Court Ordered Mediation: Obligations and Consequences

Parties to proceedings in New South Wales courts which are ordered to mediation need to be aware of the obligations imposed on them, and that a failure to observe them could expose their clients (and even the lawyers themselves) to costs and other consequences. 

Civil Procedure Act, 2005 (NSW) (CPA) Requirements

Part 4 of the CPA is concerned with the mediation of proceedings. Section 25 contains a definition of mediation, mediation session and mediator.

Section 26 provides that the court may, if it considers the circumstances appropriate, by order, refer any proceedings before it, or part of any such proceedings, for mediation by a mediator, and may do so either with or without the consent of the parties to the proceedings concerned.

Section 27 imposes upon each party to the proceedings a duty to participate in good faith in the mediation.(See further about good faith below).

Section 28 deals with the costs of the mediator. It provides that they are to be borne in such manner as the Court may specify or, in any other case, by the parties in such proportions as they may agree among themselves.

Section 29 empowers the Court to make orders to give effect to any agreement or arrangement, arising out of a mediation session. On any such application, a party is entitled to call evidence, including evidence from the mediator and any other person engaged in the mediation, as to the fact that an agreement or arrangement has been reached and as to the substance of the agreement or arrangement.

Section 30 deals with the various privileges which apply to court ordered mediations. It includes the same privilege with respect to defamation as exists in judicial proceedings and a document produced in judicial proceedings (s 30(2)) and that, subject to section 29(2), evidence of anything said or any admission made in a mediation session is not admissible in any proceedings before any Court or other body and a document prepared for the purposes of, or in the course of, or as a result of, a mediation session, or any copy of such a document, is not admissible in evidence in any proceedings before any Court or other body (s 30(5)).

Section 31 regulates confidentiality of the mediation process. A mediator may disclose information obtained in connection with the administration or execution of Part 4 only in one or more of the following circumstances:

(a) with the consent of the person from whom the information was obtained,
(b) in connection with the administration or execution of this Part, including section 29 (2), 
(c) if there are reasonable grounds to believe that the disclosure is necessary to prevent or minimise the danger of injury to any person or damage to any property, 
(d) if the disclosure is reasonably required for the purpose of referring any party or parties to a mediation session to any person, agency, organisation or other body and the disclosure is made with the consent of the parties to the mediation session for the purpose of aiding in the resolution of a dispute between those parties or assisting the parties in any other manner, 
(e) in accordance with a requirement imposed by or under a law of the State (other than a requirement imposed by a subpoena or other compulsory process) or the Commonwealth.

Section 32 provides that, subject to the uniform rules and any relevant practice notes, a mediator may, by order, give directions as to the preparation for, and conduct of, the mediation. This is an important provision because any breach of an order made by mediator could also have potential costs or other consequences.

Uniform Civil Procedure Rules (UCPR) requirements

Part 20 of the UCPR applies to matters referred to mediation under Part 4 of the CPA: reg 20.1

UCPR 20.3 provides that, on any occasion that proceedings are before the court for directions, the Court may require each active party to state whether the party consents to referral of any matter arising in the proceedings for mediation, whether the parties agree as to who is to be the mediator and whether the parties agree as to the proportions in which the costs of mediation are to be borne, and the terms of any such agreement.

UCPR 20.6 provides for the “Mediation session procedure” and provides that unless the mediator, or the court, otherwise directs: 
(a) the session must be attended: 
(i) subject to subparagraph (ii), by each party or, if a party is a corporation, by an officer of the corporation having authority to settle the proceedings, or
(ii) if the conduct of the proceedings by a party is controlled by an insurer, by an officer of the insurer having authority to settle the proceedings, 
(b) a party may be accompanied by that party’s barrister or solicitor at the session.

A person who is required to attend the mediation under this rule may do so by telephone, video link or other form of communication but only with the leave of the court or the mediator: UCPR 20.6(2).

UCPR 20.7 requires the mediator to advise the Court, within 7 days after the conclusion of the last mediation session, of the time and date the first mediation session commenced and the time and date the last mediation session concluded.

New Practice Note SC Gen 6 – Mediation

The new Practice Note commenced operation on 9 March 2018, and replaced the previous Practice Note issued on 10 March 2010. It explains the Court’s mediation procedures and its expectation of parties in proceedings that have been referred to mediation.

