Idoport Pty Ltd and Anor v National Australia Bank Ltd and 8 Ors; Idoport Pty Ltd and Market Holdings Pty Ltd v Donald Robert Argus; Idoport Pty Ltd "JMG" v National Australia Bank Ltd [21] [2001] NSWSC 427 (23 May 2001)

Last Updated: 19 June 2002

NEW SOUTH WALES SUPREME COURT

CITATION: Idoport Pty Ltd & Anor v National Australia Bank Ltd & 8 Ors; Idoport Pty Ltd & Market Holdings Pty Ltd v Donald Robert Argus; Idoport Pty Ltd "JMG" v National Australia Bank Ltd [21] [2001] NSWSC 427



CURRENT JURISDICTION:

FILE NUMBER(S): 50113/98
50026/99
3991/00

HEARING DATE{S): 23/05/01

JUDGMENT DATE: 23/05/2001

PARTIES:
Idoport Pty Ltd (Plaintiff)
National Australia Bank Ltd (Defendant)
Donald Robert Argus (Defendant)

JUDGMENT OF: Einstein J

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:
JJ Garnsey QC, M Dicker, R Titterton (Plaintiff)
T Bathurst QC, H Insall, (Defendants)

SOLICITORS:
Withnell Hetherington (Plaintiff)
Freehills (Defendants)


CATCHWORDS:
Mediation of civil proceedings
party not consenting to order
compulsory order for mediation
Principles
meaning of obligation to mediate in good faith
Overriding purpose of Supreme Court Rules
Just, quick and cheap resolution of issues in civil proceedings

ACTS CITED:
Courts Legislation (Mediation and Evaluation) Amendment Act 1994 (NSW)
Supreme Court Act 1970 (NSW) s.110K
Supreme Court Rules - Part 1, Rule 3; Part 7B;

DECISION:
Short Minutes to be brought in to reflect proposed order that parties refer disputes to mediation.


JUDGMENT:

INDEX

Page Paragraph

The Notice of Motion 1 1
The Proceedings 1 3
The proceedings are commercial proceedings 4 9
The correspondence leading to the application 4 10
The Plaintiffs’ submissions 6 15
Mandatory mediation: the 2000 amendments 7 21
The Plaintiffs’ submissions 8 25
Approach to be taken 13 33
SCR Part 1 Rule 3 14 34
Part 7B of the Supreme Court Act 14 36
Practice Note 118 15 37
Extra-curial statements of the Chief Justice 16 39
Other non-judicial material 18 41
Judicial consideration of Part 7B 18 44
Dealing with the application 20 47
THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION - COMMERCIAL LIST
EINSTEIN J
Wednesday 23 May 2001 ex tempore
Revised 24 May 2001

50113/98 IDOPORT PTY LIMITED & ANOR v NATIONAL AUSTRALIA BANK LIMITED & 8 ORS

50026/99 IDOPORT PTY LIMITED & ANOR v DONALD ROBERT ARGUS

3991/00 IDOPORT PTY LIMITED (“JMG”) v NATIONAL AUSTRALIA BANK LIMITED


JUDGMENT

The Notice of Motion

1 There is before the court a notice of motion filed on 21 May 2001, by Idoport Pty Ltd ["Idoport"] and all cross defendants to the first cross claim as well as all second cross claimants excluding Market Holdings Pty Ltd [“the JMG parties] seeking an order pursuant to section 110 K of the Supreme Court Act that the parties refer their disputes in the three sets of proceedings now being heard together to mediation. The notice of motion also seeks such other orders and directions as to the mediation and its conduct as may be required and as the court may see fit.

2 The notice of motion is supported by affidavits made by Mr Stuart William Hetherington sworn on 18 May and 21 May 2001.

The Proceedings

3 In the three related sets of proceedings the plaintiffs claim from the defendants damages in excess of $50 billion. The general nature of the proceedings was outlined in an interlocutory judgment [(1999) NSWSC 828] delivered on 19 August 1999. Since that date there have been numerous contested motions and contested directions hearings. The pleadings have also moved on in terms of a number of further issues being raised and further particulars being furnished. The MLC proceedings which commenced in September 2000 are being heard together with the two earlier sets of proceedings. Very extensive discovery has been given and numerous statements have been filed and served from a large number of witnesses. The general state of the matter as at mid April 2000 was set out in a judgment dealing with a contested application relating to use of the Technology Court. [(2000) [2000] NSWSC 338; 49 NSWLR 51]

4 The final hearing of the proceedings commenced on 24 July 2000. Very extensive openings and applications for leave to amend the statement of claim and for leave to amend the defences and very extensive argument in relation to questions of expertise as well as other interlocutory motions covering a wide variety of issues have occupied a considerable part of the period between that time and the present time. Approximately 18 judgments of my own have been delivered during that bracket of time. That bracket of time has also seen a continued roll-out of statements by both parties following the amended pleadings and following a close examination of their respective claims to be doing no more than responding to one another’s new materials. Only one of the plaintiffs witnesses has been cross-examined during that bracket of time. The evidence in chief of Mr Martin, the plaintiffs’ first major technical witness, has been taken. His statements cover well over 1,000 pages. The most recent of the interlocutory judgments delivered has at the same time, struck out the plaintiffs causes of action against a number of individual defendants for the tort of inducing breaches of contract, and also allowed the plaintiffs, on terms, to further amend the statements of claim to add additional causes of action. The plaintiffs have accepted that the leave so granted to plead the additional causes of action must entitle the defendants to properly address the new cases, both in terms of appropriate amendments to pleadings as well as in terms of adducing such further evidence as may be necessary to deal with the new causes of action.

