Arbitration - Martin Luitingh Barrister

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Leval 44 MLC Center
16 Martin Place
Sydney NSW 2000

Australian Qualified Arbitrator
IAMA Accredited Australian National Mediator


The Role of Time, Capacity and Cost – Elements of Judicial Decision-Making – The Advantages of ADR.


To properly understand the advantages of ADR it is perhaps necessary to first understand the inherent limitations of the Civil Litigation Process (CLP). The comments in this paper are focussed on commercial litigation. There are many matters where the litigation forum must of necessity be in the Supreme Courts including such matters as bankruptcy , family law, criminal law and legislative or regulatory proceedings to mention a few. In commercial litigation there is an attractive alternative to the CLP.
This paper seeks to evaluate litigation options and to seek a better understanding of the differences in approach. It is perhaps a misnomer to call ADR, “Alternate Dispute Resolution” because it is not an equal but a different process to the CLP which seeks to achieve a similar objective. To engage in an effective dispute resolution process, a paradigm shift in thinking is required as will be indicated in this paper.
Although CLP and ADR share the same objective, the two dispute resolving mechanisms are supported by different philosophies which reflect significantly in their operational structures.
Transactional lawyers ought to know and understand the differences in the approach and the limitations of the CLP before they can recommend ADR and draft effective ADR clauses
It is critical that the commercial litigating public are properly advised of the differences between ADR and CLP for them to be in a position to make informed choices.
The Civil Litigation Process – Its Purpose and Operation.

It is my intention to discuss the CLP and at convenient junctures to make a comparative analyses with the ADR process to form a basis for a discussion on the advantages of ADR.
The Definition of CLP

CLP is a method by which the State (Government in many forms) enforces the legal rights and obligations of citizens. The Law whether enacted by Parliament or defined by judges, raises the possibility of disputes between citizens and citizens and also citizens and the state. Courts exercises judicial power to secure justice and keep the peace.[1]
The Role of Public Policy

The manner in which disputes are regulated is determined by legislation, which in turn is heavily influenced by public policy. In many circumstances the interests of the public may work against the interests of the individual who simply wants his , hers or its dispute resolved.
ADR by contrast is not free from considerations of public policy but has the advantage of a greater measure of freedom of choice and management and is less constrained by public policy than the heavily regulated court procedures. This has a significant time and cost advantage.
The Resource Element

The court system is not a “business”. The civil justice system involves the application of public resources. To the extent that those resources are wanting the system will be diminished or will fail. Because the civil justice system is not a business it does not respond to questions about performance indicators. At best the government needs to know that such resources as are being allocated (whether adequate or not) are being used in the most effective way.
For instance resources will not permit the State to appoint more judges because the caseload has increased. In a business when revenue increases and demand increases, resources will be added to make gain out of the greater demand and to adjust the supply to meet that demand. The court system cannot accommodate that model and will use methodologies to reduce the caseload to bring it in line with the available resources. So for instance in New Zealand, the personal injury industry was removed from the court system to an administrative system of evaluation, reducing the caseload in that country by a significant percentage. In Australia the introduction of the security of payments system, reduced at one level a significant caseload from the court system to the adjudication system.
This will often be managed by granting costly adjournments which are not fair to other litigating parties and wasting both time and money. Even though an attempt was made in Aon Risk citation to minimise the large scale abuse of adjournments in the CLP for ill prepared litigants, it remains a matter for discretion of a judge and the cost (which is not always recoverable) and time wasting (which is irremediable) consequences, have not been significantly reduced.
It is not unusual for individuals in the court system to be confronted by a resource shortage which will ultimately play a role in judicial system decision-making outside of the parameters of the dispute between two litigants and in that process “Justice” becomes to some degree of commodity of convenience influenced by public policy.
With ADR, the resource problem is largely a resolved on many levels because the parties are able to choose at their convenience an adjudicator of their choice, a time of their own choice that does not compete with the general public for a forum and more particularly that embraces a system that can set rules which will exclude expensive and unnecessary processes which add to the cost and time but not the efficiency of the hearing.
Efficiency of the CLP Process

Qualitative assessment in the efficiency of CLP is distrusted[2] and perhaps with good reason. Public policy cannot ensure that an adjudicator under the CLP is necessarily familiar with the area of law nor that time constraints in respect of the hearing will not affect or unfairly curtail the rights of litigants.
With ADR the adjudicator will have a reputation for being knowledgeable in a particular area and could be selected by the parties. The time constraints are governed by the will of the parties and their resources, and the consequences of failure may ensure that parties are unable to “play” the system as readily as they do under the CLP.
A significant benefit is that the court maintains (as a sanction against abuse) its supervisory role and supports sanction against abusive behaviour in the ADR system accordingly there is much less incentive to “play” the ADR process.
The Effect of Competition in ADR

