Module 8
Commercial Dispute Resolution
Summer 2010-11
©MNoonan2011
This presentation and Copyright therein is the
property of Maureen Noonan and is prepared
for the benefit of students enrolled in the
Commercial Transactions course conducted by
the Law Extension Committee and is available
for their individual study. Any other use or
reproduction, including reproduction by those
students for sale without consent is prohibited.
©MNoonan2011
Is this topic examinable?
Yes,Either
--by a short direct question on this topic in Q6 of
the exam. The appropriate answer would be
descriptive.
Or
--as one part of a problem question..e.g. would
ADR have been useful in this situation?
Or
--as the whole subject of a problem question if
Semester Focus-Mediation for Summer 2010-11
©MNoonan2011
Disputes
Valuable things at risk, such as:
• Time
• Money for expenses incurred trying to resolve
dispute, lost earnings
• Business relationship and future earnings
• Loss of market to competition
• Loss of reputation
• Freedom if a criminal offence and dispute is with
authorities/society.
• Political issues between states and countries
©MNoonan2009
©MNoonan2011
Dispute Resolution News
• Note Cth Civil Dispute Resolution Bill. Passed by HofR in
October. Before Senate.
• Purpose is to seek to resolve disputes at the most
appropriate level-earliest opportunity and where
possible, outside the courts and the stressful, expensive
and adversarial culture of litigation.
• An applicant, when filing a Federal Court (& Fed
Magistrate) matter will also have to file a statement
outlining the “genuine steps” they have taken to attempt
to resolve the dispute.
• See Second Reading Speech of Robert McClelland 16
June 2010, House of Representatives Federal
Parliament and Bill itself.
©MNoonan2011
Civil Dispute Resolution Bill
Section 3.
The object of this Act is to ensure
that, as far as possible, people take
genuine steps to resolve disputes
before certain civil proceedings are
instituted.
©MNoonan2011
Civil Dispute Resolution Bill
What are “genuine steps”? Examples s.4
a) Notifying the other person of the issues…offering to
discuss them, with a view to resolving the dispute.
b) Responding appropriately to any such notification.
c) Providing relevant information and documents to enable
the other person to understand the issues involved and
how the dispute might be resolved.
d) Considering whether process facilitated by another
person could help, including ADR.
e) If such process agreed, agreeing on person and
attending
f) If process conducted but unsuccessful, considering
another.
g) Attempting to negotiate.
©MNoonan2011
Methods of dispute resolution
Prevent the dispute by risk management
Avoid some disputes by drafting contracts well
Negotiation
Capitulation
Mediation and conciliation
Expert determination
Arbitration
Litigation
Other: e.g. Toss a coin, force etc
©MNoonan2011
Role of the lawyer
Policy and community attitudes to cost etc of
traditional dispute resolution
Courts overworked and congested
Repositioning of a narrow profession
Opportunities to use diverse skills instead of
purely “legal” skills
Important to choose most appropriate
method for particular issue/dispute
©MNoonan2011
Role of the lawyer
• Establish dispute resolution function for an
organisation.
• Risk management especially in larger
companies.
• As a professional mediator, arbitrator.
• Management of international arbitrations for
exporters/importers/multinationals.
• Role in international organisations.
• Becoming a compulsory first step to litigation
• Advising clients of alternatives for resolution
©MNoonan2011
Opportunity Board
Interested in International Arbitration?
Note that LEC has put together a team for
the Vis moot in Vienna at Easter.
©MNoonan2011
Risk Management
Identify legal risk
Apply
Management
Technique
Monitor risk
Identify Appropriate
Management Technique
for each risk
and plan
for overall management
©MNoonan2011
Legal role in Risk Management
• Objective is to avoid dispute or minimise
damage resulting from a dispute
• Must understand business
• Conduct due diligence to ascertain main
areas where dispute/legal liability likely to
arise
• Appreciate bargaining position and
opportunities/limitations
©MNoonan2011
Some Exporter Legal Risks
Customer does not pay-unpaid seller
Unable to recover /enforce rights in foreign country
Product liability-wrong item, quality, quantity,
unsafe, late, incomplete
Unable to produce/acquire-breach contract
Loss in transit-who bears loss?
