Mediation provides persons dealing with banks, corporations, government agencies and their lawyers (‘the wolves‘) a vast range of options when it comes to avoiding Court, Litigation and/or Bankruptcy due to matters involving loan and/or debt defaults.
Mediation in particular has become a very valuable tool for resolving disputes of all kinds, including those in the insolvency sphere. While the prospect of attending a mediation might once have been considered by courts and litigants to be a sign of weakness or vulnerability, this is no longer the case.
Mediation has become a standard part of most litigation processes and it has been reported that approximately 60% of all disputes referred to mediation in the Australian superior court system settle.
Whilst the wolves chasing the default may want to go straight to Court, often hoping for a summary judgement to enforce, without going to trial, or alternatively with the power imbalance of superior legal and financial resources compared with a defaulting debtor,
who may not be able to afford a lawyer and in civil proceedings who would not qualify for legal aid, the wolves are tempted to pounce for a quick judgement and enforcement.
HOW TO FORCE MEDIATION WHETHER THEY LIKE IT OR NOT
1. The wolves must comply with fiduciary responsibilities.
Banks and Corporations chasing defaults have persons employed to perform this task who all become “officers” of the companies to which they are appointed. This means they become subject to the same duties that are imposed upon company directors under the Corporations Act 2001 (Cth).
Insolvency practitioners also have further duties to be fair and to act without bias in assessing the competing interests of stakeholders, and to act with integrity, objectivity and impartiality.
Obtaining an outcome during Mediation that is satisfactory to all stakeholders (including the creditors and/or shareholders) should involve the application of all these duties.
If that outcome can be achieved at an early stage of a dispute, without the delay and expense usually associated with full scale litigation, then the wolves can hardly be criticised (and in fact, may be applauded for taking a constructive, conciliatory approach).
2. Remind the Wolves that the courts can say so!
Section 6 of the Civil Dispute Resolution Act 2011 (Cth) requires any applicant in a Commonwealth court (such as the Federal Court or Federal Magistrates Court) to file a “Genuine Steps Statement” at the time of filing any application.
The Genuine Steps Statement must specify:
The steps that have been taken to try to resolve the issues in dispute between the applicant and the respondent in the proceedings; or the reasons why no such steps were taken, which may relate to, but are not limited to, the following:
- The urgency of the proceedings and the extent to which, the safety or security of any person or property would have been compromised by taking such steps; and
- The “genuine steps” involve notifying the other party of the issues in dispute and offering to discuss them and providing relevant information or documents to the other party;
While a failure to file a Genuine Steps Statement does not invalidate the proceedings, adverse costs orders can be made against the parties and even their lawyers.
It should also be borne in mind that both the Federal Court and the State Courts in most jurisdictions also have power to order parties to participate in a mediation anyway, even if there is no formal requirement for a Genuine Steps Statement to be filed (which is the case in the Supreme Courts of NSW, Victoria and Queensland).
3. Remind the Lawyers there is a Climate Change in the Legal Profession
With Mediation becoming embodied in State and Commonwealth legislation, Regulations and Court Rules, it means there is an accelerated shift from litigation to Mediation being imposed upon the legal profession, which must adjust to this dynamic legal climate.
Legislation such as the Federal Court of Australia Act and the Victorian Civil Procedure Act have ‘Overarching purpose’ and ‘pre-action’ provisions that require parties to facilitate the timely and efficient resolution of civil disputes. For example, s 7(1) states that the ‘overarching purpose is to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute’.
Use of an ADR process, which includes mediation, is explicitly referred to as one method of achieving the overarching purpose.
4. Liability of Lawyers to Advise on ADR Options
Lawyers who fail in their duty to advise clients have faced various sanctions. It is a duty that must be considered by Federal Court judges when awarding costs and both parties must file ‘genuine steps’ statements prior to litigating with participation in ADR considered as ‘genuine steps’ that can be taken to resolve a civil dispute.
5. Personal Costs Orders Against Lawyers
There is a statutory duty for lawyers to advise and assist clients with genuine steps statements, and failure may result in lawyers not only subjected personally to costs orders but the lawyer must not recover the costs from the client.
