Australia: Using mediation to resolve leasing and property disputes

In brief - Mediation has many advantages over litigation

Instead of thinking about "winning" or "losing" in a court or tribunal, resolve a dispute through mediation so that you spend as little time and money on it as possible and avoid the stress and acrimony of litigation.

Disputes commonly arise in property transactions

Disputes are a natural part of doing business. In my experience they often arise in connection with property transactions. It's normal in the context of a dispute for one or the other party to feel that they have been aggrieved or wronged in some way and to take a hostile approach to that dispute.

People think of resolution of a dispute by way of an adversarial process like going through a court or a tribunal, having a judge or tribunal member make a pronouncement one way or the other on who wins and who loses; who's right and who's wrong; who's going to be popping champagne corks and who's going to be declaring bankruptcy, because that's often what happens at the end of that sort of process.

Litigation is expensive, stressful and unpredictable

About ten years ago, Justice Fitzgerald commented on the nature of litigation when he delivered a judgment in the Court of Appeal in NSW, which is one of the high courts in the land. He said:

It is often impossible to predict the outcome of litigation with a high degree of confidence. Disagreements on the law occur even in the High Court. An apparently strong case can be lost if evidence is not accepted and it is often difficult to forecast how a witness will act in the witness box. Many steps in the curial process involve value judgments, discretionary decisions and other subjective determinations which are inherently unpredictable. Even well organised, efficient courts cannot routinely produce quick decisions and appeals further delay finality. Factors personal to a client and any inequality between the client and other parties to the dispute are also potentially material. Litigation is highly stressful for most people and notoriously expensive. An obligation on a litigant to pay the cost of another party in addition to his or her own costs can be financially ruinous. Further, time spent by parties and witnesses in connection with litigation cannot be devoted to other, productive activities. Consideration of a range of competing factors such as these can reasonably lead rational people to different conclusions concerning the best course to follow.

To me, this seems like quite an indictment of the litigation process, particularly as it comes from someone whose vocation it is to determine court disputes and administer justice. But really when you think about it, who is better qualified to make an assessment like that but a judge himself?

Mediation can resolve disputes as quickly as possible

In my opinion Justice Fitzgerald made some very valid comments about the risks that are associated with litigation. For me, they lend support to the view that it is always the preferred option to resolve matters early through a process such as mediation, before many of the factors that the judge mentioned come into play.

Whatever the dispute may be about, what you are looking for is an acceptable outcome. Your objective should be to reach a commercial resolution, not to "win" or to prove that you are "right".

What is mediation?

Mediation is an informal process. Its purpose is to enable parties to a dispute to discuss it and talk about their concerns in a confidential environment. The process is designed to help each party understand the other party's point of view and to help both parties make an objective appraisal of the situation.

Mediation is generally a voluntary process. It is controlled by the parties to a dispute and assisted by an impartial facilitator, the mediator. The mediator doesn't judge or give legal advice or impose a decision as to who is right or wrong, who wins or loses. To be effective, the mediator has to remain neutral in the process.

Both parties need to invest some trust in the mediator to help them through the dispute, so mediators must maintain their impartiality.

Mediation can be necessary under contract or ordered by a court

The initiation of the mediation process might be voluntary, so that together or through their legal advisers, the parties can say: "Let's not go to court, let's talk to each other, but let's get a qualified person to conduct the process for us."

Alternatively, mediation might be a required step under a contract. Many contracts have dispute resolution clauses in them and in recent times this has become more and more common. The first step in such a process under a contract is that the parties are required to communicate their concerns to one another and attempt mediation.

Mediation can also be a statutory obligation, so for example in a retail leasing dispute, it's a compulsory step under relevant legislation to attempt mediation before you commence a court process.

Or you might have to mediate by order of the court. The courts are increasingly ordering people to attend mediation before they let the court matter go too far.

Understanding the other person's point of view

There's a mediator who I have had the pleasure to be involved with over a number of years, a former Supreme Court Justice, Sir Laurence Street, one of the best mediators I have ever come across.

Like many mediators, he likes using props. To demonstrate the need to understand the other person's point of view, when he was giving his opening address to people at the outset of the mediation, he would pull out a fifty cent coin, balance it on its side on the table and say to the parties: "Up until now one of you has only seen the heads side of the coin and the other has only seen the tails side of the coin. Today it's your turn to pick up the coin and examine both sides."

Why is mediation better than litigation?

Unlike a court hearing, mediation is a flexible process. Court litigation is governed by numerous rules and regulations and can be an inflexible process.

Mediation can provide outcomes which a court can't. In a court you have a winner and you have loser and generally one party has to pay the other party's costs. In a mediation, the parties are responsible for the outcome. The outcomes are really only limited by their imagination. In commercial situations in particular, there may be things that parties can do that don't necessarily involve one paying the other money.

In a mediation quite often the outcome can be: "Let's resolve this, but let's also continue to do business together." I have seen that happen many times.

In mediation, it is possible to compromise so that a commercial outcome can be achieved. Few people other than the winner would think that litigation is something that gives you a commercial outcome, because it often doesn't. Even a successful party in litigation can end up as a loser if the costs of the litigation blow out.

