It is becoming commonplace for consensual alternative dispute resolution (ADR) clauses to be included in a wide variety of commercial contracts, including construction and franchise agreements. Additionally, Courts in Queensland, together with many Tribunals, have the power to coerce litigants to attend and participate in various forms of ADR.
Whilst this paper will consider ADR clauses and procedures in general, the focus will be upon mediation, particularly in the commercial arena.
Benefits of ADR
One explanation for the increased prominence of ADR is the benefits which it can provide to participants. The potential benefits of ADR include:
1. Allowing parties to negotiate a settlement within known limits or boundaries;
2. Significant cost savings;
3. Obtaining a better understanding of a party’s prospects by identifying the strengths and weaknesses of the respective cases;
4. Even if unsuccessful, narrowing the issues in dispute between the parties1;
5. Having the parties exposed to the views of an independent third party (eg. a mediator) and adjusting their expectations accordingly;
6. Preventing commercially sensitive material or information from becoming public;
7. Preserving an amicable relationship between parties in dispute where that relationship is of an ongoing or longstanding nature;
8. Allowing "non-legal", creative or commercial outcomes which may not otherwise be available in a Court hearing (such as a trial);
9. Making dispute resolution proceedings more simple, with a consequence of avoiding lengthy, complicated trials;
10. Simplifying the work done in preparing disputes for the resolution process2;
11. Improving efficiency by finding earlier or more convenient dates for ADR than may be permitted by the usual Court process3; and
12. Achieving results which do not necessarily demand that one side wins and one loses4.
Drafting ADR clauses
There are a number of important issues to consider when drafting an ADR clause, or reviewing an ADR clause which is contained in a proposed contract or agreement.
One decision which contains a detailed discussion in relation to ADR clauses is Aiton Australia Pty Ltd v Transfield Pty Ltd5, a decision of Justice Einstein of the New South Wales Supreme Court.
Aiton was a dispute where the parties had included a dispute resolution clause in their contact. The clause was extremely detailed (a copy of which is enclosed with this paper). The defendant sought a stay of the proceedings on the basis that the contracts contained express procedures for dispute resolution which were to be followed prior to either party commencing legal proceedings.
Notwithstanding the detailed nature of the clause, Justice Einstein decided that as the clause omitted any reference to payment of the mediator, this was fatal to the certainty of the clause, which was held to be unenforceable. His Honour further found that as the mediation clause was not severable from the negotiation clause, the agreement to negotiate was also unenforceable. Accordingly, no stay of the proceedings was granted.
In Aiton, Justice Einstein adopted the following minimum requirements for an enforceable mediation clause6:
1. It must be in the form described in Scott v Avery7. That is, it should operate to make the completion of the mediation 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 process 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 processes for selecting a mediator and in determining the mediator’s 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.
4. The clause should set out in detail, the process of mediation to be followed – or incorporate these rules by reference. These rules will also need to state with particularity the mediation model that will be used.
Astor and Chinkin8 suggest that an additional factor for an enforceable clause is that:
"It must be possible to determine when the dispute resolution process is terminated, which cannot be equated with resolution of the dispute".
In Aiton, Justice Einstein considered that the specified time limits included in the clause provided the appropriate degree of certainty.
An ADR clause will only be effective where the procedures specified are sufficiently detailed to be meaningfully enforced9. In Aiton, Justice Einstein adopted Justice Giles’ test for enforcement in Hooper Bailie Association Ltd v Natcon Group Pty Ltd 10 as follows11:
"An agreement to conciliate or mediate is not to be likened…to an agreement to agree. Nor is it an agreement to negotiate, or negotiate in good faith, perhaps necessarily lacking certainty and obliging a party to act contrary to its interests. Depending upon its express terms and any terms to be implied, it may require of the parties participation in the process by conduct of sufficient certainty for legal recognition of the agreement."
Justice Einstein emphasised that in considering the enforceability of an ADR clause12:
"…the focus ought properly be on the process provided by the dispute resolution procedure. Provided that no stage of the dispute resolution mechanism is itself an "agreement to agree" and therefore void for uncertainty, there is no reason why, in principle, an agreement to attempt to negotiate a dispute may not itself constitute a stage in the process."