6. Misconduct Sanctions Foreseeable
It was argued by David Spencer, Senior Lecturer at Sydney University that at the nexus of Mediation and the legal profession the governing bodies dealing with growing regulations and rules of professional conduct faced position where Mediation was not part of substantive law yet part of the legal profession.
Whilst encouraging Mediation absent substantive law regulating it, there may be other heads of liability, such as negligence, where if a Lawyer fails to advise their client it could breach Rules of Professional Conduct. It is foreseeable that Australian legal practitioners may find themselves liable if they do not advise their clients of Mediation options.
In Adamson v Queensland Law Society Inc, the test for professional misconduct was: –
“…whether the conduct violates or falls short of, to a substantial degree, the standard of professional conduct observed or approved by members of the profession of good repute and competency”
This was dealing with matters of “Unprofessional conduct or practice” considering a standard of professional conduct expected of the profession.
It is foreseeable as Legislation, Regulations and Rules provide for Mediation processes and they become part of the standard of professional conduct expected of lawyers, one who fails to adequately advise their client on Mediation may well find themselves liable in a tort of negligence or disciplinary proceedings for malpractice.
As held in Adamson:-
“The lawyer should put the client’s interests first and treat the client fairly and in good faith, giving due regard to a client’s position of dependence upon the practitioner, and the clients dependence on the lawyer’s training and experience and the high degree of trust clients are entitled to place in lawyers …particularly with respect to compromise.”
This would suggest there is a duty of care to the client to advise of Mediation.
7. Costs Penalty in Success
There are risks of lawyers getting adverse cost orders imposed by the Courts for failing to negotiate even if they succeed at trial, as Mansfield J of the Federal Court of Australia, warned:
“To decline to negotiate in relation to an informal offer when it might have been reasonable to have done so might have adverse costs consequences to the successful party.”
8. Because parties like the ATO will go that way
Agencies of the Commonwealth Government in Australia have an obligation to act as a “model litigant” in conducting any litigation.
This direction includes:
“endeavoring to avoid, prevent and limit the scope of legal proceedings wherever possible, including by giving consideration in all cases to alternative dispute resolution before initiating legal proceedings and by participating in alternative dispute resolution processes where appropriate.“
In particular, the Australian Taxation Office is expressly bound by these provisions which have been incorporated into its Practice Statement Law Administration PS LA 2009/9, so action involving the ATO will often lead towards mediation before a final hearing.
9. In litigation, there is only one winner
Despite the optimism that all litigants will feel at the start of litigation, at least half of them will go on to lose once they go to trial. This is a confronting reality that you should always bear in mind, no matter how strong you may think your arguments are.
The benefit of ADR, and particularly mediation, is that parties have an opportunity to assess their respective case’s, including its strengths and weaknesses, at an early stage and considerations that if the defaulting party already has no money, pursuing legal action and costs associated with it which may never be recovered ought to be considered as part of the Corporate fiduciary duties and duties of the legal advisors as discussed above.
A settlement at mediation is usually a case of each party discounting their expectations to account for the risk of the worst case outcome (ie, losing the case with adverse costs orders). It allows the dispute to be resolved on terms that each party is prepared to live with, whilst at the same time, hopefully, benefiting those parties as well.
10. It is confidential
Other than in limited circumstances, all information obtained, discussions, offers, counter-offers, negotiations and settlements arising in connection with a mediation are confidential.
This is certainly not the case with formal litigation. If the dispute is a commercially sensitive one, there should be good reasons to keep the information confidential.
This confidentiality requirement is enshrined in both the Federal and State legislation, and is also reflected in the confidentiality agreements that all participants are required to sign before the commencement of a mediation.
11. It is almost infinitely flexible.
You can achieve outcomes at a mediation that the court would simply not be empowered to make in formal litigation.
There are matters such as the future dealings between the parties, as well as apologies, can be incorporated into settlements. For instance a short term downturn that resulted in a temporary default with mediation can be resolved and salvage the relationship between the parties, it’s entirely up to the participants.
