a more co-operative approach to dispute resolution, to promote fair settlements and to avoid litigation wherever possible. 4 The pre-litigation protocols, which were later developed, provided guidelines which parties to prospective litigation were expected to follow before commencing proceedings before the Courts. The purposes of such protocols were:
    1. to focus the attention of litigants on the desirability of resolving disputes without litigation;
    2. to enable them to obtain the information they reasonably need in order to enter into an appropriate settlement; or
    3. to make an appropriate offer (of a kind which can have cost consequences if litigation ensues); and
    4. if a pre-action settlement is not achievable, to lay the ground for the expeditious conduct of the proceedings.

    Lord Woolf noted that the vast majority of cases in the UK settled without trial, by negotiation and considered that pre-litigation protocols would further encourage early settlement.

    In 2009 Lord Jackson conducted a review of the costs of civil litigation in the UK. 5 Lord Jackson found that pre-action protocols were of benefit in particular categories of litigation (e.g. construction, large scale commercial litigation), but the adoption of a protocol applicable to all general litigation had led to substantial delay and additional cost. He recommended that the general protocol be repealed, because "one-size does not fit all". 6

    From 2008 a number of reports were produced in Australia which recommended parties to litigation take "genuine" or "reasonable" steps to resolve disputes before commencing litigation, which steps might include, but need not necessarily include, ADR processes. 7

    The Civil Dispute Resolution Act (2011) Cth ("Act") came into effect on 1 August 2011. The objects of the Act are:

    1. to change the adversarial culture often associated with disputes;
    2. to have people turn their minds to resolution before becoming entrenched in a litigious position; and
    3. where a dispute cannot be resolved and the matter proceeds to court, the issues are identified reducing the time required for a court to consider the matter.8

    The Act applies to the Federal Court of Australia and the Federal Magistrates Court and requires an applicant to file a genuine steps statement at the time of filing the application. The genuine steps statement must specify the steps taken to resolve the issues in dispute or, if no such steps have been taken, to provide appropriate reasons. An example of the latter is the urgency of the proceedings.9

    A respondent is also required to file a genuine steps statement before the first directions hearing. This statement is required to state whether or not the respondent agrees with the applicant's genuine steps statement and to specify any disagreement. 10

    The Act is not prescriptive as to the genuine steps a litigant is required to take. Section 4 provides that a person takes genuine steps to resolve a dispute:

    "....if the steps taken by the person in relation to the dispute constitute a sincere and genuine attempt to resolve the dispute, having regard to the person's circumstances and the nature and circumstances of the dispute."

    The Act does provide examples of genuine steps which might be taken which include attempting to negotiate, providing relevant documents and information and considering and participating in an ADR process.11

    Lawyers are obliged to inform their clients of the above obligations and assist them to comply. 12 A failure to do so may result in a costs award against the lawyer. 13

    While the failure to file a genuine steps statement does not invalidate proceedings 14 and, for the moment at least, the Federal Court Registry has been accepting applications without a genuine steps statement, the failure to comply with these requirements may result in an award of costs against the defaulting party. 15

    Finally, the Act provides that the Courts may make rules providing for the form of genuine steps statements and the matters which are to be specified in them 16 .

    The Federal Court Rules provide that an applicant must file a genuine steps statement in accordance with the requirements of the Civil Dispute Resolution Act at the time of filing the original application. 17 However, apart from providing for a form the Rules do not, as yet, provide any guidance as to the genuine steps which must be undertaken by a party.

    Various concerns have been expressed about the genuine steps requirements and, in particular, the "one-size fits all approach", which Lord Jackson recommended against. Such concerns include an increase in the costs of litigation, particularly in matters of a minor commercial nature where resolution is unlikely. It has also been suggested that the genuine steps requirements will give rise to mini-trials concerned with whether or not the requirements have been complied with and what the consequences of any non-compliance should be.

    It is fair to say that the Federal Court was not an enthusiastic proponent of the genuine steps requirements and, thus far, has taken a light touch to these obligations. Whether this continues or the Court decides to be more prescriptive in terms of the genuine steps parties are required to take, remains to be seen.

