Congestion in the courts, delays in litigation and rising legal costs. It is little wonder businesses are avoiding the courtroom and looking to alternative dispute resolution (ADR). But are lawyers meeting the demand? Leanne Mezrani reports.

Telling an adversary “I’ll see you in court” is becoming a rare occurrence with the development and institutionalisation of ADR in Australia.

More disputes are being resolved outside the courtroom, and legal firms are broadening their commercial practices to include ADR. 

The middle man is back. 

Driving this trend is client demand for faster, less costly options to litigation.

So says Graydon Dowd, partner in commercial dispute resolution at Hall & Wilcox. He has seen examples of disputes involving tens of millions of dollars resolved within a few months using ADR. While he could not provide details of the cases, he says they could have taken years to resolve through litigation when you factor in the amount of money in dispute and the complexity of the legal issues.

He believes current economic pressures and the push for cost savings has meant more businesses are willing to “cut a deal” for a speedy outcome. “Clients are more prepared to compromise their position in exchange for certainty of outcome and a desire to remove the risk of being exposed to large legal bills,” he says.

Dowd was the head of the Blake Dawson (now Ashurst) commercial dispute resolution team in Melbourne for six years before moving to Hall & Wilcox in January. He has been keeping a close eye on the ADR market in Australia and says, while there are exceptions, the era of “big corporates taking on big corporates in long, drawn-out and costly court battles” is over.

Anthony Dempsey, partner at ADR specialist firm Wisdomdr, agrees that ADR is becoming the corporate world’s preferred method of settling disputes. He adds that lawyers should heed the message coming from judges, who are ordering cases away from the courts, to “resolve disputes sensibly and commercially”.

However, some lawyers are intentionally not recommending quicker, cheaper methods of dispute resolution, claims Dempsey, who fears time-based billing is to blame.

“The move to encourage ADR in Australia will be stymied as long as lawyers charge in time increments ... because the most profitable route for litigation lawyers is to proceed to court,” he says.

Dempsey admits his comments may hit a nerve, but he maintains that lawyers must act in the best interest of clients which, in today’s economic climate, is to take the more cost-effective route.

Unsurprisingly, Dempsey claims Wisdom offers a strong commercial proposition to businesses seeking dispute resolution. He says the company recruits “captains of industry”, rather than retired barristers or judges, to bring commercial acumen to a dispute.

 “These business leaders have typically reached the heights of senior management and can help guide parties in dispute to a commercial outcome, whereas retired judges and silks come from an adversary world that is not necessarily conducive to mediation or conciliation,” he explains. 

Reputations at risk

Financial fallout aside, litigation poses a significant reputational risk to businesses, Dempsey continues. 

“Court proceedings are not private and are the subject of enormous uncertainty.”

Dowd agrees this a big issue for business; with clients expressing concern their reputation may suffer blows through the adversarial court system.

“There is the risk that a case will escalate beyond anyone’s contemplation and, consequently, businesses are increasingly unwilling to assume the risk of litigation, which now includes reputational risk,” he says.

Indeed, reputational risk appears to have surpassed natural disasters as the corporate world’s top concern, according to a survey by global risk management and insurance company Aon.

The 2011/2012 Australasian Risk Survey found ‘brand and image’ to be the most important risk concern for Australian and New Zealand businesses for the fifth consecutive year.

Pressure from clients to resolve disputes quickly and, more importantly, quietly is providing law firms with greater impetus to explore ADR, says Jon Rowell, an accounting consultant and partner at McGrathNicol. 

Another factor is the “internationalisation of Australian law firms”, he adds. 

Rowell reveals his forensic business is booming as more local firms adopt the practices of their global partners that are a few paces ahead of Australia in the ADR space.

Playing catch up

A consultant in Europe and the UK for 10 years, Rowell says he saw a significantly higher percentage of legal matters being resolved via ADR channels overseas compared to Australia.

But Australia is catching up, he continues. “I have seen more legal matters resolved through mediation in the past 12 months than I have ever seen and this is due, in part, to a push by law firms to resolve matters using alternatives.”

Rowell is finding construction and mining clients are most interested in ADR because the costs associated with lengthy litigation are potentially very high. “They simply can’t afford for a project to be delayed in a long drawn out court process.”

He also predicts clients in the telecommunications and energy sectors will increasingly seek ADR.

To accommodate a broader range of clients, Australia’s commercial dispute resolution system has been overhauled over the past five years. Significant reforms have included the adoption of the United Nations Commission on International Trade Law (UNCITRAL) model to govern Australia’s domestic commercial arbitration system, and the enactment of legislation that hands power to the Australian Centre for International Commercial Arbitration (ACICA) as the sole default appointing authority under the Australian International Arbitration Act. 

Previously, the Supreme Court of the various states and territories had this power.

Spruiking their wares

ACICA president Professor Doug Jones believes the Australian judicial system is now more supportive of the international arbitration process – and he’s selling that story to the rest of the world.

His current focus is China, with the ACICA holding events in Shanghai and Beijing this month in an attempt to attract a greater share of the booming international arbitration market.

“An increasing number of arbitrations are being heard in the Asia-Pacific region and the purpose of the events is to raise awareness among Chinese parties of the benefits of Australia as a neutral seat for international arbitration,” says Jones.

But he admits Australia has stiff competition from international arbitration destinations Hong Kong and Singapore, which are nearer to China.

“The tyranny of distance – yes it’s an issue,” he says. “But Australia is much more accessible than it used to be.”

In fact, distance may prove attractive to the parties dealing with Chinese firms, claims Jones: “These parties will be looking for a location that has no obvious connection with China and Australia offers that neutrality.”

While bodies like ACICA and the Australian International Disputes Centre (established in 2010) are enticing global players to settle their disputes in Australia, lawyers who want a piece of the market are brushing up on their ADR skills.

According to Dowd, a growing number of lawyers are being consulted early in the life of a dispute and increasingly drawing on ADR methods and techniques.

“Lawyers need ADR skills in addition to litigation skills,” he says. 

“Clients expect their lawyers to provide pragmatic and commercial advice, and more lawyers are being asked to perform advisory roles, with a focus on strategy and risk management.”

Structured negotiation meetings when a dispute is still in its infancy – where lawyers are focused on delivering commercial outcomes for clients – are more likely to result in a resolution,” he continues.

“Or you’ll at least make progress in finding areas of common ground to facilitate a resolution in subsequent talks.”