5 The litigation is in my view particularly difficult for the curial process. The Court must administer justice in terms of any proceedings before the court.. The parties are entitled to present their respective cases and to test one another’s cases in accordance with well-established procedures. Evidence which is relevant to the issues will generally be admitted. The capacity of the court to test the substance of pleaded issues is limited. The ultimate judgment must take into account all of the evidence presented during the hearing and all of the submissions put by the parties to the court. Notwithstanding the seemingly inapt, in relation to the proceedings, use of the words ‘quick’ and ‘cheap’ in the expression ‘just, quick and cheap’, the court under cover of the overriding purpose rule [Supreme Court Rules - Part 1 Rule 3] may take whatever steps are practicable to case manage the proceedings so as to expedite the hearing and bring the proceedings to a conclusion. The court has approached the hearing of the proceedings by time and time again, endeavouring to tie down the material issues and requiring that relevant issues be properly pleaded and particularised. Achieving a measure of expedition in proceedings of the current scale is exceptionally difficult for obvious reasons. Achieving a measure of expedition is likely to be all the more difficult in circumstances in which the plaintiffs have elected to call Mr Maconochie as their last witness and to intersperse expert and lay witnesses, witnesses going to damages and witnesses going to liability, in the batting order. In contradistinction to the manner in which evidence is commonly adduced by first establishing relevant assumptions and then calling expert witnesses asked to make assumptions, the plaintiffs are proceeding to in many instances reverse this order. This is the plaintiffs’ forensic entitlement but clearly causes sundry case management difficulties. Whilst the Court has the power to interfere in the order of presentation by a party of a case, the Court has not up to this point in time been disposed to exercise that power. Such a step would be extreme in proceedings of the complexity of these proceedings and of course the defendants order of witnesses will (barring Court interference) generally be also a matter for them .

6 The essential difficulty which is encountered is readily revealed when one bears in mind that the proceedings concern a claim by the plaintiffs which:

(a) if successful, was (during the opening) said to exceed the capitalisation of the National Australia Bank,

(b) encapsulate a number of proceedings covering a plethora of factual and legal issues - and as to the damages claims, embrace a global investigation of e-commerce markets, and technology.

7 In those circumstances the defendants, within the dual constraints of practicable case management and the public interest in preventing individual litigants from unduly burdening the list, have every entitlement to take care and time in defending the proceedings. And the plaintiffs have of course, a concomitant entitlement to pursue their pleaded cases with vigour.

8 The number of witnesses and witness statements filed by both parties in the proceedings can only be regarded as extraordinary. A frank and careful overview of the witnesses (lay and expert) proposed to be called on specific issues and of the evidentiary materials to be treated with through the hearing, suggests that the proceedings are likely to be completed in terms of the hearing, in early 2003. The Court may be expected to take particular care, consistently with the interests of justice, to move the proceedings along in circumstances where the issues have now been clarified and more particularly identified. A judgment will then have to be delivered and no doubt the preparation of the judgment will also take real-time.

The proceedings are commercial proceedings

9 Before turning to the other factors which are germane to the application for mediation now before the court it is necessary to refer to a basal consideration. This is quite simply that the three sets of proceedings now before the court are commercial proceedings. Clearly commercial proceedings differ in many ways from other categories of proceedings. There can be no issue but that commercial proceedings before the Commercial list are regularly settled for all sorts of reasons and by utilising a myriad of approaches taken by businessmen and corporations to contested commercial litigation.

The correspondence leading to the application

10 The plaintiffs solicitors in their recent correspondence to the defendants solicitors have in support of their seeking the defendants agreement to mediation, stated as follows:

"The judgment delivered by Einstein J. on 2 May 2001 made it clear that the plaintiffs have pleaded and particularise material facts in support of the objective dishonesty assertion and which underpins the cause of action for participation in breach of fiduciary obligation by individual defendants. The diametrically opposed interests of the Bank and its shareholders on the Bank's case and those of the personal defendants may require their separate legal representation. This may further extend the case’s duration.

The size of the plaintiffs’ claim is unusual, but is for lost opportunity damages reflecting past and current e-commerce market developments, and is likely to increase substantially with the effluxion of time. The plaintiffs’ claim for damages and compensation is contractually based and well supported by the plaintiffs’ independent expert opinion. The claim, on the plaintiffs’ case, is increasingly being confirmed by market developments. The nature of the claim is such that those damages are increasing with time. It is conceivable, to put the matter at its lowest, that the Bank's shareholders funds may not be sufficient to pay out a verdict on the current damages claim, any increases from this point in time, and, with the duration of the case, substantial additional amounts by way of interest. In these circumstances, Idoport would be placed in the position of having, as its other principal recourse, to seek a position ahead of the Bank's depositors.

In the meantime, as our letter of 8 May 2001 makes clear, if appropriate undertakings are not given by the Bank and its directors, Idoport may be placed in the position of seeking to ensure that the Bank will not put its capital and assets beyond the reach of the plaintiffs until the litigation or commercial negotiation resolves the dispute.

The public statements by some of the Bank's directors and spokesmen and their conduct of the case thus far would appear to recognise that the Bank and its shareholders face considerable unknown litigation risk, perhaps over many years. In the meantime, it is now clear, if it was not before, that the Bank will bear very substantial litigation costs, perhaps amounting to hundreds of millions of dollars. A distracted senior management, including the personal defendants for the time being, may extract a heavy price on shareholder value in the many years to come. The Bank's future prospects and its deployment of capital may well be constrained until the litigation is concluded.