Due to the presence of an impartial mediator, the mediation process has the ability to address power imbalances between the parties. You often have battles between the big end of town and the small end of town, between the mum and dad and the bank or the insurance company. If you have an effective mediator this imbalance will not be played out in the mediation.

Focusing on the problem, not the opponent

Most importantly, mediation is designed to focus the parties on the problem at hand and not on one another. It's often the case that in a dispute people become adversarial and quite nasty to the opposing party. It's human nature.

I know some mediators who are quite happy for people to vent their frustrations as early as possible in the process, to swear at each other or whatever they need to do to have a controlled burn-off, so that further into the process people can then have a more productive discussion.

Mediation has the benefit of providing certainty

The outcome of mediation may not be everything each party wishes for, but it should be something they can live with. The result should allow everyone to move forward and should give everyone certainty.

This is an important advantage that mediation has over litigation. Court litigation will not give anybody certainty. No litigation lawyer is ever going to tell a client that there is a 100% chance of success. Any experienced litigator will tell you that they have lost cases they thought they were going to win and they won cases they thought they were going to lose. That is the uncertainty of litigation.

Mediation is far more cost-effective than litigation

Mediation is flexible and it is free of the requirements of the court process, such as discovery of documents, which can be a very laborious and expensive exercise whereby each party has to produce all of its records within certain parameters to the other.

Preparation of evidence can again be a very laborious, expensive and difficult process, so obviously mediation is always going to be a more cost effective method of resolving a dispute.

Mediation is confidential so you avoid bad publicity

Because of the confidential nature of mediation, it will not attract publicity. That might not be important to everyone, but certainly to some of my clients it is possibly one of the most important factors.

For some people it is crucial to avoid going to court and having an adverse finding or something negative said about them, which can then be reported in the press the next day.

Nothing you say in a mediation can be used against you later

One of the most important features of mediation is that it is confidential and without prejudice. They do mean slightly different things.

Everyone has seen an American cop show and you would be familiar with the process that when people are arrested, the cops "Mirandize" them. That is, they read them their rights and say: "Anything you say can be used against you later in a court of law."

Mediation is pretty much the exact opposite of that. Once you are in the process and you are under the umbrella of a mediation agreement, nothing you say can be used against you later.

As an example, let's say you are in a mediation and you offer to compromise in the dispute and accept less money than you think you're entitled to. If the dispute is not resolved and you end up in court, when you're in the witness box, it can't be put to you that you had agreed during the mediation to take half of what your claim is worth, so why should you be entitled to the rest?

That can't happen as a result of a mediation, so people can feel very comfortable to be completely frank and open with the other party.

Mediation is a voluntary process

Another notable feature of the mediation process is that whether it has been instigated voluntarily by the parties or under a contract or legislation, once the parties are engaging in the process, it is strictly voluntary.

If at some point during the course of the mediation you decide that the process is not working for you, you can leave if that is what you want to do. While the mediator can ask you to explain your decision to leave, ultimately no one can force you to stay at a mediation.

Mediation can be the first step in a negotiation process

Even if a matter can't be resolved at a mediation, often it can be the first step in an ongoing negotiation. It may well be that until the participants sit down around the negotiating table, they may not have previously discussed the dispute.

It is a very different dynamic when you have a group of people in a room, as opposed to writing long legal letters and making nasty phone calls to each other. It is easier to be brave in that situation.

There is a human element once you are all in the room together. If nothing else, getting the parties to listen to each other's concerns and possibly go away and think about it can be the first step. Sometimes people then instruct their lawyers and say: "Look, that last effort wasn't great, but if you can get him up or down a little bit, let's settle it." That happens quite often.

Mediation produces quicker outcomes than litigation

Because of the way that the courts and the appeal processes work, conducting a piece of litigation can take months or even years. By contrast, mediations generally finish within a day or part of a day. They rarely go beyond the duration of a day in most commercial disputes.

How does mediation work?

In a textbook mediation, the mediator will call all the parties in together, give an opening spiel about how the process works and then allow each party to address the other party and the mediator about what their view of the dispute is and how they would like to see it resolved.

After hearing from both parties, the mediator will then generally have a whiteboard or a piece of butcher's paper and will write up a series of the items that are in dispute and try to work through them one by one, promoting discussion between the parties in the process. That might sound a bit trite, but it's surprising how that really does tend to work quite well.

Advantages of private sessions during mediation

Almost invariably, the mediator will also talk to the parties privately and individually, in what are called private sessions. During those sessions there is another layer of confidentiality. If you're in a private session with the mediator, the mediator cannot disclose anything to the other party about what is said or done in that session unless you authorise them to do so.

The benefit of that to the mediator is that they can say things to each party which it may not be appropriate for them to say in front of the other party. Each party can also say things to the mediator that they may not want the other party to hear. This can enable the mediator to "reality test" each party's position to make sure, if nothing else, that each party understands what their best case and worst case scenario may be if they move forward in the dispute.

Quite often, unrealistic expectations are the reason why people decide to pursue or defend a claim. During private sessions, a mediator can ask each person to consider things they might not have considered yet. That can shift a person's thinking to the point where they will say: "Maybe, based on that, I will compromise."