By way of practical guidance, it is recommended that an ADR agreement contain terms which consider at least the following issues:
1. A definition of "dispute"13;
2. A notice period for the commencement of the process, together with a method for the notice;
3. How the mediator or arbitrator is to be appointed;
4. Who pays for the mediator or arbitrator;
5. The process itself (e.g. mediation followed by expert determination or case appraisal);
6. A method of determining whether the parties have complied with the ADR clause;
7. Who has authority to negotiate on behalf of the parties;
8. The location of the mediation or arbitration;
9. A confidentiality clause;
10. A requirement for the parties to negotiate, mediate and participate in good faith;
11. That the clause is in the form described in Scott v Avery (as noted above);
12. Whether any arbitration or mediation rules are incorporated by the parties;
13. Specifying when the process is concluded; and
14. Confirmation of continued performance of contractual obligations during the ADR process.
As can be seen from the Aiton decision, a lengthy, detailed dispute resolution clause will not be upheld if it otherwise omits an essential requirement.
The Queensland Law Society has published a Members’ Mediation Kit. The mediation kit contains both a standard dispute resolution clause and an agreement to mediate. Attendees may find the mediation kit useful and copies can be obtained from the Society’s website.
The drafting of an ADR clause is of course the first step in the process. The clause itself must then be capable of being enforced through the Courts or relevant Tribunal if necessary.
There are numerous examples of Courts indicating a general willingness to refer disputes to various forms of ADR.
In Biman International Pty Ltd v Amalgamated Security Services Pty Ltd14, Justice Allsop was of the view that:
"Mediation is, as a form of alternative dispute resolution, an important adjunct to court proceedings in this and other superior courts in the attempts by courts, judges and parties to limit and minimise litigation and its costs."
Similarly, in Hopeshore Pty Ltd v Melroad Equipment Pty Ltd15 Justice Branson stated:
"Court referrals to mediation reflect judicial appreciation of the skills of experienced mediators. The skills required of a mediator are different skills from those required of a litigator. A well conducted mediation is not simply an occasion for each side to give consideration, with the assistance of the mediator, to the strength of its legal case and concomitantly to the extent to which it may be willing to compromise on its formal legal position."
Notwithstanding those statements of intent, the Courts have usually refused to order specific performance of a dispute resolution clause. Rather, Courts have indicated that they will indirectly enforce an ADR agreement by ordering a stay of Court proceedings, to allow a mediation or other ADR process to occur. Practically, this will achieve the same result.
In Hooper Bailie, the plaintiff sought to prevent the defendant from continuing with arbitration proceedings, in circumstances where the plaintiff claimed an agreement had been reached such that arbitration would not continue until a conciliation process had concluded. Justice Giles held16 that in the circumstances of this case, equity would not order specific performance of the conciliation clause, because supervision of such performance would be impossible.
Notwithstanding his view in relation to specific performance, Justice Giles held that the inherent jurisdiction of the Court to prevent an abuse of its own process would prevent the defendant from continuing with the arbitration in circumstances where there was an agreement between the parties to conciliate. That view was based on the principle stated by Lord Justice MacKinnon in Racecourse Betting Control Board v Secretary for Air17:
"…namely, that the court makes people abide by their contracts, and, therefore, will restrain a plaintiff from bringing an action which he is doing in breach of his agreement with the defendant that any dispute between them shall be otherwise determined."
The reasoning of Justice Giles in Hooper Bailie has been further considered in subsequent decisions such as Aiton and Zeke Services Pty Ltd & Anor v Traffic Technologies Ltd & Anor18.
However, the law on this issue does not appear to be entirely settled. A more recent decision of Justice Einstein in The Heart Research Institute Ltd v Psiron Ltd19 noted that Justice Giles in Hooper Bailie was concerned with an implied term contended by the plaintiff whereby the parties:
"would take all reasonable steps to endeavour to resolve the conciliation issues under the chairmanship of Mr Eric Schick, by discussion, consideration and agreement."
In comments which were obiter, Justice Einstein in The Heart Research Institute summarised the decisions of Hooper Bailie, Aiton and State of New South Wales v Banabelle Electrical Pty Ltd20 as follows21:
"… these cases are, undoubtedly correct in circumstances where the contractual provision concerning the alternative dispute resolution process is not sufficiently certain to be specifically enforced. The principle of equity grounding such decisions, namely that it is impossible or untenable for the Court to supervise such vague and uncertain terms, is clear.
Another way of expressing the same principle is that the Court will not generally order specific performance where it would be required to constantly supervise the order."