Competition cheaper-buyer defaults so they can
take advantage of cheaper opportunity
©MNoonan2011
Some importer legal risks
Goods or services inappropriate, not what was
ordered-claim for compensation available?
Supply does not meet local standards/laws
Crime –bribing foreign officials
Tax, customs issues
Unfamiliar with particular free trade treaty
provisions
Unable to enforce rights /recover money in a
foreign country
Unable to sell items purchased
Vulnerability to local customers for problems
©MNoonan2011
Some manufacturing risks
Raw material problems
Machinery
Finance
Delivery
Quality/quantity issues
Damage to others
Failure to sell products
Title issues
©MNoonan2011
Alternative dispute Resolution (ADR)
Defined by ADRA (Australian Dispute Resolution
Association Inc.) as:
Dispute resolution by processes which encourage
disputants to reach their own solution and in
which the primary role of the third party neutral is
to facilitate the disputants to do so.
Generally includes negotiation, independent expert
appraisal and mediation, but not arbitration;
which is an adjudicative process where the
parties agree that the decision of the third party
is binding.
©MNoonan2011
ADRA
www.adra.net.au
Formed 1987 with objectives:
• To promote and encourage ADR in Australia
• To encourage exchange of ideas and information re ADR
• Providing and supporting education, research
• Printing, publishing and circulating ADR info
• Enhancing professional skills of ADR practitioners
• Represent ADRA members
• Cooperate with others to achieve objectives
©MNoonan2011
Early dispute Resolution (EDR)
Reference: Law Society Task Force Report on
Early Dispute Resolution and Law Society
Dispute Resolution Committee.
EDR is concept and process of intervention in the
formal dispute process to resolve that dispute
early, effectively and legitimately
To enable EDR, need for changes in attitude by
profession, clients, the litigation process and an
increase in ADR initiatives
Complexity and inefficiency of legal system in part
due to Commonwealth/State division
©MNoonan2011
Institutionalised EDR / ADR
The Administrative Decisions Tribunal NSW (ADT)
See Judge Kevin O’Connor AM, President ADT, address to ADRA Conference 2007 on ADRA website: Institutionalised
Dispute Resolution
ADT deals with state tax appeals, FOI merit reviews, professional discipline of legal profession and others, retail leases.
Chapter 6 of Administrative Decisions Tribunal Act 1997 empowers Tribunal to
engage in 2 forms of ADR-mediation and neutral evaluation and Tribunal can
determine its own procedures. It can engage assessors, conduct preliminary
conferences and can dispense with hearing and determine matter on the
papers.
Mediation means a structured negotiation process in which mediator as neutral
and independent party assists parties to achieve their own resolution. It is
voluntary and mediators are encouraged to adopt uniform practice.
Neutral evaluation means a process in which neutral evaluator seeks to
identify and reduce the issues of fact and law in dispute. The role includes
assessing relative strengths and weaknesses of each party’s case and offering
an opinion as to the likely outcome of proceedings.
Assessors can be very helpful where special knowledge or experience is
required e.g. veterinary surgical techniques
Not always appropriate? e.g. occupational licensing, professional discipline
and tax appeals. Once a public decision has been made e.g. to suspend a
licence Judge O’Connor is of the view the process should remain public and
open.
©MNoonan2011
Industry based dispute resolution
Banking and Financial Services
Ombudsman
We have a look at this in a later module
Insurance Ombudsman
©MNoonan2011
Negotiation
Win/win mentality means both parties must
come out of the negotiation with an
improvement in their situation. Skill lies in
formulating such an outcome.
Win/loss means that one side is better off
and one worse off. May resolve immediate
dispute, but might lead to loss of
relationship, or retaliation later.
©MNoonan2011
Win/win examples
Deliver later at higher price…buyer gets
timing required and vendor is
compensated for storage/delay of receipt
Pay earlier at cheaper price
Long term contract in return for fixed price
Return unsold items in return for prime
display position
©MNoonan2011
The Negotiation process
• Prepare-Formulate desired outcome, research
possible solutions
• Choose diplomatic/respectful language
• Refrain from adversarial, bullying language.