The National Australia Bank is Australia's largest financial institution. Plainly, these are matters of major public and national interest.

It is our view, and that of our clients, that bona fide discussions in a mediation context may enable the dispute to be resolved sensibly and commercially at the stage, within a sensible commercial time frame if the parties so agree."

11 This letter concluded by seeking the defendants response within seven days and advising that in the absence of a response or if the defendants were to decline to agree to a mediation, the plaintiffs may well make the application which is now before the court.

12 The response of the defendants solicitors of 15 May 2001 was inter alia:

"Your letter contains a series of threats and unfounded allegations as a precursor to a suggestion of "bona fide" mediation.

It is plain from the assertions in your letter, each of which are denied, that your client and our clients have completely different views as to your client's prospects of success in this litigation. We repeat that we regard your client’s claim as misconceived, both as to liability and quantum.

Your client’s conduct continues to leave our clients with no alternative but to press ahead towards a final determination of these proceedings at the earliest possible opportunity, regardless of the length of time that the case may take. Our clients also, of course, remain dedicated to the prosecution of their cross-claim and to the recovery of the costs incurred by them in the defence of this claim.

While your client continues to make such extravagant and baseless claims of the kind expressed in your letter, mediation would be futile. The Bank considers this course in the circumstances to be completely consistent with its obligations to its shareholders which is of course its first priority.”

13 A subsequent exchange of correspondence [letter from the plaintiffs solicitors of 17 May 2001/letter from the defendants solicitors of 18 May 2001] did not further the stances taken by each of the parties in the earlier communications. The letter from the plaintiffs solicitors did however allege that the Bank and its Directors appeared to require as a precondition to their agreement to mediation, that the plaintiffs should abandon their case and the claims made in it and alleged that such a position, is held, was really not responsible. The letter went on:

"You appear to misunderstand the position concerning our clients’ claims. Our clients, while maintaining their claims in the litigation, are prepared to mediate those claims outside the litigation. Our clients do not, and could not properly, put those claims or the claims of the defendants in the proceedings as any sort of barrier to mediation. Nor can the Bank and its Directors properly do so.

Our clients consider that mediation is now appropriate and timely, in the interests of the parties, the Court, the administration of justice and the public. It could take place while Mr Martin is being cross-examined."

14 The letter from the defendants solicitors advised inter alia that the Bank continues to regard the request for mediation as contrary to the interests of its shareholders.

The 1994 Amendments - Genesis of Supreme Court Act Part 7B

15 Before turning to the plaintiffs’ submissions which are pressed under cover of the 2000 mandatory mediation amendments to the Supreme Court Act, it is convenient to briefly examine the 1994 antecedents to these amendments.

16 Commencing on 14 November 1994, the Courts Legislation (Mediation and Evaluation) Amendment Act 1994 (NSW) introduced Part 7B into the Supreme Court Act 1970 (NSW) (“the Act”).

17 The 1994 amendments introducing Part 7B to the Act reflected the Government’s growing interest in alternative dispute resolution as a means to improving legal services and providing greater access to justice. [Courts Legislation (Mediation and Evaluation) Amendment Bill, Second Reading Speech, The Hon RJ Webster, 4 May 1994]

18 At the time, the government cited mediation as the most popular form of alternative dispute resolution, and was mindful of its very high success rate. It was suggested that this reality resulted from the safe, neutral and confidential environment in which the circumstances surrounding the dispute are disclosed within the mediation process; and the mediator’s role is in assisting the parties to produce a workable result without imposing a solution. [Courts Legislation (Mediation and Evaluation) Amendment Bill, Second Reading Speech, The Hon RJ Webster, 4 May 1994]

19 A contrast was also drawn between the speedy and effective “win-win” outcome that is produced through mediation; and the “win-lose” situation that results from the lengthy litigation process. Furthermore, mediation encourages settlement at an earlier stage of the procedure, precluding the investment of hefty legal costs which would otherwise arise. Mediation was also said to allow the relationship between the parities to remain intact following the resolution of the matter. [Courts Legislation (Mediation and Evaluation) Amendment Bill Second Reading Speech, The Hon RJ Webster, 4 May 1994]

20 Following this amendment and prior to 2000, the Supreme Court was only able to refer a matter to mediation if it considered the circumstances appropriate and the parties consented to the referral and agreed to the mediator. Attendance at and participation in mediation sessions were voluntary, and parties could withdraw at any time. The Court did not have power to determine the extent to which parties were liable to pay costs.

Mandatory mediation: the 2000 amendments

21 The legislative introduction of mandatory mediation in 2000 appears to have been primarily motivated by the perceived efficiencies associated with ADR. [D Spencer, “Mandatory Mediation and Neutral Evaluation: A Reality in NSW” ADRJ 11(4) November 2000]

22 Enthusiastically accepting the Bill, the Opposition described its effect as follows:

“[M]atters can be dealt with more cheaply, more expeditiously and certainly in a more informal and cooler atmosphere that often prevails in the very structured, formalised and, regrettably, very expensive process of the courts.”
[Supreme Court Amendment (Referral of Proceedings) Bill Second Reading Speech, Mr Hartcher, 6 June 2000]