His Honour then took the further step, again obiter, stating22:
"Had the subject Agreement not been vitiated for uncertainty, the indirect mechanism of giving effect to the alternative dispute resolution clause discussed in Hooper Bailie, Aiton and Banabelle, namely the grant of a stay or adjournment of the proceedings pending the completion of the alternative dispute resolution process, would not have been needed as the Court would likely have been in a position to grant specific performance. The process contemplated by the clause is likely to have been entirely appropriate to the subject matter of the Agreement, namely medical research into cardiovascular disease and the creation of possibly patentable processes."
Enforcement of ADR Clauses
Decisions of various Courts are illustrative of difficulties which can be faced when endeavouring to enforce an ADR clause or agreement. Issues which can arise in respect of enforcement, include:
1. Whether an agreement exists. The contents of an effective ADR clause have been outlined above.
2. Whether the agreement has been activated. For that reason, it is important that the ADR clause specifically defines what constitutes a "dispute" for the purposes of the contract23.
Lord Diplock in Paal Wilson & Co v Partenreederei Hannah Blumenthal24 noted that an arbitration clause would only come into effect where:
(a) A dispute comes into existence between the parties as to their primary or secondary obligations under the main contract; and
(b) A party invokes the clause to obtain resolution of that dispute by the procedure specified.
3. It will be necessary to consider the scope of the agreement25, to determine whether the dispute fits within the bounds of the ADR clause. This involves an exercise in interpretation and construction of the clause.
The following decisions are illustrative of the relevant issues:
In Aiton, the mediation clause was found to be uncertain as it did not provide for the mediator’s remuneration (as noted above). Despite a further provision in the ADR clause allowing for the payment of an expert (being the next stage of the ADR process), His Honour was not prepared to imply a term in respect of the mediation, to the effect that the parties would jointly share the reasonable remuneration of the mediator.
The decision of Morrow v Chinadotcom Corp26, illustrates that it is not sufficient to simply agree to refer a dispute to an external organisation, such as the Australian Commercial Disputes Centre ("ACDC") in an ADR clause. The clause in question effectively provided that if the respective Chief Executive Officers were unable to resolve the dispute:
"…the matter must be referred by the Nominees for dispute resolution to the Australian Commercial Disputes Centre or its successors."
Justice Barrett decided that, on the facts of this matter, the clause failed for lack of certainty, in that it failed to define the role of the ACDC in the dispute resolution process. Accordingly, His Honour refused to grant a stay of the proceedings.
Whilst the Court of Appeal in Chinadotcom Corporation v Hugh Morrow & Ors27 questioned (without deciding) whether the ADR clause was void for uncertainty, it confirmed Justice Barrett’s decision and refused to allow a stay. The original decision remains illustrative of difficulties which can be encountered when attempting to enforce ADR clauses.
In Elizabeth Bay Developments Pty Ltd v Boral Building Services28, the ADR clause provided for the mediation to be "administered by" the ACDC. Despite the clause making no reference to any rules to be adopted, both parties accepted that the ACDC’s guidelines for the mediation of commercial disputes were incorporated by reference into the ADR clause. Justice Giles then considered the certainty of the guidelines. His Honour found that:
"The agreements to mediate were open-ended, indeed unworkable because the process to which the parties had committed themselves would come to an early stop when, prior to the mediation, it was asked what the parties had to sign and the question could not be answered … the agreement of the parties fell down for lack of certainty in the process which they should follow in their mediation."
For a similar decision to Elizabeth Bay, also involving the ACDC guidelines, see The Heart Research Institute Ltd and Anor v Psiron Ltd29.
In Baulderstone Hornibrook Engineering Pty Ltd v Kayah Holdings Pty Ltd30 Justice Heenan stayed a reference to an independent expert on grounds including that:
1. The clause provided for the resolution of any dispute by a referee, whether or not the determination of the dispute was within his field of expertise; and
2. The clause purported to make the referee’s decision final, hence ousting the jurisdiction of the Court.
His Honour made the finding that the ADR clause was against public policy, and held the clause to be void.
Parts of the decision in Baulderstone have come under some criticism. In Straits Exploration (Australia) Pty Ltd & Anor v Murchison United NL & Anor31, the Western Australian Court of Appeal agreed that Justice Heenan was correct to stay the reference to the expert. However Justice Wheeler questioned whether the clause in Baulderstone was in fact void as against public policy. His Honour made it clear that Baulderstone is not authority for any proposition about the general invalidity of expert determination provisions in contracts.