Non-performing or in-adequately performing adjudicators will be eliminated in the ADR process, they will be victims in a business sense of a supply and demand system. An adjudicator in the ADR system who gains a reputation for substandard performance will find him or herself without support.
By contrast an adjudicator in the CLP by virtue of public policy considerations cannot be removed without a long and involved process in Parliament and upon a rigorous regime of reporting and evaluation and even then it is almost impossible to dismiss a judge or even a magistrate. In the event that litigating parties are referred to such a judge or magistrate with a poor reputation there is little or nothing they can do about it and will be compelled to have their dispute adjudicated in circumstances which are less than satisfactory.
Public policy dictates that the state cannot countenance endless complaints about Judges and magistrates because litigating parties are either disgruntled or dissatisfied or even where there might be more than adequate reasons for the complaint. Funding and staffing the court system is part of an overriding public policy which may ignore the legitimate rights and objections of litigating parties.
Needless to say ADR does not suffer from this disadvantage to the same extent. Poor adjudicators will fall by the wayside in a natural process of selection. Reputations which are directly linked to performance indicators will result in a substandard mediator/arbitrator not being engaged and he/she will be eliminated by a natural selection process and vice versa.
Changing Rules in the Court Process to Achieve Efficiency

The power to change and improve the legislative process rests with parliament and the State. The exercise needed to change the system will compete with other government priorities such as tax legislation, people smuggling, illegal immigrants, mining taxes, carbon taxes etc. all of which are high on the agenda and are emotive, government changing issues. It is doubtful that the court system is likely to be an issue which will affect the unseating of a government and consequently the need to change it is unlikely to be a high ranking priority.
If there is inefficiency in the justice system resulting in more time being taken than is reasonably necessary to make decisions or if opportunities are being created for litigants to manipulate the system, a slow process of evolution will at some stage contribute towards reducing the resultant delays and the accompanying cost. This is often addressed by the introduction of practice notes, it should be recognised that it is a limited solution. Because of the nature of the beast, the litigating public should understand that the CLP will always suffer from a significant measure of inefficiency. Litigation is one of many government services. Its principal objective is the maintenance of an orderly peaceful society.
By stark contrast to perhaps start with the last point, subject to a limited supervisory role , the ADR has a different principal objective, that is to resolve disputes between litigants , in a manner of their own choice , according to procedures agreed to by the parties and by adjudicators of their own choice in the quickest most cost effective way.
Because of the nature of the structure, it can be changed rapidly and by its own design accommodate the circumstances of the parties. The increased participation of the parties in the “design” of the dispute resolution mechanism and its operation does in my view make it less likely to challenge the outcome. The court system has in recent times shown a reluctance to interfere with ADR decisions because simply from a public policy perspective that would be to increase the CLP case load which the court system is anxious to avoid.
The Question of Cost 

It is traditionally considered that as a public service the court system is less expensive than ADR. In broad terms that may be correct, however the view does not bear scrutiny. The constant and continual delays in the CLP although cheaper by the sheer volume of unwarranted delays lead to excessive cost.
The measure of interlocutory process, appeals, special leave applications and reviews potentially increase the cost of CLP process well, beyond the usual parameters of the ADR. The endless attendance of direction hearings before Registrars that are under severe pressure to deal with between 50 and 200 matters and where a practitioner can wait for hours to be heard in relation to a trivial management ruling that may take ten minutes , unreasonably adds to cost and time.
That does not ignore that the ADR process is subject to the supervisory jurisdiction of the courts which could and on occasions, does add to the ADR cost.
There is no reason why even large cases set for months could not be preferable under ADR, to a court hearing of similar length. ADR is likely to lead to exponential benefits over and extended time by longer and more dedicated hearing time.
In the ADR “user pays” process the parties are often enthusiastic about curtailing the process to save costs and the benefit derived from that, those issues are quickly defined and arguments more succinct than would normally be the case under CLP.
The Status of ADR

Judicial support for ADR has grown significantly in recent times, some courts insist on mediation before permitting the parties to use up official court time and resources.
The status of ADR has increased in the mind of the litigation public and its previous ill-conceived notion of a lesser form of “justice” is being rapidly abolished. On the contrary, in recent times setting aside an award on the basis of “misconduct” is now abolished with it the notion that the supervisory jurisdiction of the court exists as a bulwark against incompetent adjudication staff.
ADR awards can be set aside on the basis that the award is a serious miscarriage of justice, allowing for a robust system of finding and awards that will only be set aside in only the most pressing of circumstances , a privilege which judges in the CLP do not enjoy and which will inevitably result in less appeals , reviews and thereby reducing the cost of the ADR process.
ADR is designed to permit commercial entities to resolve their disputes without resorting to the inevitably cumbersome and inefficient CLP.
The Confidence Factor