23 Speakers from the government and a range of other parties expressed similar endorsements of the Bill during the second reading speech in the Legislative Council. The amendments were also reported to have the support of the Attorney General, the Chief Justice of the Supreme Court and the Law Society of NSW. [T. Altobelli, “NSW Supreme Court makes Mediation Mandatory” ADR Bulletin 3(3) August 2000]

24 The amendments raised some debate surrounding the appropriateness of mandatory mediation. Some view this notion as a contradiction in terms, opposing the culture of ADR which generally encompasses a voluntary, consensual process. It is important to note however, that whilst parties may be compelled to attend mediation sessions, they are not forced to settle and may continue with litigation without penalty. Furthermore, Part 7B requires that referrals follow a screening process by the Court, and that mediation sessions are conducted by qualified and experienced mediators. [T. Altobelli, “NSW Supreme Court makes Mediation Mandatory” ADR Bulletin 3(3) August 2000]

The Plaintiffs’ submissions

25 The plaintiffs presented carefully prepared written submissions in support of the application. The submissions identified the approach taken by the plaintiffs and the grounds for the application. In many areas the submissions have real substance. The convenient course is to set out the submissions and as appropriate to identify those sections where to my observation, the submissions are of substance and are adopted and accepted as pervasive.

26 Paragraphs 3.1-3.3 of the submissions are self-explanatory:

‘3.1 It is evident from the notice of motion, the affidavits and the correspondence, that the JMG Parties wish to and are prepared to mediate in good faith all the disputes in the proceedings. As the correspondence makes clear, they make this proposal in the view that mediation may well effect a sensible and timely commercial compromise for all concerned, in a responsible and businesslike manner, and that this is desirable in the interests of the parties, the public and the administration of justice. [These matters are noted]

3.2 It is proposed that a very senior and experienced mediator be appointed, who would have the necessary independence to bring about “a different perspective into such procedures and can bring about a settlement even between parties who are evidently bent on litigation” (see Rogers CJ AWA Ltd v Daniels t/as Deloitte Haskins and Sells, unreported, Supreme Court of New South Wales, 24 Feb 1992). The JMG parties in this case are not and never have been bent on litigation. [As to the 1st sentence, no submission to the contrary is addressed by the defendants. As to the second sentence the proposition constitutes a claim by the plaintiffs]

3.3 The JMG parties accept that the mediator should be a person approved by the Court, and preferably agreed by the parties. The JMG parties have not at this stage made any enquiries of any suitable persons as to availability or otherwise as they respectfully submit this is best done after the Court has determined whether or not a reference to mediation should be ordered. If the Court is minded so to order, or makes a conditional order, discussions between the parties can take place to enable a joint approach to suitable and mutually acceptable appropriate persons. The JMG parties also accept that the Court may make directions to ensure any mediation proceeds in a timely fashion and does not interfere with the trial of the proceedings. [These matters are noted]

27 The propositions put in the plaintiffs’ summary of submissions [set out in paragraphs 4 and 5] appear to me to be generally correct. That summary is as follows:

4. The Supreme Court Act and Rules clearly empower the Court to order a “mandatory mediation”. And the Court has done so: see Waterhouse v Perkins [2001] NSWSC 13 where the respondent’s approach to the application for mediation was described the Court as “entirely negative”.

5. Whether an order under section 110K is to be made depends upon the circumstances of each particular case. In this case, the factors and considerations favoring an order far outnumber factors which may be put against in the case. The principal factors favoring an order for mediation are the following:

(a) At this stage of the proceedings and trial, the principal issues between the parties have been identified, interlocutory disputes largely resolved, and those issues and the evidence or intended evidence in relation to them and the principal contentions of the parties in respect of them are known to the parties and their legal representatives.

· Preparation for and the conduct of the mediation is thus facilitated.

· Mediation at this stage would be relatively expeditious and probably much more likely to be effective than at a later stage after cross-examination of the principal witnesses for the plaintiffs, or at an even later stage, after cross-examination of the principal witnesses for the defendants.

· The issues on liability are relatively clearly defined and known to the parties and can be taken into account in relation to any compromise. A substantial part of the issues in dispute concern the quantum of damages and compensation, which are matters ripe for mediation.

(b) The length of the trial is of the order of some years with consequent time, heavy expenditure and consumption of resources and executive time and energy for the parties, and of continued use of the resources of the Court and judiciary.

(c) Preparations for the conduct of the mediation and the conduct of the mediation can take place while Mr Martin, the second witness, is being cross-examined. This would be extremely difficult, if not impossible, if Mr Maconochie, or perhaps Mr Hume were being cross-examined.

(d) The trial of the proceedings is still in its relatively early stages and need not be interrupted for the mediation. At this stage the resources of the parties can accommodate and would not be significantly diverted for the purposes of and in a mediation.

(e) Resolution in a mediation can encompass matters which cannot be the subject of relief by the Court.

(f) The early resolution of the proceedings would greatly assist the availability of court and judicial resources for other litigants in the administration of justice, and matters of public interest are involved.

(g) Mediation may well effect a sensible and timely commercial compromise for all concerned, in a responsible and businesslike manner.

(h) The JMG parties and the Bank and the other defendants are clearly prepared (in the defendants' case, if ordered) to mediate in good faith.

· The JMG parties have made that clear in the correspondence, Mr Hetherington’s first affidavit, and by making this application.

· As for the defendants, Senior Counsel for the Bank has stated (transcript p9242 ll53-58),

Finally, as far as the mediation continuing during the course of the proceedings are concerned, if there was to be a mediation, there is a duty under section 110L for the parties to participate in good faith. If a mediation was ordered, the Bank would of course do that, but do it having regard to its view of the litigation.