It is also important to consider the status of an ADR clause where the underlying contract was terminated, frustrated, repudiated or void ab initio. Again, this issue will be determined by interpretation of the individual clause.
Recent decisions have found that a well drafted ADR clause can withstand frustration of a larger agreement.
In Harbour Assurance Co (UK) Ltd v Kansa General International Insurance Co Ltd32, notwithstanding that the underlying contract was void for illegality, the Court of Appeal upheld a stay of Court proceedings and rejected the argument that the agreement to arbitrate was also void. The Court held that the arbitration clause was a collateral agreement, which was to be construed according to its terms and having regard to the relevant factual matrix.
A similar decision can be found in Ferris v Plaister33. In this decision, notwithstanding fraud affected the contract, the dispute resolution clause was able to be severed and was upheld by the court. President Kirby noted:
"There is no doubt that the trend of legal authority favours the contention that, depending always upon its terms, an arbitration clause will ordinarily, unless the parties intend otherwise, be treated as separate from the main agreement. It is in this way that the arbitration clause will not be affected by a challenge to the main agreement so as to deprive the arbitrator of the jurisdiction to uphold that challenge."
Current Issues in ADR Agreements
There are a number of current issues relating to ADR, a selection of which is as follows:
It is important that a dispute resolution clause or agreement addresses the issue of confidentiality. Parties to an ADR process should consider whether the confidentiality clause is sufficient for the purposes of their dispute.
The Courts have indicated that information provided in mediations may be "reopened" in certain circumstances when considering an award for costs.
In Capolingua v Phylum Pty Ltd34, Justice Ipp stated:
"where, at a mediation conference, a party … adopts an obstructive or unco-operative attitude in regard to attempts to narrow the issues, and where it is subsequently shown that, but for such conduct, the issues would probably have been reduced, the extent to which the trial is in consequence unnecessarily extended is a relevant factor when deciding upon an appropriate award for costs".
The same principle was applied in Quach v Mustafa35 where an arbitration was "reopened" because of a party’s failure to produce video evidence at the arbitration. The defendant had obtained video surveillance footage of the plaintiff (prior to the arbitration), which the defendant elected not to produce at the arbitration. Kirby P (as he then was) noted:
Instead, [the plaintiff] urged that the Court would provide relief because the appellants had elected not to exhibit before the arbitrator the film which was taken in October 1993 and March 1994. The film was then available to the appellants. Had it been shown before the arbitrator, it is likely that the arbitrator would have brought in a much lower award. Had this been done, the entire proceedings might have terminated at the arbitration. Instead, the appellants indulged in a form of litigious charade before the arbitrator. They hinted at, but did not reveal, their telling evidence. They exposed the respondent to a futile proceeding which made no real sense. They thereby escalated the costs and now seek to take advantage of their own earlier action to recover the costs incurred since their earlier offer in October 1993.
The conduct of the defendant at the arbitration was taken into account by the Court in deciding to award costs of the subsequent re-hearing in the plaintiff’s favour. Kirby P noted that the failure by the defendant to show the videos before the arbitrator should have costs consequences.
The Silver Fox Company Pty Ltd as Trustee for the Baker Family Trust v Lenard’s Pty Ltd (No 3)36 involved an application by a party for indemnity costs, seeking to rely upon the offers made by the parties during the course of a mediation, notwithstanding that the mediation agreement included a confidentiality clause. After considering section 131(2)(h) of the Evidence Act (Cth), the Court received into evidence two affidavits which outlined the final settlement offers by the parties at the mediation. Justice Mansfield stated:
"It is equally in the public interest that negotiations should be conducted genuinely and realistically. The effect of s131(2)(h) is to expose that issue to inspection when costs issues only are to be resolved. There is no apparent public interest in permitting a party to avoid such exposure by imposing terms upon the communication, whether by the use of the expression ‘without prejudice’ or by a mediation agreement.’
Whilst the substantive decision in The Silver Fox Company was subsequently overturned on appeal, Justice Mansfield’s comments are useful when interpreting the potential scope of 131(2)(h) of the Evidence Act.
In a similar vein, litigants should also be aware of the provisions contained in section 103(2)(b) of the Supreme Court of Queensland Act 1991, section 98(2)(b) of the District Court of Queensland Act 1967 and section 30(2)(b) of the Magistrates Court Act 1921.
