Dispute Resolution Management - Peter Condliffe       Arbitration: THE FORGOTTEN ADR?     THE ONCE TREASURED ART OF ARBITRATION HAS UNFAIRLY BEEN DEVALUED.     IT HAS MUCH TO OFFER, ESPECIALLY IN THE FIELD OF COMMERCIAL ALTERNATIVE     DISPUTE RESOLUTION MANAGEMENT. BY PETER CONDLIFFE         It is interesting to note that the formation of Australia's oldest dispute management association, the Institute of Arbitrators and Mediators (the Institute), in 1975 was set against a background of significant reform and development of arbitration legislation.     New English arbitration legislation in 1979 was used as the basis of the momentous development of Australian arbitration legislation with the first uniform Commercial Arbitration Act 1984 (Vic).     However, despite these changes, from the late 1980s mediation and other forms of alternative dispute resolution (ADR) have continued to gain popularity at the expense of arbitration apparently because they were and are seen as less formal processes which offer substantial savings in time and legal costs.     The interesting question is why in the face of the many criticisms of traditional court litigation has arbitration not maintained the same level of popularity that it has in the European or even American context? For example, the American Arbitration Association reported in its 2002 annual report that it had administered 230,255 cases for the year. This represented a 5.6 per cent increase on the previous year. Most of these were arbitrations. Of these 3298 were for sums in excess of $US250,000.     In my time as CEO (2000-2003), the Institute did not administer more than 150 cases in any one year. After all, arbitration is generally cheaper than litigation, speedier, ensures privacy, is more likely to contain the excesses of interlocutory processes like discovery, is readily enforceable, relatively flexible and ensures finality. In some ways it is as if arbitration has become the "forgotten element" in dispute management.     I think there may be three principal reasons why this may be occurring in Australia. It is this combination of factors in the Australian experience that more fully explains the fall of arbitration as a preferred and often used dispute resolution process.     Disputant choice     First, disputants across all sectors of the economy and community now have more choices and the range of alternatives continues to broaden. In any society there are alternatives when conflicts arise and the fact that there are these alternatives implies that one particular procedure is not necessarily the best for every kind of conflict.     There has been a definite move over the past 30 years towards limiting the role of third parties so as to ensure greater autonomy of parties. This has often been associated in the literature with the rise of communitarianism (with its emphasis on localised responses to conflict management) in the 1960s and 1970s and associate scepticism about the role of traditional institutions and professions.     During the past three decades dissatisfaction with certain aspects of the court system has been a major factor in people seeking alternative ways to resolve disputes. The traditional system of litigation through the courts has come under scrutiny and attack for a variety of reasons. Many question the capacity of lawyers and court procedures to adapt to the new "social rights" of consumers, tenants and the poor. Courts are expensive and often slow, and these features are aggravated by formal procedures. There is growing concern about the proliferation of laws and their complexity. "Legality", it is often claimed, seems to obscure and override basic justice.     Courts in response have increasingly turned to case management techniques including referencing-out (used extensively in New South Wales) and new administrative systems.     Arbitration has suffered in this process of change because it is often associated with the old style resolution focused (determinative) and evaluative procedures rather than the management-focused facilitative processes that have developed. Indeed, arbitration has often been lumped with litigation as a disputing system. This has not always been helpful to those who would want to encourage its greater use. For example, Donaldson J (as he then was) in Bremer Vulkan Shiffbau und Maschinenfabrik v South India Shipping Corp Ltd said:1     "Courts and arbitrators are in the same business, namely, the administration of justice. The only difference is that the courts are in the public and arbitrators are in the private sector of the industry".     With respect, I think there may be other differences than a simple public-private divide and I would offer that many arbitrators do not see themselves as involved in the "administration of justice".     Although it is true to say arbitration is essentially the outcome of an agreement between the parties and hence their relationship is one based on private rather than public law, this is not to say that there are not other fundamental differences including matters of procedure, use of prescribed rules and precedent including evidentiary rules. Perhaps more importantly in litigation the role of the third party (the judge) is directly backed by the power of the state and the parties are attempting to resort to it. This establishes an aura of authority around the judge and perhaps the parties also which transcends such a simple division as the learned judge may seek to establish.     