· As for the liquidator of Market Holdings, as an officer of the Court, he would of course abide by the requirements of section 110L of the Supreme Court Act. If he were unable or unwilling to participate and could properly refrain from participating, all shareholders and creditors of Market Holdings Pty Limited (in liquidation) would in any event be represented in the mediation.

28 The position with respect to the last bullet point as at the time of the hearing of the notice of was as follows. The liquidator of Market Holdings, Mr Silva, through Ms Schweikert of Corrs, who has courteously appeared as a friend of the court, has made plain that in the absence of any funding, he is unable to presently participate in the proceedings or in the mediation and that his position should be able to be clarified in the next few weeks. I proceed, however, upon the assumption that, in essence all relevant creditors of and shareholders in Market Holdings will be seized of the events which would occur if a mediation was ordered. This is because it is common ground that all shareholders in Market Holdings are, in one way or another, to be properly regarded as interests associated with Mr Maconochie. This is also because it is common ground that Young J [NAB Ltd v Market Holdings Pty Ltd [2001] NSWSC 253] held that the creditors of Market Holdings in liquidation are:

(1) Efficiency Investments BV as an assignee from Mr Maconochie and Investors Buying Services (IBS) Pty Ltd.

(2) The cross claimants to the first cross claim: NAB and NMG as to the amount claimed in the first cross claim.

(3) The defendants as to costs orders.

It is also common ground that his Honour left open the issue whether Idoport was a creditor.

29 The plaintiffs then submit that there are only two matters which might be put against an order. The first is that the plaintiffs' perception of their case is such that mediation would be futile (see Leading Counsel for the defendants at transcript page 9242 lines 9 - 15):

‘In this regard the defendants' position was that the letters annexed to Mr Hetherington's affidavit demonstrate an expectation or a view of the plaintiff as to the merits of their case and the possible consequences of it which are so far removed from the defendants' perception of this litigation as to make mediation at the present time in our respectful submission, futile.’

30 The plaintiffs response to this suggestion was as follows:

(a) As stated in paragraph 3.1 above, it is evident from the notice of motion, the affidavits and the correspondence, that the JMG Parties wish to and are prepared to mediate in good faith all the disputes in the proceedings. As the correspondence makes clear, they make this proposal in the view that mediation may well effect a sensible and timely commercial compromise for all concerned, in a responsible and businesslike manner, and that this is desirable in the interests of the parties, the public and the administration of justice.

(b) It is nothing new, and often the case in proceedings which are successfully mediated, that the parties have very different views of their respective cases, and of the resolution of the issues in the case. Mediation may well effect a sensible and timely commercial compromise for all concerned, in a responsible and businesslike manner. The JMG parties, while maintaining their claims in the litigation, are prepared to mediate those claims outside the litigation. They do not, and could not properly, put those claims or the claims of the defendants in the proceedings as any sort of a barrier to mediation. Nor can the Bank and its Directors properly do so. [I accept the submissions in this sub-paragraph as of substance]

(c) Notwithstanding that the stated position of the defendants is one of opposition to the application, the Court should bear in mind the remarks of the Chief Justice (Law Society Journal (NSW, Australia), March 2001, page 63, Supreme Court: Mediation (2001) 39 (2) LSJ 63) that:

It appears that, perhaps as a matter of tactics, neither the parties nor their legal representatives in a hard-fought dispute are willing to suggest mediation or even to indicate that they are prepared to contemplate it. No doubt this could be seen as a sign of weakness. Nevertheless, the parties are content to take part in the mediation conference if directed to do so by a Judge.

There is a category of disputants who are reluctant starters, but who become willing participants. It is to that category that the new power is directed. I formed the view that a power of the character now conferred on the Court by Parliament was a useful addition to the armoury of the Court to achieve its objectives.
[Clearly the propositions in this sub-paragraph are correct]


31 As to the suggestion that the mediation would be futile if the liquidator of Market Holdings did not take part, the plaintiffs submitted that the liquidator, as an officer of the Court, would of course abide by the requirements of section 110L of the Supreme Court Act. The submission was that as such an officer, he would, presumably, co-operate in the mediation (see Waterhouse v Perkins at para 94) and not seek to frustrate the mediation in any way. If he were unable or unwilling to participate and could properly refrain from participating, all shareholders and creditors of Market Holdings Pty Limited (in liquidation) would in any event be represented in the mediation. The position as at the date of the hearing of the motion following what fell from Ms Schweikert and discussion with the Bar table, has already been set out above.

32 As to the suggestion that the mediation would be futile if any external funder did not take part, the plaintiffs submitted that it is not the case that the consent of any external funder is necessary for the JMG parties or Market Holdings Pty Limited (in liquidation) or the liquidator to compromise the claims, and that the JMG parties would have available at the mediation all persons with authority necessary on their part to agree to a mediation or any compromise obtained in it. No evidence to the contrary was adduced on the hearing of the motion.

Approach to be taken

33 I further accept as of substance the plaintiffs submissions that the appropriate course is for the present application for directed mediation to be considered in the light of the following:

(a) Part 1 rule 3 of the Supreme Court Rules (“SCR”);

(b) the provisions of Part 7B of the Supreme Court Act;

(c) Practice Note 118.

(d) extra-curial statements of the Chief Justice, notably a speech delivered on the LEADR Dinner held on 9 November 2000, and his restatement of that speech in the Law Society Journal (NSW, Australia), March 2001, page 63, Supreme Court: Mediation (2001) 39 (2) LSJ 63.