Evidence of Matters at Mediations
It has been accepted by the courts that the without prejudice privilege extends to mediations. Justice Young in Lukies v Ripley (No.2)37 was of the view that:
"If parties have attempted to settle the whole or part of the litigation and if they have agreed between themselves expressly or impliedly that they will not give in evidence any communication made during those discussions, then public policy makes those discussions privileged from disclosure in a court of law or equity".
Notwithstanding those comments, it is important to note that a party may seek to prove at trial a fact of which they become aware at a mediation.
AWA Limited v Daniels38 concerned a mediation which was unsuccessful. Subsequent to the mediation, Daniels served notices to produce, calling for certain documents, the existence of which became known to Daniels as a result of what was said at the mediation on a confidential and without prejudice basis. AWA sought to have the notices set aside as an abuse of process.
Justice Rolfe made the following useful comments:
"I must say at the outset that I find it a somewhat surprising submission that if in the course of mediation or settlement negotiations a party learns about a matter or has a matter as to which it had a belief or opinion confirmed, and the mediation or settlement negotiations fail, that party cannot "use" the information thus obtained to further its case. That does not mean it can lead evidence that at mediation a party made an admission or statement. Rather it seeks to prove the subject matter of the admission aliunde. It may cross-examine or take other legitimate forensic steps to prove or disprove the fact. If the party could not do this an absurd position could arise. A party could make admissions about all manner of things going directly to the issues in the proceedings and then object to any attempt by the other party to prove them on the hearing by legitimate means. That consequence would more completely stifle mediation and settlement negotiations than allowing the matters to be proved by admissible evidence. This throws up the tension between the two schools of thought. On the one hand the plaintiff submits that if information gleaned at mediation can then be used parties will not agree to mediation for that reason. On the other hand the defendant says that if any information given at mediation could not be used as the basis for calling admissible evidence if mediation fails, there would be the sterilising effect to which I have referred. Further, as I have said, how is the Court to know when and how a party becomes seized of information and whether that is a legitimate enquiry into which the Court should enter. In my view each party points up a potential difficulty for mediation. I consider both views can be accommodated within accepted legal principles and without in any way jeopardising or inhibiting the mediation process or discouraging litigants from resorting to it. The law is stated succinctly in the joint judgment of Dixon CJ, Webb, Kitto and Taylor JJ in Field v Commissioner of Railways for New South Wales (1957) 99 CLR 285 at 291 and at 292. After stating that a party could not rely on an admission in settlement negotiations their Honours said: "This form of privilege, however, is directed against the admission in evidence of express or implied admissions ... It is not concerned with objective facts which may be ascertained during the course of negotiations. These may be proved by direct evidence."
In my respectful view this represents the law for present purposes and, therefore, it is binding upon me. On the evidence the defendants are not seeking to prove any admission or statement made at Mediation. They are following, by the service of appropriate process, a line of enquiry about which they learned at Mediation, the Mediation process having failed. In due course they will seek to prove the matter. Whether they succeed will depend upon the usual considerations relating to the admissibility of evidence. They will not fail, however, because of the circumstances in which they became aware of the matter. I appreciate the defendants put their case on a higher basis than this, namely that they already had the belief, which was semaphored to the plaintiff in the letter of 26 February 1992, and that nothing more than confirmation was received at Mediation. At whichever level one approaches the problem I do not consider that as a matter of principle the issue of the Notices to Produce is vitiated."
Justice Rolfe concluded:
"The reason for dismissing the Notice of Motion is that I do not consider that the Notices to Produce are in any way an attempt to circumvent the confidentiality of and without prejudice nature of the Mediation. They do not seek to prove directly or indirectly what was said at Mediation. They seek to prove, by admissible evidence, a fact to which reference was made at Mediation not by reference to the statement but to the factual material which sourced the statement. A finding to the contrary would mean that irrespective of relevance to issues the statement at Mediation made the factual material upon which it was based immune from subsequent consideration by the Court. I have already referred to the potential problems this approach would raise for the mediation process."
In AWA Ltd v Daniels39 Chief Justice Rogers considered the admissibility of documents produced pursuant to the notices which Justice Rolfe had earlier allowed to stand. The documents were admitted on the narrow basis that the defendants were "alive to the possibility of the existence of the objective material before the mediation" and upon the alternative basis that "if relevant the deeds should have been discovered".