• Consider position of the other side and any
cultural issues relevant such as importance of
saving face
• Avoid insults, name calling, emotional abuse
• Meet personally on “without prejudice” basis-at
lower level first / higher level first, neutral ground
• Exchange of emails, telephone, correspondence
©MNoonan2011
Capitulation
Sometimes there is no better alternative
e.g. in the wrong
No gain/point in spending time/money
No chance of success
Better use for resources
Best to preserve relationship for now and do
something about it later.
©MNoonan2011
Mediation
• Parties appoint a person who assists them
to reach a negotiated resolution.
• Often a person with skills to work out
win/win solution to particular issue
• Puts someone in between warring parties
and can dilute poisonous atmosphere to
enable productive consideration of issues
• Not binding on parties unless reflected in a
formal settlement agreement
©MNoonan2011
Mediation process
• Usually mediator conducts separate sessions with each
party to ascertain points at issue and respective
positions
• Mediator reflects on those sessions and formulates
possible solutions
• Mediator explains likely outcomes if dispute continues (if
adequate skills to do latter) to both parties separately
• Mediator presents possible solutions at joint session.
(Sometimes further separate sessions beforehand).
• If settlement reached, mediator formulates basic
agreement terms for lawyer to translate into agreement
or, if a lawyer, drafts settlement agreement.
©MNoonan2011
Compulsory mediation
See NSW Civil Procedure Act 2005 Part 4
and Uniform Civil Procedure Rules 2005
Parties must participate in “good faith” s. 27
Court can refer without consent. S.26
Court annexed mediation-no charge for
mediator or room. Private-have to find and
pay for both.
©MNoonan2011
Mediation Schemes
Great variety, many courts, tribunals.
Law Society Mediation Program. See
Mediation and Evaluation Information Kit
(2007) on website….mediators are
qualified solicitors who meet stringent
selection criteria and undergo advanced
mediation training.
Australian Mediation
Association…www.ama.asn.au
©MNoonan2011
Domestic ADR
The Australian Commercial Dispute Centre Ltd
formed in 1986 by AG and Sir Laurence Street.
Established to introduce and encourage non
adversarial dispute resolution into Australia.
Works with ACICA and 2003 Memorandum of
Understanding means ACICA focuses on
international disputes and ACDC on domestic
disputes and mediation.
Compulsory mediation has been introduced into
many disputes in the regular court system.
©MNoonan2011
Expert Determination
• Sometimes resolution of a single issue at base
of dispute can resolve dispute
• E.g. specification/qualities/existence of a
substance or state of affairs, a
legal/accounting/scientific opinion on a particular
matter
• Parties nominate an expert or panel to give
opinion on that single matter
• Can agree on “papers only” or independent
tests, as appropriate.
©MNoonan2011
Expert determination in court system
Judges may refer questions to assessors or
special referees.
For example, in a building dispute, questions
for the architect or engineer.
Family court-family report after interviews of
family members
©MNoonan2011
ARBITRATION
• Parties agree to resolve disputes by
arbitration in accordance with nominated
Rules.
• Parties appoint Arbitrator or panel
• Arbitration conducted
• Decision made by Arbitrator
• Binding on the parties
• Enforceable in approx 142 countries
©MNoonan2011
Arbitration process
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Can be similar to a court process
Can be informal
Can be remote
Can be on “papers” only, i.e. written materials and no
oral hearing
Parties can choose an arbitrator with expertise in their
business
Usual to choose 1 or 3 arbitrators so no deadlock
possible
Usually confidential, so limited precedent bank to consult
/ research.
Important elements are a process, rules defining how
that works, and a timetable to keep it moving along.
©MNoonan2011
Framework for Domestic Arbitration
States have Commercial Arbitration Acts-largely
uniform and regulate domestic arbitrations
Supreme Court has power of overall supervision.
Public policy prevents parties from agreeing to
oust jurisdiction courts. Scott v Avery clauses
seek to get around that by making arbitration a
condition precedent to legal proceedings. So,
not ousting, just delaying or not primary method.
However, Commercial Arbitration legislation
prohibits any clause trying to make it a condition
precedent.
©MNoonan2011
Powers of the Court
Under s. 53 Commercial Arbitration Act 1984
(NSW) and Supreme Court Rules court
has power to refer a matter to arbitration
on application of a party or its own motion.