SCR Part 1 rule 3

34 Part 1 rule 3 SCR provides that:

(1) The overriding purpose of these rules , in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in such proceedings.

(2) The Court must seek to give effect to the overriding purpose when it exercises any power given to it by the rules or interpreting any rule.

(3) A party to civil proceedings is under a duty to assist the Court to further the overriding purpose and, to that effect, participate in processes of the Court and to comply with directions and orders of the Court.

35 Speaking extra-curially the Chief Justice has explained that although this rule refers to the exercise of a discretion under the rules, similar considerations will be relevant, and in many cases determinative, with respect to the exercise of the statutory powers now found in Part 7B of the Supreme Court Act (see the Chief Justice’s article in the March 2001 edition of the Law Society Journal which is set out below).

Part 7B of the Supreme Court Act

36 The Supreme Court Act relevantly provides (Part 7B, “Mediation and Neutral Evaluation”) that:

(a) If it considers the circumstances appropriate, the Court may, by order, refer any proceedings, or part of any proceedings, before it (other than any or part of any criminal proceedings) for mediation or neutral evaluation, and may do so either with or without the consent of the parties to the proceedings concerned: s. 110K(1);

(b) The mediation or neutral evaluation is to be undertaken by a mediator or evaluator agreed to by the parties or, if the parties cannot agree, by a mediator or evaluator appointed by the Court, who (in either case) may, but need not, be a person whose name is on a list compiled under this Part: s. 110K(2);

(c) It is the duty of each party to the proceedings the subject of a referral under section 110K to participate, in good faith, in the mediation or neutral evaluation: s. 110L;

(d) The Court may make orders to give effect to any agreement or arrangement arising out of a mediation session: s. 110N(1).

Practice Note 118

37 The amendments to the Supreme Court Act contained in Part 7B have been explained by the Chief Justice in Practice Note 118 (8 February 2001) in the following relevant terms:

1. Part 7B of the Supreme Court Act has been amended to permit the Court at any stage of the proceedings by order to refer parties to mediation where, in the opinion of the Court, mediation appears appropriate.

2. It is not the intention of the Court that mediation will be ordered in all proceedings. In considering whether proceedings are appropriate for mediation the Court may, as set out in paragraph 3(b) below, refer them to a registrar to discuss with the parties the advantages and appropriateness of mediation.

3. By its own motion or on the motion of a party or on referral by a registrar the Court may, after hearing the parties:

a) notwithstanding that the parties, or any of them, do not consent to mediation, make an order pursuant to s110K and appoint a mediator, being a person agreed upon by the parties or, failing that, a person nominated by the Court;

b) refer the proceedings to a registrar who is on the Chief Justice's list of mediators to meet with the parties to discuss mediation and report back to the Court with, if appropriate, a recommendation as to whether the proceedings are suitable for mediation; or

c) refuse to order mediation.

4. The parties themselves may, at any time, agree to mediation, nominate a mediator and request the Court to make appropriate orders.

5. Parties are required to inform the Court of the outcome of mediation ordered pursuant to s110K of the Supreme Court Act.

38 “Mediation” is defined in s110I(1) as:

“a structured negotiation process in which the mediator, as a neutral and independent party, assists the parties to a dispute to achieve their own resolution of the dispute”.

Extra-curial statements of the Chief Justice

39 In a speech delivered at the LEADR Dinner on 9 November 2000 the Chief Justice commented on the “change of policy” within the Court to compel mediation. The Chief Justice referred to the position paper delivered in May 1999 by the Council of Chief Justices of Australia and New Zealand titled “Declaration of Principle on Court-Annexed Mediation”. The speech was then republished in the Law Society Journal in March 2001.

40 The Chief Justice made the following comments:

§ Mediation is an integral part of the Court's adjudicative processes and the "shadow of the court" promotes resolution.

§ Mediation enables the parties to discuss their differences in a co-operative environment where they are encouraged but not pressured to settle so that cases that are likely to be resolved early in the process can be removed from that process as soon as possible.

§ Consensual mediation is highly desirable but, in appropriate cases, parties can be referred where they do not consent, at the discretion of the Court.

§ In each case referral to mediation should depend on the nature of the case and be in the discretion of the Court.

§ The success of mediation cannot be measured merely by savings in money and time. The opportunity of achieving participant satisfaction, early resolution and just outcomes are relevant and important reasons for referring matters to mediation.

§ there are circumstances in which parties should be compelled to mediate. Until the Supreme Court Amendment (Referral of Proceedings) Act 2000, s.110K of the Supreme Court Act permitted the Court to refer civil matter or mediation or neutral evaluation with the consent of the parties. The new s.110K expressly states that the power to make a reference can be exercised with or without the consent of the parties. The mediator or evaluator is to be agreed to by the parties, however, in the absence of agreement, the Court may appoint a person to conduct the mediation or a neutral evaluation.

§ The Declaration of Principles of the Council of Chief Justices, which I have quoted above, accepts that, although consensual mediation was desirable, a referral without consent can occur in appropriate cases. In one sense, the idea of a compulsory mediation is a contradiction in terms. To be successful a mediation process requires consensus.

