McMeerkin, Duncan --- "How practical is PLT?" [2020] PrecedentAULA 61; (2020) 160 Precedent 41

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RESOLUTION BY MEDIATION OR JUDGMENT

COSTS AND BENEFITS

By The Hon Duncan McMeekin QC

We now live in a world of the disappearing trial. No doubt mediations have had a significant impact in bringing about the settlement of more difficult matters. But is that a good thing? Is there a cost and if so, what is it?

I commenced practice 43 years ago. Then it was often said that personal injury litigation accounted for 80 per cent of the litigation in the state. It kept the courts busy. In contrast, in 2018 there were 21 personal injury trials that resulted in judgments – 13 in the District Court and eight in the Supreme Court.^[1] Insurers reported approximately 11,300 common law claims – around 2,700 against WorkCover and 8,600 against motor vehicle insurers. Therefore, around two in 1,000 cases were litigated to trial and so 99.8 per cent resolved in some way.^[2] In 2019, there were even fewer trials – three personal injury trials in the Supreme Court and four in the District Court – and 0.06 per cent of all claims ended up with a judgment.

HISTORY OF MEDIATION

When I started practice in 1977 mediations did not exist. We prepared for trial. Matters often settled on the way to court and at the door of the court. But there was no structured meeting of the parties and no contemplation of a third party sitting in the middle to facilitate the discussion to bring about a settlement. And there was one crucial difference: at the time of settlement, we were usually completely prepared for the litigious contest.

All this changed in the mid-1990s. Mediators appeared, and the rules of court were amended to accommodate mediations. Universities commenced courses on mediation techniques. The Supreme Court kept a list of approved mediators, and to get on the list you had to complete a course at an accredited university.

Mediated conferences are now commonplace but back then there was some resistance. In 2001, leading personal injury practitioner Michael Grant-Taylor (now QC) felt bold enough to make this submission to a District Court:

‘Mediations are among the great frauds to be perpetrated upon long-suffering litigants in personal injuries actions. They are the “emperor’s new clothes” of modern dispute resolution. Contrary to popular belief, they propagate delay; they result in the incurring of expense out of all proportion to their worth; and they raise hopes and expectations where none are there to be raised.’^[3]

A submission, of course, does not necessarily reflect a personal view. But was there a valid point behind his submission? This article will explore that question.

Not that we mediate in the textbook sense; mediations in personal injury matters do not follow the standard teachings. That is because in such matters there can generally only be one side paying (the insurer) and only one alternative (going to court). We don’t discuss different ways of resolving the case; we talk about money. And as for the discussion of issues, it essentially involves assertions by one side and often a counter-attack. If you are negotiating at the door of court, as once was the practice, you tend not to assert things that you are not in a position to prove in the next few hours or days. But when you’re not certain what your evidence will be in say six months’ time you can be bolder.

BENEFITS OF MEDIATION

There are typically said to be seven benefits of mediation:

1. Greater control;

2. It’s confidential;

3. It’s voluntary;

4. Convenience;

5. Reduced costs;

6. Faster outcome; and

7. Support.

That last point is only partly true. In our transactional bargaining model, mediators are there to have an opinion and to express it if called on, point out the possible hurdles to legal and factual contentions, give a second opinion, or persuade an unrealistically recalcitrant party. How supported a party feels depends on the particular mediator and the circumstances of the case.

The textbooks also claim a benefit of preserving relationships, which is hardly a factor in plaintiff v insurer contests but may have some relevance to relationships between lawyers.

There is some truth in each of these but apart from the costs point, which usually is of huge importance, I am doubtful as to how much weight litigants in the personal injury field place on these supposed advantages.

BEST ALTERNATIVE TO A NEGOTIATED AGREEMENT

In the jargon, going to trial is known as the best alternative to a negotiated agreement (BATNA). So we tell our clients that if we don’t settle the case then we are off to court. The client is typically told some or all of the following:

• there will be an inevitable delay of indeterminate duration both until trial and then until judgment;

• they will be submitting to the decision of an as yet unknown judicial officer, of indeterminate experience in this area of the law, with unexplored and unknown prejudices (mostly subconscious) so neither you nor the judicial officer can do much about them;

• an increase in costs is inevitable and becoming more and more disproportionate to the hoped-for outcome; and

• almost invariably there will be a need to explore further crucial aspects of the evidence such that the eventual outcome cannot possibly be certain.