©MNoonan2011
Qantas Airways Ltd v. Dillingham Corporation
(1985) 4 NSWLR113,122
Construction of Qantas Centre. Q brought legal proceedings
against D claiming that because D found the building
contract onerous, it was attempting to force Q to renegotiate
by wrongful means such as delay, inducing labour unrest,
conspiracy to hinder work and fraudulently misrepresenting
that design problems made work impracticable. D applied
for a court order to send it for arbitration by an architect and
a builder or by an arbitrator mutually appointed as set out in
the Scott v. Avery clause in the contract.
The court agreed with D and stayed proceedings effectively
giving effect to arbitration clause and noted that “It is now
more fully appreciated that used to be the case that
arbitration is an important and useful tool in dispute
resolution. The former judicial hostility to arbitration needs to
be discarded and a hospitable climate for arbitral resolution
of disputes created”
©MNoonan2011
International Disputes
Advantages of arbitration
• Neutrality
• Flexibility
• Efficiency
• Confidentiality
• Enforceability
©MNoonan2011
Global Survey –International Arbitration- large
corporates- PWC 2007 – See: www.pwc.com
• 73% corporations prefer it to transnational litigation
• Advantages outweigh disadvantages
• Clear dispute resolution policy an important strategic asset. 65 % of
respondents had one. Minimised escalation and costs.
• Arbitration clause in contract can give a tactical advantage
• More than 75% arbitrations conducted under the auspices of an
arbitration institution such as ICC and London Court of International
Arbitration; with regional centres growing
• Legal consequences most important for choice of venue
• 91% liked finality and rejected idea of appeals
• Concern that experienced arbitrators scarce. 90% wanted arbitrator
with established reputation in their field and region.
• Corporations retain specialist arbitration counsel rather than usual
litigation lawyers to assist
• 91% in house counsel well informed about international arbitration
©MNoonan2011
International Arbitral Institutions
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International Court of Arbitration and ICC in Paris
London Court of International Arbitration
Swiss Chambers of Commerce and Industry
Arbitration and Institute of Stockholm Chamber of Commerce
American Arbitration Association
HK International Arbitration Centre
Singapore International Arbitration Centre
China International Economic and Trade Arbitration Commission
Kuala Lumpur Regional Centre for Arbitration
The Australian Centre for International Commercial Arbitration
International Centre for the Setttlement of Investment Disputes
Asia Pacific Regional Arbitration Group (APRAG) is association of 17
regional arbitral institutions in our area. See www.aprag.org
©MNoonan2011
Framework for International
Arbitration
UN Convention on the Recognition and
Enforcement of Foreign Arbitral Awards 1958
(The New York Convention)
When local court faced with dispute covered by an
arbitration agreement, it must stay proceedings
and recognise and enforce arbitral awards.
Incorporated into Australian law via International
Arbitration Act 1974(Cth). Note best practice
amendments passed in June 2010 to improve its
appeal for International Arbitration.
Australian Centre for International Commercial
Arbitration. See www.acica.org.au
©MNoonan2011
ACICA
The Australian Centre for International
Commercial Arbitration is a non profit
organisation formed in 1985 to provide a
framework for international commercial
arbitration and to foster Sydney as a
centre for such arbitrations
See www.acica.org.au
©MNoonan2011
Why Sydney?
• Supportive legal environment-International
Arbitration Act provides for various opt in/out
alternatives, foreign lawyers can appear,
signatory to NY Convention on Recognition and
Enforcement of abitral awards, supportive courts
and political stability.
• Sophisticated legal profession and some
internationally respected arbitrators such as Sir
Laurence Street QC. Good support services,
languages, resources.
• Cost savings when compared with London, NY,
Paris, Geneva, HK…cost hotel rooms, rates etc.
©MNoonan2011
Arbitration Clause
ACICA recommends:
“Any dispute, controversy or claim arising out of,
relating to or in connection with this contract,
including any question regarding its existence,
validity or termination, shall be resolved by
arbitration in accordance with the ACICA
arbitration rules. The seat of arbitration shall be
(location). The language of the arbitration shall be
(language). The number of arbitrators shall be
(1,3 or Article 8 of rules).”
Note also need for choice of law clause.
©MNoonan2011
Arbitration Rules
Arbitrations are conducted in accordance
with rules chosen.
See for example ACICA Arbitration rules at
www.acica.org.au. Selections follow.
Procedural as with civil/criminal procedure
court system rules.