The practice note only applies to proceedings in the Court of Appeal, the Common Law Division (civil cases only) and the Equity Division. It does not apply to proceedings in the Court of Criminal Appeal or criminal proceedings in the Common Law Division.

Paragraph 10 of the Practice Note requires the parties to inform the Court of the outcomes of mediations ordered by the Court. It also requires the mediator, within 7 days after the conclusion of the mediation, to advise the Court of the time and date the mediation session commenced and was concluded. Where a mediator is appointed under the Joint Protocol, the Court also requires the parties to provide the Joint Protocol. Evaluation Information referred to in the Joint Protocol has to be sent to the Principal Registrar.

Paragraph 18 makes provision for the form of order for referral to mediation and the matters that such an order should address.

What does it mean to participate in good faith in the mediation

Justice Harrison’s comments in King v Linney [2009] NSWSC 911, [8] are worth remembering:

[8] ... In making that order, I understand from my own experience that mediations are necessarily not always successful and that this Court has no power to require or to force a party to settle a matter at mediation. Despite the fact that by s 27 of the Act litigants are (somewhat counter intuitively) subject to a duty to participate in the mediation in good faith, I recognise that the authentic or justified intransigence of one or other of them in a quest for the achievement of a compromise is something over which this Court has no effective or final control. It seems to me in this case, from what I know of it so far, and assisted by the pleadings and the affidavits that have been filed, that the parties' approach to its resolution runs the risk of being unduly influenced by subjective considerations whose effect I consider might helpfully be minimised by the interposition of a skilled mediator or conciliator.

Good faith includes some preparation, attendance at the mediation by someone with authority to settle, and some elements of participation such as ‘not summarily and without consideration immediately rejecting what the other party has to say. One of the most well known judicial interpretations of ‘good faith’ in Australia can be found in the case of Western Australia v Taylor [1996] NNTTA 34;  (1996) 134 FLR 211, 224–5 heard by the National Native Title Tribunal, which set out a list of 18 indicia which defined good faith negotiation under the Native Title Act 1993 (Cth).

Good faith does not require a party to act against self-interest and it does not require a party to take ‘any step to advance the interests of the other party’ (United Group Rail Services Limited v Rail Corporation (NSW) [2009] NSWCA 177;  (2009) 74 NSWLR 618, 639 [76] (Allsop P)).

Good faith does not preclude a party from taking a strong position at the outset and from being reluctant to make concessions (State Bank v Freeman (Unreported, Supreme Court of New South Wales, Badgery-Parker J, 31 January 1996).

There is no requirement to reveal all of one’s interests, negotiation goals and bottom lines. A lawyer cannot, however, mislead the mediator or his or her opponent about a material fact - for it is recognised that such action (or inaction, where a false statement needs to be corrected) constitutes bad faith (see further Wolski, "On Mediation, Legal Representatives and Advocates" (2015) 38(1) University of New South Wales Law Journal 5).

Cost consequences for a failure to turn up

In Staway Pty Limited (In Liquidation) (Receivers Appointed) [2017] NSWSC 485 the Court ordered the plaintiffs - who failed to turn up at a court ordered mediation, sending only their lawyers - to pay the defendants' costs of the mediation, such costs to be assessed on the indemnity basis. His Honour Justice McDougall J observed:

[15] The starting point is that this is not a matter where the parties were free to make their own decision. They were compelled by an order of the court to attend and complete the mediation. Mr Lazarus submitted that the individual plaintiffs could well have been available by telephone. That may be so. However, to proceed with a mediation on the basis that the parties who would make the decision would not be present, and could not therefore be subjected to the usual range of tactics employed by mediators, means that what might have proceeded would have been a very empty shell of a mediation, almost self-evidently doomed to failure.

[16] The plaintiffs did not seek to be dispensed from their obligation to attend the mediation. Nor did they trouble to inform the lenders that they would not be attending. Accordingly, the lenders incurred significant expense in flying up from Melbourne. That expense, together with their share of the mediator's fees, has been entirely wasted.

His Honour concluded that it was appropriate to make a costs order against the plaintiffs because they “simply disregarded their obligations under the court’s orders, produced a situation where the mediation would necessarily fail, and caused the lenders to waste substantial sums of money in coming to Sydney for the mediation, in legal costs preparing for it and (to the extent they did) attending it. Those considerations further suggest to me that the costs should be assessed on the indemnity basis" (at [19]).