In relation to Justice Rolfe’s wider view that the defendants only became aware of the information in the course of the mediation, Chief Justice Rogers stated:
"Rolfe J was prepared to take the view … that objective evidence will not be excluded merely because the defendants learnt of the relevant facts in the course of the mediation. With very great respect I would prefer to consider that question further if, and when, it arises on some future occasion. If the fact be that the other side has absolutely no inkling of some matter, which, if known about is capable of being established by objective evidence, but which would not ordinarily come to the knowledge of the other side in the normal progress of litigation and its existence is revealed only by a statement made in the course of, and for the purposes, of the mediation, I would hesitate long before concluding that the objective evidence so revealed is admissible".
Chief Justice Rogers was also of the view that the proposition in Field v Commissioner of Railways for New South Wales40 upon which Justice Rolfe had relied in stating the law, as to proof by extrinsic evidence, was strictly obiter41.
In the decision of Williamson v Schmidt42 Justice Lee stated, in relation to section 114(1) of the Supreme Court of Queensland Act:
"The words ‘anything done or said, or an admission made’ appear to be wide enough to include all statements about the dispute oral or in writing, any admissions oral or in writing, or any documents made in the course of the mediation proceeding providing they are about the dispute".
His Honour adopted the approach of Justice Rolfe in AWA and noted:
"… the plaintiff … is entitled to prove if it can by admissible evidence, subject to any without prejudice considerations, the existence of any fact or matter disclosed at the mediation proceedings, although the plaintiff cannot lead in evidence, in those later proceedings, anything done or said or any admission made at the mediation proceedings."
A similar decision was reached in the matter of 789TEN v Westpac43. A mediation was held pursuant to a mediation agreement which contained clauses protecting both confidentiality and privilege. Subsequent to the mediation, Westpac filed a cross-claim. The plaintiff sought to have the cross-claim struck out on the basis that Westpac came to know the information alleged as material facts only from privileged and confidential communications made for the purposes of or in the course of a mediation. Justice McDougall also adopted the reasoning of Justice Rolfe in AWA and refused to strike out the cross-claim.
It is important to ensure that the ADR clause or mediation agreement specifically covers the confidentiality of any document produced or referred to at a mediation. As the courts have indicated that they will not infer this, it is essential that such a clause exists. In any event, even if there is a confidentiality clause, the Court may, in certain circumstances, have regard to matters which occur at the mediation, as noted in the decisions above.
Conduct at Mediations
The very recent Queensland decision of Legal Services Commissioner v Mullins44 serves as a reminder as to the conduct required of practitioners involved in ADR.
The Legal Services Commissioner contended that the respondent (a barrister) knowingly misled an insurer and its lawyers about his client’s life expectancy. The respondent was engaged to act for a client (the claimant) who pursued a claim for damages arising from a motor vehicle accident.
A mediation was arranged between the parties and was set to occur on 19 September 2003. On 16 September 2003, the respondent conferred with the claimant and his instructing solicitor. At that time, the claimant advised his legal representatives that secondary cancer had been diagnosed in a number of parts of his body.
The relevant section of the Motor Accident Insurance Act 1994 required disclosure by the claimant to the insurer of any "significant change in … medical condition" within a month after the claimant had become aware of the change.
The mediation took place prior to the expiry of the month prescribed by the Motor Accident Insurance Act 1994. The claimant instructed his legal representatives that his cancer was not to be disclosed to the insurer at the mediation unless he was legally obliged to do so.
The respondent took advice from Senior Counsel prior to the mediation occurring, in respect of the disclosure of the cancer diagnosis. The respondent came to the view that provided the claimant’s lawyers did not positively mislead the insurer about the claimant’s life expectancy, they would not be violating any professional ethical rules. The mediation proceeded, and the claimant’s representatives put forward economic loss reports which were founded upon the life expectancy of the claimant, prior to his knowledge of the cancer diagnosis.
The matter was settled at the mediation, however the insurer would not have agreed to the settlement, had it been informed of the claimant’s cancer diagnosis.
