why not ADR?
In 1992, I was junior counsel for Westpac in AWA v Daniels t/a Deloitte Haskins & Sells, the first Australian case ordered to mediation without the consent of all parties. The Chief Judge of the NSW Supreme Court’s Commercial Division, Andrew Rogers, had already made dramatic but useful changes to court procedures which some lawyers labeled as “shocking” and “utterly brutal”. Compulsory mediation was the next step, even though Deloitte understandably wanted a court hearing to vindicate their professional reputation and standing.
Chief Judge Rogers was concerned about the cost to the parties, which he thought were likely to be running in excess of $0.5 million per week, but also the cost to the taxpayers, saying “The tax payer provides free of charge to the parties the services of the Judge (my services, such as they are), all court room support staff, shorthand writers and court attendants”. He thought it “unacceptable” that “the courts should be the sole repositories of these corporate struggles”. The cost of the courts to taxpayers is often overlooked when discussing the merits of ADR. The Productivity Commission says that only $190 million of over $1.3 billion governments across Australia spent in 2011-12 on courts and tribunals to resolve civil disputes was recovered in fees from litigants.
Chief Judge Rogers’ concerns were absolutely correct. It was a massive case. In early 1987, AWA’s Andy Koval was making two thirds of the company’s profit by trading foreign exchange but no-one thought about how the 23 year old trader was doing it. When he smashed his 2-door notchback coupe into a light pole at 4.30 am on his way home from a nightclub and broke his legs, he couldn’t continue his deals. By mid 1987, AWA had lost A$49.8 million through FX positions that were not being managed. AWA sued Deloitte in 1988. Deloitte cross-claimed for contributory negligence against AWA’s directors, including the chairman who was also CEO, in May 1991 and against AWA’s banks, Westpac and Lloyds Bank NZA in October 1991.
The mediation did not result in a settlement and the hearing went on for 4 months. Chief Judge Rogers handed down his decision of over 280 pages on July 1992, finding that Deloitte, the AWA management and CEO were negligent but that the non-executive directors and the two banks were not. He apportioned 20% of the liability to AWA and 80% to Deloitte. He ordered Deloitte to pay AWA $13,600,000 plus $13,039,983.30 interest and the CEO to pay Deloitte $1,360,000 plus $1,303,998.33 interest.
The litigation lasted over 4 years, and there were 11 judgments in all. Deloitte and the CEO appealed, and AWA cross-appealed against AWA and the directors. The appeal hearing commenced on 6 April 1994 and ran for 14 days. The court of appeal handed down a 270 page decision on 15 May 1995, confirming that Deloitte and the CEO were negligent and that the non-executive directors were not. The court of appeal varied the amount of damages, and also reduced the amount Deloitte had to pay by 1/3 because AWA’s gross negligence.
How much did this all cost? It’s hard to know, but it must have been massive for AWA and Deloitte. Lloyds Bank’s costs to defend itself were $2,788,105 and Westpac’s were $2,732.348.30 – remember this was the early 1990s and they were not even involved in the appeal. Westpac’s expert witnesses alone cost $331,841.62. Legal fees are not the only cost. Lloyds Bank estimated that its out of pocket costs for the hours one of its executives worked on the case were $230,400. The mediation cost Westpac a mere $3,620.67. If it had been successful, Westpac would have incurred at least $.5 million less in costs.
After the trial, Westpac asked the barristers and solicitors on its legal panel to undertake mediation training, perhaps on the principle ‘set a thief to catch a thief’ or ‘poachers make the best gamekeepers’. Perhaps if we and the mediator had all understood mediation better, there may have been a settlement.
Has the situation changed much in the past 20 years? 15.3% of the current matters in the Federal Court (not including native title cases) have been going for over 2 years. Of those 309 matters, 48 are intellectual property, 70 are trade practices, 63 are corporations, 51 are taxation. One has been going since 2004 - I know, because I acted for Diageo which was sued then but cannily settled in 2009 as it turned into a fascinating but costly fight over the Stolichnaya trade marks between the Russian government and theRussian tycoons who bought them after the collapse of the Soviet Union. It’s unlikely that this one can be mediated (the same fight in the US is about to go to the Supreme Court) but there are pharmaceutical patent cases that have been running for 9 years over the anti-clotting drug clopidogrel (Plavix) and the anti-depressant Effexor. Reforms being introduced under the National Court Framework may help with other cases.
The NSW Supreme Court presents its statistics in a different way but in the past few years it has finalised 78% to 87% of its civil cases within 2 years and 55% to 69% within 12 months. Whichever way you look at it, justice is not cheap or speedy.
These might seem extreme cases, but patent and trade mark disputes and virtually any other type of civil dispute can settle at mediation or be resolved by an expert determination or a streamlined arbitration. Neutral evaluations can engender settlement. Why not? There is a lot to be said for not engaging in the eccentricities of litigation. As the great William Gaddis wrote in the opening line of A Frolic of His Own: “Justice? – You get justice in the next world, in this world you have the law”.
 AWA Ltd v Daniels (unreported, SC of NSW, 24 February 1992, Rogers CJ Comm Div)
 Access to Justice Report (2014), p 534)