MEDIATION
MEDIATION—IS THERE A What happens when a party
CHOICE? refuses to mediate? For the past
five years the NSW Supreme
Sparke Helmore Lawyers Court has been able to refer
proceedings to mediation, even
without the consent of the parties.
A recent decision of the England
and Wales Court of Appeal held
that costs would only be imposed
on the unwilling party if its refusal
to mediate was unreasonable.
MANDATORY MEDIATION
The rationale for enabling the
NSW Supreme Court to refer
proceedings to mediation is to
shorten court delays and reduce
litigation costs.
The courts, particularly in NSW,
have not hesitated to order
unwilling parties in complex
commercial disputes to mediate.1
Einstein J in Daya v CNA
Reinsurance Co Ltd & Ors stated:
Experience in the area of
mediation throws up the fact
that the process of mediation
may even in major commercial
litigation lead to quite unexpected
results. From time to time the
parties can find some form of
unexpected way in which to
achieve a compromise. From time
to time the very circumstance
that the compulsory mediation
will cause the major players to
have to listen to one another may
have a cathartic effect.
In Australian Securities and
Investments Commission v Rich,2
the parties were ordered to
mediate, even against the will of
the defendants. Austin J held:
The making of a mediation order
may provide the opportunity
for the parties to take stock of
their positions away from the
battleground of the courtroom.
CURRENT POSITION
The current position is that
most litigating parties know
they are expected to attend at
least one mediation and usually
that mediation will be early
on in the case. Outgoing NSW
38 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #105 NOVEMBER/DECEMBER 2005
Supreme Court Registrar in
Equity, Grahame Berecry, recently
stated:3
We have a culture now… that if
the parties think there’s a matter
suitable for mediation, I don’t
even have to push buttons; they
automatically hand up consent
orders referring it to mediation.
However, parties are sometimes
faced with a situation where
the opposing party or, in
some instances, the court is
encouraging the parties to
mediate, which is viewed by one
party or all the parties as either
premature or futile.
CRITICISM OF MANDATORY
MEDIATION
Despite the trend towards
compulsory mediation, some
judges are recognising that
mediation is not always
appropriate.
In Morrow v chinadotcom,4
Barrett J said the court should
think carefully before compelling
a mediation that may well turn
out to be an exercise in futility
attended by delay and expense.
As the court continues to
reinforce its preference for
mediations, it will inevitably have
to deal with situations where
one or more parties refuses to
participate in a mediation. In such
a case, what is the court likely to
do?
COST SANCTIONS FOR
REFUSING TO MEDIATE
In Halsey v Milton Keynes General
NHS Trust (‘Halsey’); Steel v
Joy and Halliday (‘Steel’),5 the
England and Wales Court of
Appeal6 considered two cases
where costs might be ordered
against a successful party who
had refused to mediate at the
invitation of the unsuccessful
party.
Halsey concerned a claim for
costs after an unsuccessful
medical negligence action. Costs
were sought because the Trust
had refused to mediate. The
Trust did not accept liability and
believed the costs of mediation
would be more than the claim.
In Steel costs were sought
against an insurer who refused to
mediate. The insurer had refused
mediation because it believed it
was not liable for the claim.
The court dismissed both appeals
and, each party which had refused
to mediate, was exonerated from
any costs sanction. The court
made it clear that parties should
be encouraged but not compelled
to participate in alternative
dispute resolution. Dyson, LJ,
delivered the court’s judgment.
He held that
... to oblige truly unwilling
parties to refer their disputes to
mediation would be to impose an
unacceptable obstruction on their
right to access the court.
The question whether a party has
acted unreasonably in refusing
to mediate must be determined
by having regard to all the
circumstances of the particular
case.
The court outlined six factors
that may be taken into account to
determine whether a refusal to
mediate was unreasonable:
1. the nature of the dispute;
2. the merits of the case;
3. the extent to which other
settlement methods have been
attempted;
4. whether the mediation
costs would have been
disproportionately high;
5. whether there would have
been a risk of delaying the trial by
attending mediation; and
6. whether mediation had a
reasonable prospect of success.
In Halsey the court concluded the
Trust was justified in refusing to
mediate because it reasonably
believed it would win at trial,
and Ms Halsey failed to show hearing by two days, Ipp J refused
the mediation had a reasonable to award costs to the defendants.
prospect of success. Halsey and Steel provide the
In Steel the refusal was justified NSW courts with a useful, though
by the nature of the dispute, not exhaustive, set of guidelines
the merits of the case and to determine whether a refusal
the disproportionate cost of to mediate is unreasonable.
mediating.
Dyson LJ cautioned that all REFERENCES
members of the legal profession
1. See Idoport Pty Ltd v National
who conduct litigation should
Australia Bank Ltd (No 21) [2001]
now routinely consider with their
NSWSC 427 and Daya v CNA
clients whether their disputes are
Reinsurance Co Ltd & Ors [2004]
suitable for alternative dispute
NSWSC 795
resolution.
A party who opposes participating 2. [2005] NSWSC 489
in a mediation is at risk of 3. ‘The Registrar in Equity takes
an adverse costs order, and his leave of the Court’ [2005] 43(6)
particularly so where the court LSJ 30
has made an order requiring the
4. [2001] NSWSC 209
parties to consider alternative
5. [2004] EWCA Civ 576
dispute resolution.
NSW POSITION 6. Ward, Laws and Dyson LJJ
The NSW courts have not been 7. [2002] NSWSC 852
faced with a situation similar to
8. [1991] 5 WAR 13
Halsey and Steel. However, with
their statutory power and desire
This article was previously
to order disputes to mediation,
published in Sparke Helmore’s
it is foreseeable the courts will
Commercial Litigation
punish parties who unreasonably
and Dispute Resolution
refuse to agree to mediation—
regardless of whether they are Bulletin—August 2005.
successful in litigation. In Singh v Reprinted with permission.
Singh,7 Hamilton J stated:
The culture of the court in
relation to the perceived
usefulness of compulsory
arbitrations has shifted radically
in the comparatively short
period since [the power to order
mandatory mediation] was
introduced.
The Australian courts have not
hesitated to punish parties who
frustrate mediation. In Capolingua
v Phylum Pty Ltd8 the Western
Australia Supreme Court referred
the parties to mediation in order
to have the issues narrowed at
hearing. The defendants were
successful at trial. However,
because they obscured issues
in the mediation process and
consequently extended the
AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #105 NOVEMBER/DECEMBER 2005 39