  1. ADR Clauses – Tips for Draftsman Whatever the challenges in pursuing ADR processes in the context of litigation, the fact is that, in most instances they do provide a cost effective, timely and efficient means of resolving commercial disputes, particularly where there is an ongoing relationship between the parties. Most, if not all, significant commercial contracts include some form of ADR process as compulsory prior to recourse to litigation. Such processes may be as simple as negotiation between senior managers or the same coupled with ultimate mediation or arbitration in the event that agreement cannot be reached. In most instances, courts have been at pains to support commercial parties' contractual decisions to provide for dispute resolution prior to recourse to litigation. The courts do so, not by ordering specific performance requiring observation of the dispute resolution clause, but by ordering proceedings be stayed or adjourned until such time as the process referred to in the dispute resolution clause is completed. 18 Particular problems arise however where, although it is clear that the parties intended some form of dispute resolution as a precondition to litigation, the parties have failed to state clearly the obligations imposed as part of the dispute resolution process. In general terms if any part of the process requires an "agreement to agree" it is likely to be void for uncertainty. 19 Such agreements to agree may include the identity of the mediator or arbitrator, the rules to be followed and/or who is to bear the costs of the process. In order for a dispute resolution clause to be enforceable as a precondition to litigation it must comply with the following requirements:
    1. it should operate to make completion of the process a condition precedent to the commencement of court proceedings;
    2. the process established by the clause must be certain. There cannot be stages in the process where agreement is needed on some course of action before the parties can proceed because, if the parties cannot agree, the clause will amount to an agreement to agree and will not be enforceable due to this inherent uncertainty;
    3. the administrative process for selecting a mediator/arbitrator and in determining their remuneration should be included in the clause and in the event that the parties do not reach agreement a mechanism for a third party to make the selection will be necessary; and
    4. the clause should also set out in detail the process to be followed – or incorporate these rules by reference. These rules will also need to state with particularity the model that will be used.20
  1. Summary While there are clear commercial benefits to parties pursuing extra judicial mechanisms for resolving disputes, draftsman of commercial agreements need to be alert to the benefits and limitations of each process and hence the suitability of the chosen process for the disputes likely to arise. Once a particular ADR process has been chosen, care needs to be taken to ensure that it is defined with sufficient clarity to ensure the parties' intentions are enforceable. It is too early yet to draw any conclusions as to whether the compulsory use of ADR processes prior to litigation will result in the cost, time and efficiency benefits which have been suggested. Both the Courts and the legislature need to be mindful of the inherent difficulties with the "one-size fits all model" and the potential for this to result in additional costs and delay in the litigation process.


1 W Pengilley, "Alternative Dispute Resolution: The Philosophy and the Need" (1990) 1 ADRJ 81.
2 The LEADR website lists some 24 different processes.
3 Commercial Arbitration Act 2010 s344
4 Lord Woolf, Access to Justice: final report (1996)
5 R Jackson, Review of Civil Litigation Costs: Final Report (2009).
6 R Jackson, Review of Civil Litigation Costs: Final Report (2009), 343-
7 * A Strategic Framework for Access to Justice in the Federal Civil Justice System (2009);
* The resolve to Resolve: Embracing ADR to Improve Access to Justice in the Federal Jurisdiction (NADRAC) 2009.
8 Explanatory Memorandum, Civil Dispute Resolution Bill 2010 (Cth), 4.
9 Section 6
10 Section 7
11 Section 4(1)
12 Section 9
13 Section 12
14 Section 10
15 Section 12
16 Section 18
17 Rule 8.02
18 Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194 at 210.
19 Aiton Australian Pty Ltd v Transfield Pty Ltd (1999) 153 FLR 236
20 Australian Law Reform Commission, Review of the Adversarial System of Litigation, Issues Paper 25, June 1998, Chapter 6, par 6.20; cited in State of NSW and Ors V Banabelle Electrical Pty Limited [2002] NSWSC 178.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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