Little wonder that cases settle. But do insurers get the figure right 99.8 per cent of the time? And how real are these claimed disadvantages? True, many claims would involve damages of less than $50,000 (motor vehicle insurers classify 86 per cent of all claims as minor or moderate in severity^[4]) and they really must settle, unless the plaintiff’s solicitor and counsel are feeling generous and so work for little remuneration, or the defendant very ungenerous. But 99.8 per cent is an extraordinarily high figure. One of four things is happening: the correct figure is invariably arrived at; plaintiffs are settling too low; insurers are settling too high; or a bit of both. My concern is that the first possibility is doubtful, the second probably true, the third highly unlikely, and the fourth, perhaps, but in what proportions?

If insurers are paying out too high an amount, then that is their problem. If plaintiffs are settling too low, that is the legal profession’s problem. One thing at play here is the psychology of loss aversion. The psychologists Daniel Kahneman and Amos Tversky demonstrated that when dealing with gains, people are risk-averse and will choose the sure gain over a riskier prospect, even though with the risk there is a possibility of gaining a larger reward.^[5] It is your task to ensure that your clients understand what they are giving up to secure the sure gain that the insurer places on the table.

My analysis of the cases that have gone to judgment, generally at least, does not support delay as a significant matter. Generally, absent unusual facts, the delays were not great in the Supreme Court – the average was four years from injury to judgment. Disregarding a 17-year outlier, delays ranged from just over four years to just over seven years. In pre-mediation days (and prior to pre-litigation processes), anecdotally three years was considered ample time. Trials are not lengthy; four days is the average where both liability and quantum are in issue. Typically, two days are needed for a damages assessment. In 2019, the delays in the four District Court actions were longer – nearly five years in one matter and just over six years in two others. The sample is small. Delays in delivery of judgment after trial are of course both case and judge dependent.

The experience of litigants, in terms of success or failure, differs depending on the court. An analysis of the results in the District Court suggests that certainty of outcome is a big advantage in mediating a settlement. Of the 13 trials in the District Court in 2018, only three resulted in significant damages awards. In 2019, of the four trials conducted, three involved WorkCover. One of those claims was dismissed. Substantial damages were awarded in the other two and probably standard costs (the orders were made to that effect, subject to submissions). Not much can be read into the results as the sample size is small and the two matters resulting in substantial awards were before the same judge.

In the Supreme Court in 2018, there were only two matters in which judgment was given for the defendants – so a 75 per cent success rate for plaintiffs, without knowing the offers made or the costs incurred. Of the eight judgments, the damages exceeded the District Court threshold in only three, although two more were close (over $700,000) and I would have thought had to be brought in the Supreme Court. In one case the judge remarked that the award was well below the amount that the plaintiff sought – but the award still exceeded $300,000. In two cases indemnity costs were ordered and, in one, standard costs were ordered against the employer, which of course can only be ordered under the WorkCover legislation if your award exceeds your own offer (assuming the 20 per cent impairment threshold was not met).

In 2017 there were nearly twice as many trials in the Supreme Court as 2018.^[6] I heard eight of the 15. Plaintiffs obtained an award of damages in 11 of those 15 cases but in one, minimal damages were assessed (at the Queensland Civil and Administrative Tribunal) after video evidence was led (which I count as a win for the defendant). So a nominal 75 per cent success rate for plaintiffs, again without knowing the costs effect or the offers made. While I cannot work out the net benefit from the information I have, I can comment that in seven of the 15 the damages awarded exceeded the District Court monetary jurisdiction. In two the damages were well below $750,000 and so I suspect the costs orders didn’t help the plaintiff. Therefore, I suspect that on a net benefit return the 75 per cent success rate drops to 46 per cent as positive results for the plaintiff after costs were accounted for.

GOING TO TRIAL – OBSERVATIONS

The sample sizes are admittedly very small, and it may be unwise to generalise, but I think some observations can legitimately be made.