§ Notwithstanding the “contradiction in terms”, there are precedents for compulsion of mediation. Indeed any contractual arrangement which requires mediation, as is frequently the case, is in one sense a compulsion of this character, albeit one agreed consensually at a time when the possibility of dispute was far from the contracting parties’ minds. Some legislative schemes have included provision for compulsion. I refer in particular to the Farm Debt Mediation Act and the Retail Leases Act. The Federal Court and the Supreme Courts of South Australia, Victoria and Western Australia have for some time had power to refer matters to mediation over the objection of one or both of the parties.

§ No doubt it is true to say that at least some people, perhaps many people, compelled to mediate will not approach the process in a frame of mind likely to lead to a successful mediation. There is, however, a substantial body of opinion ñ albeit not unanimous ñ that some persons who do not agree to mediate, or who express a reluctance to do so, nevertheless participate in the process often leading to a successful resolution of the dispute.

§ I am advised that in Victoria no difference in success rates or user satisfaction between compulsory and non-compulsory mediation has been noted. Not all research or anecdotal evidence is to this effect.

§ It appears that, perhaps as a matter of tactics, neither the parties nor their legal representatives in a hard-fought dispute are willing to suggest mediation or even to indicate that they are prepared to contemplate it. No doubt this could be seen as a sign of weakness. Nevertheless, the parties are content to take part in the mediation conference if directed to do so by a Judge.

§ There is a category of disputants who are reluctant starters, but who become willing participants. It is to that category that the new power is directed. I formed the view that a power of the character now conferred on the Court by Parliament was a useful addition to the armoury of the Court to achieve its objectives.

§ That overriding purpose of the Supreme Court Rules is now set forth in explicit terms in Part 1 rule 3, being the first substantive rule of the Supreme Court Rules.

§ Although this rule refers to the exercise of a discretion under the rules, similar considerations will be relevant, and in many cases determinative, with respect to the exercise of the statutory powers now found in Part 7B of the Supreme Court Act. Indeed the duty to participate referred to Part 1 rule 3, is expressly enacted in s.110L of the Act. [emphasis added]

Other non-judicial material

41 In Mandatory Mediation and Neutral Evaluation: A Reality in New South Wales (2000) 11 ADJR 237, David Spencer, a solicitor and academic at the University of Western Sydney Macarthur considered the advantages and disadvantages of mandatory mediation at some length.

42 At page 246 (having set out advantages of mandatory mediation at pages 245-6) he refers to comments on Black CJ of the Federal Court and Andrew Rogers QC, then Chief Judge of the Commercial Division of the Supreme Court supportive of mandatory mediation. In AWA Ltd v Daniels t/as Deloitte Haskins and Sells, unreported, Supreme Court of New South Wales, 24 Feb 1992, he said, in ordering a non-consensual mediation:

“The question is whether there is any difficulty in requiring parties, who are clearly bent of being difficult, to submit to conciliation processes. In my view there is. An independent third party can bring a different perspective into such procedures and can bring about a settlement even between parties who are evidently bent on litigation.”

43 Spencer concludes at 251-2 as follows:

“The one compelling factor...is that, whilst forcing parties to participate in an ADR process will probably not do them any harm, and in fact may surprise them in relation to what may be achieved, it may assist them to resolve or narrow issues that will be of benefit should the matter proceed to litigation. Also, whilst parties may be forced to participate in an ADR process, at the end of the day they will still control the ADR process. “

Judicial consideration of Part 7B

44 Part 7B (or its equivalent) has been considered, inter alia, in the following cases in relation to ordering a mediation over objection:

· Waterhouse v Perkins NSW Supreme Court (Levine J) [2001] NSWSC 13 [Mediation ordered]

· Morrow v Chinadotcom NSW Supreme Court (Barrett J) [2001] NSWSC 209, and on application for leave to appeal [2001] NSWCA 82 [Mediation not ordered]

· Hopcroft v Olsen SA Supreme Court (Perry J) [1998] SASC 7009 [Mediation ordered]

· Baulderstone Hornibrook Engineering v Dare Sutton SA Supreme Court (Perry J) [2000] SASC 159 [Mediation ordered]

· Kilthistle No. 6 v Austwide Homes Federal Court (Lehane J) [1997] 1383 FCA [Mediation not ordered “at present” and Motion stood over]

45 I accept that all these decisions were pre-trial decisions. None of these cases displayed as many of the matters supporting the order for mediation as the present proceedings. Nor did they involve proceedings of the magnitude, state of preparation and readiness, and likely duration as those of the present proceedings.

46 The plaintiffs then submit that the most appropriate guidance is obtained from Justice Levine in Waterhouse v Perkins. This was a defamation case. The defendants applied to the Court for directed mediation. Although the plaintiffs’ reaction was “entirely negative”, Levine J ordered mediation stating, inter alia:

“Essentially it was argued in support of the application that by reason of the complexities of the issues between the parties ( and there are cross-claims), the length of time taken since the initiation of proceedings (1991 - the first action), what would be the length of time to be taken and the inestimable amount of costs to be incurred in a fully litigated jury trial are factors which at least point to the desirability of the exploration of the resolution of the issues between the parties otherwise than by the trial itself.

. . .

However, the Court does have the power imposed by s 110K to order mediation without the consent of the parties to the proceedings.

An important component of this new part of the Supreme Court Act is s 110L which provides that it is the duty of each party to the proceedings the subject of a referral under s 110K to participate, in good faith, in a mediation or neutral evaluation.

Taking into account the matters referred to by both Mr Connell and Mr Caspersonn which are recorded in the transcript, and the very nature of the applications and their multiplicity with which I have just dealt, one could be forgiven for an immediate reaction favourable to the defendants' application.