In making a finding that the respondent had engaged in professional misconduct, His Honour Mr Justice Byrne noted that:
- "Nor does the involvement of lawyers suggest that negotiations about settling a personal injuries claim are conducted in a shared expectation that legal consequences will not attach to intentional deception about material facts" 45;
- "When this mediation was held, Queensland barristers could not have approached the exercise on the basis that they were entering an honesty-free zone" 46; and
- "By continuing to call the Evidex reports in aid as information supporting Mr White’s claim after learning the cancer facts and recognizing their significance for the validity of the lifeexpectancy assumption, the respondent intentionally deceived Mr Kent and Suncorp representatives about the accuracy of the assumption. He did so intending that Mr Kent and Suncorp would be influenced by the discredited assumption to compromise the claim: which happened. The fraudulent deception the respondent practised on Mr Kent and Suncorp involved such a substantial departure from the standard of conduct to be expected of legal practitioners of good repute and competency as to constitute professional misconduct"47.
All legally qualified parties involved in ADR should of course participate in accordance with their professional obligations. Whilst stakes can be high, and negotiations fierce, the decision in Mullins is a reminder that harsh penalties can be imposed upon legal representatives where another party in the mediation is deceived during the course of an ADR process.
Attendees should be mindful of the issues canvassed in this paper when drafting or seeking to enforce ADR agreements. In light of the acceptance of ADR in today’s commercial transactions, it is likely that a substantial body of case law will further develop, to assist with the interpretation of standard ADR clauses and agreements. In the interim, the decisions referred to in this paper provide useful guidance for all parties involved in mediation and ADR generally.
1. See McDonalds Properties (Australia) Pty Ltd v Douglas Shire Council  QSC 239 (BC9906317).
2. Per Einstein J in The Heart Research Institute Ltd v Psiron Ltd  NSWSC 646 at paragraph 83.
3. Per Einstein J in The Heart Research Institute Ltd v Psiron Ltd  NSWSC 646 at paragraph 83.
4. Per Einstein J in The Heart Research Institute Ltd v Psiron Ltd  NSWSC 646 at paragraph 83.
5.  NSWSC 996, (1999) 153 FLR 236
6. (1999) FLR 236 at 252.
7. (1856) 10 ER 1121
8. Dispute Resolution in Australia, 2002, LexisNexis Butterworths at page 200.
9. Elizabeth Bay Developments Pty Ltd v Boral Building Services Pty Ltd (1995) 36 NSWLR 709
10. (1992) 28 NSWLR 194 at 209
11. (1999) FLR 236 at 247.
12. (1999) FLR 236 at 250.
13. see Barclay Mowlem v Ishikawajima-Harima Heavy Industries Co Ltd  QSC 011 (BC200300058)
14.  FCA 919
15.  FCA 1445
16. (1992) 28 NSWLR 194 at 210
17.  Ch 114 at 126
18.  QSC 135
19.  NSWSC 646.
20. (2002) 54 NSWLR 503
21.  NSWSC 646 at paragraphs 71-72.
22.  NSWSC 646 at paragraph 79.
23. see Barclay Mowlem v Ishikawajima-Harima Heavy Industries Co Ltd  QSC 011 (BC200300058); Australian Premium Coals Pty Ltd v Roche Mining Pty Ltd  QSC 334, Xstrata Queensland Ltd v Santos Ltd and Ors; Santos Ltd and Ors v Xstrata Queensland Ltd  QSC 323, Santos Ltd v Pipelines Authority of South Australia (1996) SASR 38.
24.  1 AC 854 at 917.
25. Australian Premium Coals Pty Ltd v Roche Mining Pty Ltd  QSC 334
26.  NSWSC 209
27.  NSWCA 82.
28. (1995) 36NSWLR 709
29.  NSWSC 646.
30 Unreported, WA Supreme Court, Heenan J, 2 December 1997 (BC9706464)
31.  WASCA 241.
32.  QB 701
33. (1994) 34 NSWLR 474.
34.  5 WAR 137 at page 140
35. Unreported, NSW Court of Appeal, 15 June 1995 (BC9504778).
36. (2004) 214 ALR 621,  FCA 1570
37. (1994) 35 NSWLR 283.
38. Unreported, NSW Supreme Court 18 March 1992 (BC9201994)
39. (1992) 7 ACSR 463
40. (1957) 99 CLR 285
41. Observed by Justice McDougall in 789TEN v Westpac  NSWSC 594
42.  2 Qd R 317
43.  NSWSC 594 (BC200404759)
44.  LPT 012
45.  LPT 012 at paragraph 28
46.  LPT 012 at paragraph 29
47.  LPT 012 at paragraphs 30-31
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