Challenging the Adversarial System

Litigation is the bread and butter for many lawyers, but is it the best model for providing commercial outcomes for business clients?

Think about the last piece of litigation you were involved in. Did it provide a smooth, efficient process that delivered your client a result in a timely manner? Did you and the other side have vastly different estimates of where the matter would land if it went to court? Did your early negotiations fail, only to land at a similar outcome after months and months of legal proceedings?

If you went all the way to court and succeeded, what was the percentage of your client’s recovery eaten up by legal and administration fees? This article looks at some of the challenges of litigation as a tool for resolving disputes along with a proposed model which would address many of these challenges and deliver faster, cheaper outcomes.

It is common knowledge that the majority of proceedings commenced in court will resolve without a trial being held. In fact, the general pattern is that the plaintiff will firstly notify the other party of its claim. While the defendant will no doubt reject the plaintiff’s claim, there are likely to be negotiations with offers made by one or other party. If these offers are not accepted, the matter will proceed to litigation. The court will order the matter to mediation and the matter may settle at mediation or sometime between mediation and trial.

In my experience as a commercial mediator, I’ve found that a very common situation is that parties settle at a court ordered mediation with an offer that is the same or similar to an offer that was made in those early negotiations. This situation leaves both parties upset. The plaintiff gets an outcome that could have been achieved months ago and they have spent thousands of dollars in legal fees. The defendant has had to pay thousands of dollars in legal fees on top of the settlement sum. The net result is that both parties are out of pocket significantly more than they would have been if they adopted a commercial and conciliatory mindset from the outset.

As I repeatedly observed the same situation, I thought that there must be a better way of resolving these disputes. I want to share some of my thoughts as a way of starting a conversation about how we change the way disputes are managed.

What’s the problem?

There are three key issues with the current process.

Litigation is adversarial

The adversarial nature of litigation is a source of conflict. Even though these are commercial disputes, the need to prove that you are right (and that the other party is wrong) can generate a fear of losing. This fear can create stress responses in the body which impact on one’s ability to think rationally.

What’s also interesting about this process is that the research tells us that if we give the same set of facts and data to two sets of lawyers, their assessment of the prospects of success in that case and the likely award by the court will be statistically different depending on whether they’re told that they are acting for the plaintiff or the defendant. This means that the plaintiff is getting an assessment of the position that is more favourable to them than the assessment made by the defendant’s lawyer.

In mediation, when I have discussions in private with each side and ask what they believe their prospects of success to be, the sum of those two numbers can often be in excess of 150 per cent. Unfortunately, this means that one of the parties will be proven wrong at trial. One or both of the lawyers has, without negligence, overstated their client’s prospects of success.

Litigation is expensive

The costs of litigation are clearly a significant issue and may be prohibitive in many cases. The out of pocket legal costs can be a significant proportion of any amount awarded to the plaintiff leaving them little to show for their victory. For the defendant, significant costs can be incurred in proving they have no liability.

Litigation is slow

With delays of months or even years before a trial date (or a court ordered mediation), and significant time after that for judgment to be issued, disputes can drag on. This can lead to ongoing stress for business owners and disruption to managing the business.

What’s the alternative?

Let’s now imagine a process that addresses these three problems. It takes on board elements of our adversarial system, the inquisitorial system and collaborative family law processes.

The following example illustrates how the process would work.

One or both parties approach an independent dispute resolver to assist with the dispute. That person’s role is to manage the resolution of the dispute proactively in a neutral way. They are not acting for either of the disputants.

If only one party contacts the dispute resolver, the dispute resolver would contact the other party to explain their role, to build their trust and to engage them in the process. It is a voluntary process.

There will no doubt be certain parties who prefer to go down the traditional litigation path. However, some, particularly those who have been through litigation before and understand the challenges, might be willing to try this more collaborative method.

The parties attend an initial meeting with the dispute resolver.

The goal of this meeting is to:

• determine what the dispute actually is
• create a list of agreed facts
• create a list of disputed facts.

From this meeting, the parties may reach an agreement which will then be documented. If not, the parties will agree on what further information is required to progress the dispute. This may include further sharing of information, legal opinions or other expert opinions.

The use of a neutral lawyer avoids the issue of subconscious bias that was mentioned earlier. The client is the dispute resolver, not either party. This applies to other experts as well. It also manages the fact that clients may sometime default to assuming that the other party’s lawyer is just incompetent and wrong.

The dispute resolver provides the agreed and disputed facts to an independent neutral lawyer who will be asked to provide a case evaluation. The lawyer will be asked to consider:

• the legal issues involved in this situation
• the likely outcome
• the areas of risk for each party.

The dispute resolver may also provide the agreed facts to other experts to provide guidance on any questions of facts. This could include valuations or technical assessments.

Once the independent assessments are received, the parties and the dispute resolver meet again to consider the assessment of the expert advice and make a further attempt to settle.

An optional step could be that the parties agree upfront that if no agreement is reached, they will ask for a binding determination by the dispute resolver or seek an independent determination through some sort of private arbitration process.

The costs of the dispute resolver are shared equally between the parties. This is an essential part of the dispute resolver being seen as neutral. The costs of other experts will also be equally shared. Generally, the experts will be selected by the dispute resolver, subject to agreement by the parties.

I expect that a large percentage of disputes would be resolved through this process. This supposition is supported by the success of other types of dispute processes, such as the Victorian Small Business Commission which achieves extremely high settlement rates1 in pre-litigation mediations despite not having this extra level of expert input.

While we know that very few of these matters will progress to trial, it is the timing of this process which brings key benefits. The costs of drafting pleadings, managing discovery and so on are eliminated. There is only one neutral assessment of law and facts rather than competing and contradictory assessments. Also, the neutral mediator has a role of managing the process to keep it moving along without unnecessary delays.

Where there is no resolution, the matter could revert to the litigation process. Even when litigation commences, the process that the parties have been through will narrow down the range of issues in the dispute so that the dispute is clearer and, therefore, more cost effective to run.

Issues and concerns

There are issues and hurdles to overcome in implementing such a process. The first and most obvious is that parties need to agree to take part in the process. It is quite different from what they are used to and we know that people are resistant to change. The more that we can try this on low-risk matters, the more evidence we will have to support its use more broadly.

Another issue is that if people have these disputes, often the first person they talk to is their lawyer. A lawyer who recommends this process will necessarily be doing themselves out of some work. They could not be the neutral lawyer because they are connected directly to one of the parties. Therefore, the incentive to recommend this process to clients is relatively low.

Of course, if a lawyer recommends this process for low value disputes that are likely to be uneconomic to resolve through adversarial litigation, the hope is that this would build the relationship with the client so that their larger disputes will come to the lawyer.

A further issue is the lawyer’s ability to provide advice to both participants, given they have an ethical duty to act in the best interest of the client. A possible solution is that the lawyer’s client is the dispute resolver. The lawyer is only providing advice to the dispute resolver. The dispute resolver will, of course, share that with the other parties but they are not the client. Several barristers have indicated concern to me about opinions being relied on by parties other than the direct client but I am sure that a satisfactory mechanism could be put in place to manage this.

Finally, there may be some concern that, if a resolution is not reached, the money spent on this process is wasted. This is something I commonly hear regarding pre-litigation mediation generally. However, as mentioned, even if a settlement is not reached, this process will already have narrowed down the issues in dispute, reducing the cost of pleadings and discovery. The neutral legal evaluation can also serve as a starting point for litigators, making their research more efficient.

Conclusion

It is worth giving consideration to how commercial disputes are currently resolved and whether it can be replaced or supplemented with an alternative way that is faster, cheaper and possibly fairer for your clients.