For other rules, see appropriate organisation
©MNoonan2011
ACICA Rules
4. Party initiating gives ACICA a Notice of
Arbitration which covers a demand for
arbitration, contact details, copy of A
clause, general nature of claim and
remedy sought and proposal re number of
arbitrators.
Notice can include detailed Statement of
Claim or that can come later
©MNoonan2011
ACICA Rules
5. Within 30 days of receipt of Notice,
Respondents submit Answer which
includes contact details, any plea disputing
jurisdiction, comments on particulars in
notice and answer to relief/remedy sought.
It may also include Defence to Statement
of claim, but this may come later.
©MNoonan2011
ACICA Rules
6. Parties may be represented
8-16 Appointment of arbitrators
17-31 Arbitral proceedings. Tribunal may
conduct arbitration as it sees appropriate
provided that it treats parties equally and
each is given opportunity to present their
case.
Usually held in private
21 Contents of statement of claim
©MNoonan2011
What does it all cost?
Appendix A to ACICA rules
Notice of Arbitration Registration fee $2,500
Admin fee
$1-$500,000
1% of amount in dispute
And upwards
Over $100m
$39,000 plus 0.02% of
amount in dispute above $100m up to maximum
$60,000.
PLUS costs of representation, presenting case.
©MNoonan2011
Attitude of our courts
Mainly support
Care must be taken when drafting to avoid
multi-party, multi-contract and multi-venue
disputes.
If arbitration clause too narrow, it may limit
range of disputes that can be settled by
arbitration
©MNoonan2011
Example
Australian company entering JV with Malaysian
company to build infrastructure in Phillipines.
You negotiate a clause submitting disputes to
Australian courts.
However, judgement may not be enforceable (no
reciprocal enforcement treaty with Malaysia),
dispute very public, and judge may have no
expertise.
Arbitral award would be enforceable (Malaysia and
Australia both signatories to NY Convention),
and can choose arbitrator(s) with expertise
©MNoonan2011
Another example
Importer of ginger from China. No choice of
law clause. No arbitration clause. Ginger
rotten.
Bring proceedings in China? Or Australia?
Vienna convention applies to sale?
Chinese law has closest connection?
Chinese law very different to ours. E.g.
limitation periods, no precedent value
©MNoonan2011
International Treaty obligations
Specialist Dispute Resolution bodies and
rules
WTO
WIPO-Domain name disputescybersquatting
UNCITRAL Model Arbitration law
©MNoonan2011
WTO dispute settlement
understanding (DSU)
Came out of Uruguay Round
Clearly defined rules and timetables
Parties/countries first discuss.
First WTO stage is good offices, conciliation.
Then a panel and endorsed (or rejected) by
WTO membership.
Appeals on points of law are possible.
©MNoonan2011
DSU timetables
60 days
Consultation, mediation
45 days
Panel set up, appointments
6 mths
Panel hears dispute and reports
3 wksPanel reports to WTO members
60 days
Dispute Settlement Body adopts report
(if no appeal)
TOTAL 1 year
60-90 days Appeals report
30 days
Dispute Settlement Body adopts
appeals report. TOTAL 1.25 years
©MNoonan2011
How the panels work
• Each side presents case in writing to panel
• First hearing-complaining country and
responding country present case
• Rebuttals-written and oral
• Experts, if appropriate
• Draft panel report given to both sides
• Interim report to both sides
• Review for two weeks
• Final report given to both sides and 3 weeks
later to all WTO members
©MNoonan2011
Remedies?
• Obligation on parties to respect ruling
• Trade sanctions possible
• Limited discussion in this course
• Reading some cases is useful
e.g. See www.wto.org and go to Case Studies
Thailand: Conciliating a Dispute on Tuna Exports to the EC
Dispute Settlement between Developing Countries-Argentina and
Chilean Price Bands
Pakistan’s Dispute Settlement with the US on Combed Cotton Yarn
exports.
©MNoonan2011
Trade with China
• Australian exports include mainly rural
products, minerals and energy-wool,
cotton, beef, dairy products, wine, iron ore,
liquified natural gas-and a few services in
education, tourism, architecture, banking
and legal.
• Also considerable outsourced
manufacturing done in China with
products/components then imported.