First, while the credit of the plaintiff is a feature of nearly every case, it was the principal issue in at least 40 per cent of cases. Almost invariably cases were lost because of adverse credit findings. The lesson? If your client’s credit is seriously in issue, and there is some sound basis for that attack, settle.

Second, a striking feature of the cases I examined was that they generally involved unusual fact situations, including: bricks falling off trucks; multiple defendants and so different insurers; a carpenter suffering a major depressive disorder as a consequence of contracting Q fever at a high school farm; mine managers being made liable for the actions of an unidentified person; and joint criminal activities, among others. It seems advisers have trouble predicting the outcome in novel situations.

Third, that only three out of 13 claims exceeded $50,000 damages suggests that if your claim falls in the District Court jurisdiction, and at the lower end, you would usually be well-advised to settle. With some notable exceptions, District Court judges as a group seem to assess damages and prospects very differently to plaintiffs’ lawyers. There are various possible reasons as to why that may be so. One may be that most practitioners have never run a trial, as discussed below, and another that, in general, District Court judges (again with some notable exceptions) have had limited exposure to personal injury work. It may also be that insurers are picking their cases carefully.

Fourth, what is plain from this analysis is that no one really intends to go to court. Most practitioners don’t believe that the other side will really go to court. That tends to take away the threat of the BATNA. The reality is that the power sharing is very one-sided and the insurers control the purse strings. If they don’t want to settle they just offer low or not at all. The principal weapon in the plaintiff’s arsenal is that the judge might be more inclined to accept the plaintiff’s case, at full value, over the insurer’s, and so there is the prospect of a large damages award with costs. And there is the potential reputational damage to the insurer’s adviser, which may be a real incentive on that side to settle. But with no threat of a trial, that pressure disappears. The real BATNA becomes not an eventual trial by an independent tribunal but the real prospect of an even worse negotiated outcome in the months or years to come – because even if the offer is increased, as it almost always is, the increase in costs takes away the benefit.

I believe that reluctance to go to court hands an enormous advantage to the insurer. The insurers know that they have at least a 99.8 per cent chance of getting a plaintiff to settle. Some plaintiffs’ lawyers of course stick to their guns but effectively they risk not getting paid, which takes courage (and resources).

Fifth, matters are more readily litigated in regional areas. Not every year, but often enough, the chances of a trial in a regional area is much higher than in the city. I suspect that might be because of the higher wages often paid there – hence economic loss can be more substantial and a trial more worthwhile. It may also reflect the fact that practitioners in regional areas tend to know who their judge is likely to be, which can introduce some certainty as to the result.

Sixth, the profession on the plaintiff’s side, as a whole, has no idea what awards are being obtained by others. No doubt the insurers have an advantage here and keep a careful watch on their statistics.

Seventh, most practitioners have never run a trial, so not many know how judges think, how they assess what is reasonable, how they react to various heads of loss, how the rules of evidence work, and what part, if any, of so-called expert reports are admissible or if admissible, persuasive. That means that they may be misjudging the likely end result. The District Court sample goes some way to supporting that observation.

Allied to that is we are running out of barristers and solicitors with extensive trial experience. We will soon have – if indeed we do not have already – a whole profession filled with practitioners who have no practical experience in what can go wrong, what can go right, and how to prepare so that things do go right, in the trial arena. Practice makes perfect.

And, concomitant to that issue, inevitably judges will be appointed who have never conducted a trial, let alone a personal injury trial. So we will not have judges who have seen all the usual problems and have a good idea of the proper response. My observations of the approaches of judges that I appeared before over 30 years certainly informed my approach to the issues that recur. For example, in every case it must be assessed whether the burden of proof on the plaintiff is discharged. In a close case I often thought of a comment made to me decades ago by a very experienced judge – ‘sometimes it’s just a few grains of sand in the scales’. When it was my turn to judge, I discovered the wisdom in this and many other such statements.

Finally, when plaintiffs succeed, they can win well. In at least three of the 2018 Supreme Court decisions the plaintiff exceeded their own offer to settle – we know that because in two matters indemnity costs orders were made and in one WorkCover was ordered to pay standard costs. I say ‘at least’ because the costs orders are not always revealed.