In litigation or arbitration, the court or final arbiter makes the decisions and parties often walk away unhappy.
In a mediation, the ultimate decisions that are reached (such as whether or not to settle, and on what terms) are made by the parties themselves. As a result, in most instances the parties perceive both the process and the result to be fair and provide for avenues where the relationship can continue into the future if desirable.
12. It minimises risk
A successful mediation should help to minimise risk for the parties, whether that risk be financial, business, reputational, cultural or risk of any other sort.
For example, an early settlement with certainty (or even security) is likely to be a more attractive result than a judgment for a higher sum against an entity that can’t eventually pay it because of the cost of the litigation.
Further, even in circumstances where you may not have a particularly strong case, you could still have enough to at least negotiate an outcome with the other party that enables you to avoid the risk and cost of formal litigation.
Whether the parties agree to go to mediation willingly, or are otherwise ordered to go (often against their will), it is important to recall that approximately 60% of all disputes referred to mediation in the Australian court system settle.
So, even if things look bleak going into the mediation, nationally available statistics suggest that the prospects of settling are still pretty good.
If you would like to find out if Mediation could help in your case, please contact us using the form below for a free, no obligation consultation with a Nationally accredited Mediator.
 National Alternative Dispute Resolution Advisory Council ADR Statistics 2003. As mediations often result in confidential settlements, current statistics are hard to come by. However, given the increase in popularity of mediations since 2003, the re is no reason to believe this success rate has declined.
 Corporations Act 2001 (Cth), CHAPTER 2D–Officers and employees – Part 2D.1—-DUTIES AND POWERS.
 ARITA Code of Professional Practice for Insolvency Practitioners (the Code), paragraph 2.5, ‘The Code’.
 The Code, paragraphs 5.1, 5.2 and 5.3.
 THE ROLE OF A LAWYER IN ADR, Danny Jovica, http://para-legal.org.au/the-role-of-a-lawyer-in-adr/.
 For example, see section 26 of The Civil Procedure Act 2005 (NSW).
 The Role of Lawyers in Mediation: Insights from Mediators at Victoria’s Civil and Administrative Tribunal, Kathy Douglas and Becky Batagol, Monash University Law Review 2014 (Vol 40, No 3).
 Federal Court of Australia Act 1976 (Cth) s.37M.
 Civil Procedure Act 2010 (Vic).
 Ibid s 7(1).
 Ibid s 7(2)(c).
 Federal Court of Australia Act 1976 (Cth) s 37N(4).
 Civil Dispute Resolution Act 2011 (Cth) ss 6–7.
 Ibid s 4.
 Civil Dispute Resolution Act 2011 (Cth) S 9.
 Ibid s 12. See, e.g., Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys
 FCA282 (23 March 2012), where no genuine steps had been undertaken, and the Federal Court
ordered the legal representatives of the parties be joined for the purposes of costs.
 Ibid s 12(3).
 Spencer, David L., Liability of Lawyers to Advise on Alternative Dispute Resolution Options (November 2, 1998). Australian Dispute Resolution Journal, Vol. 9, No. 292, 1998.
 Adamson v Queensland Law Society Inc  1 Qd R 498.
 Adamson v Queensland Law Society Inc  1 Qd R 498.
 Are you being too bullish in settlement negotiations and refusing to mediate? Be warned, Michael Hollingdale, Australian Dispute Resolution Bulletin September 2015.
 Australian Competition and Consumer Commission v Harris Scarfe Australia Pty Ltd (No 2)  FCA433 at .
 Legal Services Directions 2005, Appendix B, clause 2(d).
 Eg with the consent of all parties, or to enforce an agreement reached at mediation. For others, see section 31 Civil Procedure Act 2005 NSW.
 National Alternative Dispute Resolution Advisory Council ADR Statistics 2003.
Concepts and some content in this article have been drawn from 7 March 2018 Article by Mark Addison of DibbsBarker titled “10 reasons why insolvency practitioners should consider ADR” and from the Article titled “THE ROLE OF A LAWYER IN ADR” by Danny Jovica, available here http://para-legal.org.au/the-role-of-a-lawyer-in-adr/.