©MNoonan2011
Trade Disputes involving China
Resolution mechanisms include:
• Consultation
• Negotiation
• Conciliation or mediation
• Arbitration
• Litigation
©MNoonan2011
Trade Disputes involving China
• Less formal methods are preferred
• Desirable to maintain a harmonious and
consensual working relationship, so
confrontational/adversarial methods often not
helpful.
• Conciliation and arbitration therefore common
• Arbitration clauses common in JV contracts –
avoid unfamiliar Chinese court system, reduce
costs, preserve business relationships,
enforceability.
©MNoonan2011
Trade Disputes involving China
• CIETAC (China’s International Economic
and Trade Arbitration Commission) is the
mechanism China has set in place to
resolve problems in trade
• Legislative encouragement for negotiation
and conciliation first and arbitration or
litigation if that fails.
• JV contracts MUST contain provisions re
settling of disputes.
©MNoonan2011
Case Study Focus
Summer Semester 2010-2011
MEDIATION
Useful reference: Hardy and Rundle,
Mediation for Lawyers, CCH 2010
(Checklists used in these notes), Law
Society NSW mediation kit.
©MNoonan2011
Mediation
A third party facilitates resolution of a
dispute by the parties.
Third party does not decide. Parties do.
©MNoonan2011
Mediation-is it appropriate?
1.
2.
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5.
6.
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19.
Does client want to resolve the matter?
Intellectual mental or emotional capacity to pursue an agreement?
Does client want to create a legal precedent?
Does client have capacity and willingness to pay legal costs of litigation?
Does client suspect other party is hiding information, lying or otherwise acting in bad
faith?
Does client trust that other party would comply with settlement?
Is there a fear of violence or intimidation?
Is there any scope for compromise? Is client prepared to make concessions?
Is there information that one party could provide to improve understanding?
Could some aspects be resolved now?
Do parties share interests?
Is mediator likely to enhance negotiations? Have the parties tried themselves?
Does the client want to participate directly?
Has communication been a source of conflict?
Any non-legal interests of client?
Is a quick resolution in client’s interests? Does either party have an interest in delay?
Is continuation of dispute affecting commercial or reputational interests?
Would an apology help?
Is privacy / confidentiality important?
©MNoonan2011
Mediation Agreement
• Confidentiality
• Payment of the mediator
• Exclusion of liability and indemnity
©MNoonan2011
Mediator Selection
What style of mediation?
Sole mediator? More than one?
Court connected mediator or private?
Level of influence of mediator? Settlement,
Facilitative or Transformative model?
Expert advisory panel?
Wise counsel model?
Tradition based model?
With or without caucuses?
©MNoonan2011
Qualities in a Mediator
Open minded
Persistent
Good listening skills
Sense of humour
Honesty, integrity
Patience
Flexible
Creative
Able to work with highly
charged emotions
Qualified….-in what?
Respected
Perceptive
Attentive to detail
Respectful
Friendly
Intelligent
Even tempered
Organised
Articulate
Gender and race
©MNoonan2011
Most suitable type of mediator
Private (legal or other training?)
Solicitor, barrister
Former judge
Specialist-family/relationships, psychologist,
engineer, building/construction, franchise,
accounting, IP, Biotech, Mining, trade,
banking.
©MNoonan2011
Stages of Mediation
Opening statements-problem, facts and issues 30
minutes.
Identification of issues and setting agenda
Exploration and discussion of issues
Private sessions (and discussion with lawyer?)
Generation of options or offers
Evalutation of options or offers
Negotiations
Finalising agreement(assisted by lawyer?)
©MNoonan2011
Role of Lawyer in Mediation
• Research problem and issues, obtain information,
assemble and prepare.
• May or may not be present.
• May speak for client or coach client as to opening
statement, participation, process.
• May ask questions on behalf of client
• May generate options.
• May advise in relation to offers
• May negotiate on behalf of client
• May assist with documentation of settlement
• Extent may depend on whether client can afford it
©MNoonan2011
Mediation and Confidentiality
Is there an Agreement covering
confidentiality?
Who is bound? Parties, mediator, lawyers,
others.
What Information is covered?-admissions,
offers, facts, documents, notes,
agreements
Limits of confidentiality, enforcing
confidentiality-Use of information for other
purposes including legal proceedings.
©MNoonan2011