Finally I approach with caution the notion that the litigation public will have more confidence in the court system because of the “standard” of justice they are likely to receive. This notion needs to be managed with litigating clients.
Judges are largely appointed from the higher ranks of the Bar. It must be clear that a good barrister does not necessarily make a good judge. In France becoming a judge is a career option and judges require specialised training. While the appointment is protected by the constitution there is a system of review for poorly performing judges.
In France there are 6100 judicial officers for a population of 58 million people. A rough ratio of 1 judge for every 9, 500 people. In Australia there are approximately 880 judicial officers servicing a population of 24 million at a rough ratio of 1 judge for 27,000 people. If that equation together with all its statistical inconsistencies is remotely correct it suggests an imbalance in which even the most qualified judges will be put under strain.
Justice Murray Gleeson in an article “The Future of Judicial Education” (1999) 11 Judicial Officers Bulletin said
“Judicial education is no longer seen as requiring justification. We are past the stage of arguing about whether there should be formal arrangements for orientation and instruction of newly appointed judges and magistrates, and for their continuing education. There are approximately 880 judicial officers in Australia. The idea that all, or most, of them have had sufficient practical experience before appointment to slip comfortably into their judicial roles, without the need of further assistance, and that thereafter throughout their judicial careers they would keep abreast of developments in the law and in judicial technique on their own initiative, is unacceptable.”
Given the caseload that judges have to bear, it would not be surprising if little or nothing was done to achieve this laudable objective.
By contrast the same could be said of ADR adjudicators but again the ADR adjudicator who does not stay abreast of developments is doomed. At his own cost, the ADR adjudicator’s best advantage is predicated upon self-improvement. There are requirements to achieve CLP points and ongoing practical and professional improvement auditing to ensure that performance criteria are maintained, a requirement that is not likely to be imposed upon judicial officers in the CLP because they are already overstretched.
The sanction for an unqualified ADR adjudicator is unemployment. By contrast there have been expressions of concern about the quality of the bench by amongst others Sir Anthony Mason AC, KBE; formerly chief justice of Australia, in a lecture entitled “The Appointment and Removal of Judges”. Given the workload and the remuneration levels it is not surprising that it has become difficult to attract the best candidates from the Bar. In the US the number of Judges actually impeached compared with the high volume of complaints about judicial decision making emphasises the fact that judicial decision making is a service afforded by the State severely constrained by public policy and budget considerations.
The bench is comprised of human participants that do not differ from the rest of society. The demands on judges are extremely high but as in every walk of life there are significant failures. The tortured history of Justice Lionel Murphy and attempts to remove him from office indicates the fortified position of judges. The failures of a Judge that was found to have lied under oath and the attempts to remove a magistrate who suffered from a debilitating depression seriously affecting his conduct in recent years are a few examples of the effects of immense pressure on the members of the bench with disastrous results for the litigating public.
The petulance and the ire of losing parties to litigation dispute should not be accommodated in a system which cannot countenance at even a minuscule level, unwarranted attacks against judicial officers. Such complaints do little more than demean the office and the substructure upon which the justice system is based.
On the other hand a position in which a servant of the state is immune from criticism is less likely to guarantee excellent performance criteria than a system which embraces at least at some level accountability such as exists in the French legal system where peer review is annually monitored or under the ADR system of performance based assessment.
The conclusion to be drawn from this is that as regards judicial competence there are several factors that suggest that that there is no real advantage one way or the other of the CLP over that of ADR. There will be qualitative failures in both systems of adjudication.
There are areas’ of ADR that can perhaps be improved. The notion that a senior practitioner in semi-retirement is automatically qualified to be a mediator or arbitrator is ill-conceived. ADR has in many respects become a forensic science rapidly changing and moving to accommodate the expectations of commercial parties. The approach to ADR is significantly different from that of the CLP. There are organisations that require specific and detailed training and qualification to ensure that the ADR rules of engagement are properly understood. It is my view that an accredited qualification ought to be compulsory.
The Rules of Evidence