The mediator may seek permission from one party to communicate some piece of information that they have learnt in a private session to the other party. That is another tool that mediators have at their disposal to try to bring the parties together. Sometimes from what they learn in a private session, they think: "Ah-ha! I can see a way forward. If we go down that track, we might resolve this."

That is never going to happen in a court or tribunal.

Agreeing to abide by the rules of the mediation agreement

Mediations operate under a mediation agreement, so mediators have to establish and enforce ground rules and the parties have to abide by those. The parties will be asked to sign a mediation agreement setting out those rules before the mediation.

In some situations a mediator will call the parties or their lawyers together before the day of the mediation and have a short meeting to develop those ground rules. The mediator will hand out the mediation agreement and let the parties take it away. If there is a need for any preparation before the mediation day, in terms of documents that have to be given to the mediator, that can all be done.

Those attending the mediation should have the authority to make decisions

Another important factor to consider is who should attend the mediation. Obviously each party is going to have to discuss the matters in dispute during the process, so really both parties need to be there. If a party is a corporate entity, it should be represented by a senior officer who has some degree of personal knowledge of the matter and certainly full authority to negotiate and settle the matter.

If someone turns up to a mediation and says things like: "Actually I don't know how to answer that" or "I don't really have authority to do that" or "I'm going to have to go away and talk to my board", it is unlikely that you will have an effective mediation which produces a positive outcome.

It is clearly best to strike while the iron is hot and strive to reach a resolution on the day of the mediation, so it is important to ensure that the right people, the decision makers are there on the day.

If an agreement is reached on the day of the mediation, it should be recorded in writing, even if it is only by way of simple handwritten notes. You'd be surprised at the major disputes which are resolved in mediation by way of lawyers sitting down and writing out one or two pages in handwriting, some binding heads of agreement that the parties agree will be binding.

You can always go away and formalise the agreement in another document, but that doesn't make what you have done on the day any less binding. It means that the participants can walk away knowing that they have certainty. They know they have resolved it, it's at an end. They know exactly what they are up for and they can get on with life.

Role of experts and advisors in mediation

It is possible and sometimes preferable to bring professional advisers to the mediation. Lawyers, accountants and industry experts can all add to the process and bring their experience and assistance to the table in helping to negotiate an outcome, especially in a more complex dispute.

A professional adviser can also act as a spokesperson. Some may not want to face off against someone they see as their adversary and feel more comfortable if they have a mouthpiece to do that for them, at least at the outset. That is quite usual and acceptable.

Mediation of retail leasing disputes

Mediation is appropriate in a wide range of disputes, almost any kind of dispute you can think of. It is used in family law disputes, other forms of mediation are even used in criminal law and certainly in civil disputes mediation is very common.

I commonly deal with leasing disputes which are often a prime candidate for mediation, because in many cases, whether they like it or not, the parties have an ongoing business relationship as landlord and tenant, which means that they are going to have to deal with one another in the future.

Do they really want to be in a business relationship on the one hand and fighting each other in court on the other? It is obviously not an ideal scenario, which is why parties in that situation are good candidates for mediation.

Professionals in the property industry should be aware that any property transaction could give rise to a dispute and any such dispute is likely to be suitable for submission to mediation. If the dispute relates to a retail shop lease, mediation is effectively compulsory.

There is a body set up by the state government called the Retail Tenancy Unit, which deals with retail tenancy mediations in New South Wales. It has a talented panel of mediators to draw upon and mediates disputes quickly, cheaply and effectively.

There is a set fee for a standard number of hours and it is very easy to instigate the process. All you have to do is fill out a form stating who the parties are, where the premises are and giving a general description of the nature of the dispute and the outcome you are seeking. Mediation can be arranged to take place within a matter of a few weeks, or if necessary, even quicker.

Choosing a mediator

Disputes arising from property transactions other than those relating to retail leases can be the subject of mediation just as effectively. The Retail Tenancy Unit will only deal with disputes relating to retail shop leases. For other property disputes there is no specific dedicated body.

Mediators can be sourced through a number of organisations. There are solicitors, barristers and former judges who conduct mediations and the cost is generally going to depend on their level of experience.

Courts increasingly likely to order parties to go to mediation

It may be that a court will refer you to mediation. Judges are now much more likely to refer people to mediation and the court rules provide for them to do so. Even if both parties are actively opposed to it, the court can still order the parties to go to mediation.

Mediation can help to preserve business relationships

If you find yourself involved in a dispute, or one of your clients does, I urge you to consider mediation as a way of resolving that dispute.

The costs associated with mediation will depend on the complexity of the issues, how much material there is to assimilate and how much preparation needs to be done, but almost certainly it will be cheaper and quicker than litigation, it won't expose you or your business to the risk of bad publicity and you won't be gambling on the uncertain outcome of taking the matter to court.

Mediation gives you a much better chance of achieving a result which is acceptable to all parties and possibly being able to maintain a business relationship with your opponent in the future.

This article is based on a seminar presented in Sydney in June 2013.

Martin Deutsch
Alternative dispute resolution
Colin Biggers & Paisley

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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