The plaintiff's response to the defendants' application has been entirely negative. . . .

Litigation of an action of this kind in this Court is one that leads to the determination of what might be described as " rights ". Mediation is not conducted to the exclusion of " rights ". The mediation might be directed to consideration of " interests and needs" independently of or against the backdrop of " rights ' as exposed in the forensic environment.

Mediation might well have the advantage of taking the edge off the acrimony .............

It is the law constituted by the will of the Parliament reflected in Pt 7B of the Supreme Court Act and the orders made by this Court itself that the parties are obliged to act in good faith. If they do so, and it is to be presumed that they will, the potential outcomes must be viewed positively when weighed against the dimensions and cost of a trial. I am not persuaded that there is any rational reason for not ordering mediation in the peculiar circumstances of this litigation at this time. The issues are clear as between the parties, if not as refined as parties in defamation actions seem to insist upon, by reason of outstanding interlocutory disputes.

With respect to the various matters dealt with in the body of this judgment I will defer making formal orders so that the resources of the parties both in terms of time and costs can the more easily be allocated to the mediation process.
[paragraphs 83-98]

Dealing with the application

47 Notwithstanding the defendants stated attitude to the application which is that a mediation would be futile, as the plaintiffs have pointed out, it is important to bear in mind the fact that following the making of an order for mediation there is imposed upon both parties a statutory obligation to mediate in good faith. Some examination of the case law and academic writings dealing with the statutory requirements and dealing with the essential or core content of an obligation to mediate in "good faith" was given in Aiton Australia v Transfield Pty Ltd [1999] NSWSC 996; [1999] 153 FLR 236 [Einstein J. delivered on 1 October 1999] [Leave to appeal to the Court of Appeal refused]. That judgment at page 268 included the following:

"In my view, the authorities and academic writings referred to above demonstrate that while the content of any good faith requirement depends on context (statutory or otherwise) and the particular factual circumstances, it is possible to delineate an essential framework for the notion of ‘good faith’ such that the requirement of ‘good faith’ in cl 28 is sufficiently certain for legal recognition of the agreement.

Essential or core content of an obligation to negotiate or mediate in good faith

As already pointed out, the courts have always avoided hampering themselves by defining or laying down as a general proposition what shall be held to constitute fraud. Yet, however difficult it may be to define what fraud is in all cases, it is relatively easy to identify some of the elements which must necessarily exist.

In the same way the court ought be wary in the extreme of hampering itself by defining in any exhaustive way or by laying down as a general proposition, the ambit of what will constitute a compliance with or failure to comply with an obligation to negotiate or mediate in good faith.

These are matters to be determined depending always on the precise circumstances of each individual case. But the ‘certainty’ issue does require that the court spell out, even in non-exhaustive terms, the perceived essential or core content of an obligation to negotiate or mediate in good faith. To my mind, but without being exhaustive, the essential or core content of an obligation to negotiate or mediate in good faith may be expressed in the following terms:

(1) to undertake to subject oneself to the process of negotiation or mediation (which must be sufficiently precisely defined by the agreement to be certain and hence enforceable).

(2) to undertake in subjecting oneself to that process, to have an open mind in the sense of:

(a) a willingness to consider such options for the resolution of the dispute as may be propounded by the opposing party or by the mediator, as appropriate.

(b) a willingness to give consideration to putting forward options for the resolution of the dispute. "

48 A reading of the more detailed reasons in the judgment will cover other matters relating to the content of the obligation to mediate in good faith in a practical, as it were, sense.

49 Whilst I have clear reservations as to the utility of a court ordered mediation in circumstances in which the defendants so very strongly submit that

(a) the very measure of the plaintiffs’ claims, and

(b) the chasm between the respective perceptions as to the plaintiffs’ prospects of success,

combine to show that there is simply no room for negotiations in good faith, I have to take into account the whole of the unusual circumstances of this unusual litigation.

To my mind, and in the exercise of the court’s discretion, as long as the hearing is effectively not disrupted, it is appropriate to accede to the plaintiffs’ application for the court ordered mediation. In this regard the continued rollout of the plaintiffs’ witnesses is presently anticipated to continue into the early months of 2002.

50 As to the defendants’ submission that in the absence of the participation of Market Holdings by its liquidator, a critical party will not be present, it seems to me that the court should take into account the interrelated commonality of the commercial interests concerned on the plaintiffs’ side of the record in the litigation. This is not an occasion for a close analysis of the pleadings in terms of an explanation of the differing ways in which the cases of Idoport, on the one hand, and of Market Holdings, on the other hand, are put.

51 It is important to make very clear to the parties that notwithstanding the courts clear interest in permitting the parties to conduct a meaningful mediation it is simply inappropriate for the Court at this stage in litigation of this order to lose control of the continued hearing. Consistently with this position the present timeline sees a hiatus in the continued hearing during the three-week period covering the last week in June and the first two weeks in July. That period of time was identified in an earlier judgment as necessary to permit the defendants to investigate the recent amendments allowed to the statement of claim. It seems to me that the Court should now extend that hiatus in the continued hearing for a further fortnight to permit the mediation to take place.

52 The parties should bring in short minutes appropriately and are to endeavour to reach agreement as to the identity of the mediator and as to other ancillary issues.







I certify that paragraphs 1 - 52
are a true copy of the reasons
for judgment herein of
the Hon. Justice Einstein
given on 23 May 2001 and
revised 24 May 2001

___________________
Susan Piggott
Associate

24 May 2001








LAST UPDATED: 11/06/2002