One of the most complex areas of conducting a trial is the application of the rules of evidence. This is a complex set of rules that gives rise to objections during the course of the conduct of the trial that recognises that certain kinds of evidence and formulations in the affidavits or in evidence under oath are inadmissible or unreliable.
It is a time-consuming exercise and preparing to object to the evidence takes up the both time in preparation as well as court time. A judgement that makes an error in relation to the inclusion or exclusion of material evidence is likely to be set aside on appeal at yet more cost and time.
It is a significant advantage that under the ADR process the parties have the ability to water down or even eliminate the application of the rules of evidence. Section 19 (3) confers upon the arbitrator the right to make rulings regarding the relevance, admissibility and weight of any evidence adduced at trial. The arbitrator can ask the parties whether or not they agree not to be bound by the rules of evidence or whether or not they are prepared to wholly endorse the powers referred to in section 19(3) of the CCA. An error by the arbitrator in relation to the powers exercised under this section, unless it is manifestly unjust will not result in the award being challenged.
The advantage that ADR has over CLP is that it streamlines the procedure, brings into focus the real dispute and allows litigants who are serious about resolving the dispute, a mechanism by which the parties can reduce both cost and time to achieve the resolution of the dispute.
Overall for those litigants who are serious about resolving a dispute commercially and who are prepared to build the relevant checks and balances into the contractual regime, ADR presents an opportunity to achieve that objective quickly and inexpensively .
The Changing Role of Legal Practice.

The nature of our practice is changing. The notion that a good legal outcome is the best that a lawyer can offer is perhaps no longer adequate within the context of providing a proper service to the commercial world.
On the contrary in a significant percentage of cases a good legal outcome may still be a commercial disaster for a commercial client.
In 2014 an accomplished lawyer is more likely to add value if he knows and understands his client business and not only the legal issues confronting the client.
That raises the question of whether or not a professional, drafting and ADR clause can effectively do that unless he has significant insight into the client business. In my view it’s like asking an architect to design a house without giving him any indication of the environmental constraints, the type of land, where north might be, the direction of the Sun and the wind flow and a myriad of other factors which you would be required to know to design a house.
For instance it would be of great assistance to the drafter of an ADR clause if he knew what commercial difficulties his client potentially faced in complying with a commercial agreement and where it was most likely to fail.
With that knowledge he would be able to draft a more effective and focused ADR clause that might make an accommodations in relation to time periods, areas of specialisation, procedures relating to early the conciliation, reference to experts to settle part of disputes etc.
Questions of enforceability in the ADR process have for a long time being the subject matter of vigorous debate. The drafter of an ADR clause has as his primary function a duty to try to ensure that if the ADR clause is not challenged that a court will find (if it must) that the clause is enforceable. That is perhaps a more legalistic function. Assuming that the drafter achieves that objective the next primary focus is the utility of the clause and that utility that can only be improved upon a proper understanding of the businesses that are engaged in the commercial transaction.
When Does Dispute Resolution Start

Lawyers understand that in every dispute there are optimal times to try to resolve the dispute. For instance every lawyer knows that on the eve of the court case when doubt is at its highest and things are most uncertain, opportunities inevitably present themselves for discussing resolution.
An experienced plaintiff will know that the time to try to resolve the dispute is not at the end of the plaintiff’s case when the plaintiff has been subject to a battering under cross-examination.
It is in this context that I raise the fact that the most optimum opportunity to resolve a dispute in commercial matters is during the execution of a transaction at a time when parties are still able to adjust their financial positions. If in general terms that premise is accepted then one must ask why there is not a greater emphasis on ADR process whilst the contract is still on foot.

The age of the lawyer pontificating in his ivory tower about the complexities of the law which is a mystery to the public, is coming to an end. In my view the litigating public has lost interest. If lawyers, really want to deliver a meaningful service they must understand their clients business and keep them out of court. If that is not possible and disputes are not resolved during the contract, the mechanisms for resolving disputes should achieve much more attention. ADR is a rapid path to commercial resolution; it is more business-like in its nature than CLP.
To some degree this paper seeks to understand more fundamentally the differences between ADR and the CLP.
The commercial litigation public should also step up to the plate. Business is about risk. There are many ways in which a business can guard against risk. One risk is the prospect of dispute. If a contract price makes no provision for the accommodation of dispute resolution then that risk is being ignored. Some may well argue that in a competitive world margins cannot bear additional deductions for dispute risk.
ADR certainly can reduce the cost of risk protection. On the other hand a lawyer that does not explain the exigencies of the CLP or the differences between ADR and CLP and assist his client with formulating an appropriate dispute resolution clause is failing in his duty and is not working to reduce the risk of dispute.
Part II of this paper will consider various options available in the ADR process and the reasons why ADR clauses fail. The single most prevailing factor is because the clauses are unenforceable because they are vague. An agreement to agree is not an agreement. It is possible to structure clauses in such a way that that the parameter of the process is well defined. Unfortunately discussing how to deal with a breakdown of a contractual relationship is not a popular topic when contracting parties are brim full of enthusiasm and are focussed on the profit margin.
[1] Murray Gleeson The Purpose of Litigation The Martin Kriewaldt Address Darwin 2008
[2] Murray Gleeson-supra
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