COST TO THE PLAINTIFF?

I have mentioned the claimed advantages of the mediated outcome earlier – cheaper, quicker, less formality and so less stress, and knowing and owning the outcome. All that can be accepted to some degree. However, if you told your client that while mediation is confidential, convenient, and less stressful it will lead to them taking a $100,000 or maybe $500,000 reduction in their claim, I doubt they would rush at the chance. That is the real issue: how much is a plaintiff giving up by settling at mediation? That figure is hard to identify and not always discussed with the mediator, at least in terms, and sometimes I wonder if the issue is even discussed with the plaintiff.

These claimed advantages have to be balanced against the cost, and the real cost to the plaintiff of the mediated settlement is the hidden one. This is exemplified in the decision of McGill QC DCJ in Rook v Crofts & Anor,^[7] which involved an assessment of damages for a soft tissue injury to the plaintiff’s spine – a common claim. The Judge preferred the lay evidence regarding the daily life of the plaintiff and her problems to the medical theory that most soft tissue injuries resolve in a matter of weeks. The plaintiff obtained judgment for $593,440 and indemnity costs. In determining the indemnity costs order, the judge was advised of the offers made by the plaintiff.^[8] The judgment reveals that about 18 months before final judgment the plaintiff offered to settle for $200,000 and standard costs. Some months later he reduced his offer to $185,000 and costs. The end result: after judgment, the plaintiff was about $500,000 better off because the judge believed him and his witnesses. There’s a message in that.

What we don’t know is how many of the 10,000-odd claims that settle each year in fact settle for a fraction of their true worth. In Rook, the plaintiff offered to settle for a 70 per cent discount on his damages. The insurer obviously offered even less. I have no doubt that this is far from an isolated example.

Solicitors of course fund these actions, or largely so. They should be commended for this. But this creates a dichotomy between the interests of the professional and of the client. The fact is that the costs of getting a matter ready for trial are high and a solicitor simply cannot afford to lose too many. His or her financial incentives are different to the client’s. This at least introduces a potential bias against going to trial. In my experience, costs are the principal pressure on a plaintiff to settle.

CONCLUSION

If you are going to settle then I suggest that you consider mediation early on, not as a last resort, before the costs are an almost insurmountable burden. Mediate with someone who has extensive trial experience in this area. What you really want is a second opinion, perhaps on limited information, but an experienced eye might help both sides. And prepare for a mediation by thinking about why an insurer should believe this case and this client. Too often plaintiffs arrive at a mediation without supporting evidence where it surely must be available.

But if your client is honest, and their problems real, and they are supported by independent evidence (which it is your job to identify and gather), and the impact of the injuries is significant in an economic sense, maybe you should trust the judges?

The Hon Duncan McMeekin QC is a retired Supreme Court judge and now an occasional mediator practising from More Chambers, Brisbane. PHONE [phone] EMAIL [e-mail].

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^[1] I relied on the Supreme Court library website for my analysis. I used the necessary date limitations and the search term ‘personal injury’ then went through the list, taking out the interlocutory applications and unrelated matters. Of course, my search cannot reveal those matters that went to trial, and resolved during the trial, are yet to be decided, or indeed those simply not put up on the website.

^[2] I appreciate that the long tail nature of damages claims means that accidents in one year have no necessary relationship to trials in that year, but the numbers of claims are more or less consistent.

^[3] Trelour v J H McDonald Pty Ltd [2001] QDC 053.

^[4] Queensland Government, ‘Claim severity – motor accident personal injury register’ on Open Data Portal (2 September 2019) <https://www.data.qld.gov.au/dataset/compulsory-third-party-ctp-statistics/resource/830691e2-b9f3-409a-9468-6e99e1c15c8b>.

^[5] ‘Prospect theory’ cited in the conferment of the 2002 Nobel Memorial Prize in Economic Sciences to Daniel Kahneman. And see D Kahneman, Thinking Fast and Slow, Penguin Group, 2011, 278–88.

^[6] In the Supreme Court, there were 15 trials in 2017, eight trials in 2018, and three trials in 2019.

^[7] [2018] QDC 184.

^[8] See Rook v Crofts & Anor (No 2) [2018] QDC 238.