The rise of the tribunal     The second reason why Australians have moved away from arbitration as a conflict management process is because we have developed a marked preference for relatively informal tribunals in preference to private arrangements for settling disputes.     The "new" facilitative processes of mediation and con ciliation have often assumed a new significance and become compulsory precursors in the establishment of these new bodies. The Victorian Civil and Administrative Appeals Tribunal (VCAT) is a good, if somewhat contradictory, example. It brings together the proliferation of tribunals and jurisdictions in Victoria into a body that in some ways is now paradoxically assuming the proportions and look of a court of law. In this process legislatures can actively discriminate against the use of arbitration. For example, s14 of the Domestic Building Contracts Act 1995 (Vic) prohibits arbitration clauses.     The recent case of Age Old Builders Pty Ltd v Swintons Pty Ltd2 points out some of these procedural and jurisdictional issues nicely. Here, deputy president Professor Damien Cremean held that an expert determination clause was invalid because it breached the provisions of the Domestic Building Contracts Act which prohibited arbitration clauses. VCAT's decision has been overruled on appeal to the Supreme Court in Victoria, which has sought to clarify the distinction between the two processes.3     The Court also found that on its proper construction s14 is not intended to apply to present disputes. That is, parties can enter into an arbitration agreement once a dispute is under way.     Bad press     The third reason alluded to above is that arbitration is often only given mention in the media or comes to notice when a case appears to go wrong. Because it is not a process that goes onto the public record like litigation, its triumphs and successes lie mute while the disasters go down with a fanfare akin to the Titanic.     Two recent examples have caused some consternation. The first involved an arbitration between the Tasmanian catamaran builder ICT Pty Ltd and the shipowners Sea Containers Ltd. The NSW Supreme Court found that the behaviour of at least two of the three arbitrators appointed in that case (one an ex-judge) was behaviour that had given rise to "misconduct" and the "appearance of bias". The agreed fee for the arbitrators was $3000 each per day with a likely hearing time of four weeks.4     Early in the preliminary negotiations the parties were asked by the arbitrators to place $250,000 in a trust account as security for fees, costs and expenses. A dispute then arose between the parties over the arbitrators' request for cancellation fees which would be paid in the event the hearing settled early or did not proceed for the full period set aside. ICT argued that the arbitrators had misconducted themselves by pressing repeatedly for the agreement of the parties to pay cancellation fees. This company further argued that in view of that it could not get a fair hearing. The arbitrators would not withdraw.     Before the Supreme Court, Gzell J ordered the arbitrators to be removed saying they acted to "the detriment of their duty to maintain the appearance of acting in the interests of bringing down a just award".     When Gzell J's findings were appealed,5 Meagher J went even further:     "Just how there could be a moral obligation to pay for work which might never be done, I quite fail to see. It is, in my opinion, that at this point the conduct of the arbitrators passed beyond the realms of the unseemliness into misconduct and misconduct of a very high order.     "They, apparently, brushed to one side any consideration that a litigant might feel more than a little uncomfortable if he went to court knowing that the judge was plaintiff in an action against him arising out of the very matter the judge was supposed to adjudicate.     "At this point the arbitrators' conduct became disgraceful".     The other case was a contractual dispute between the owner of a tourist business at Phillip Island called Seal Rocks Victoria (Australia) and the state government. On 20 November 2003, the Victorian Auditor-General revealed that the dispute over the centre cost the state government $55.9 million. A total of $42.9 million was the amount required to be paid to the business owner by the government. Of this sum, $37.3 million was awarded by an arbitrator appointed to settle the dispute and a further $5.6 million paid in costs.     Legal fees of $9.3 million were paid out during the dispute, which continued in the Victorian Supreme Court when the government appealed against the arbitrator's award.6     The government has been left with an empty building and the community with some significant disquiet about the cost- effectiveness of the whole process.     The construction and building industry:     a case study     The construction and building industry is reputed to be one of the most conflicted sectors of our economy and it has been the mainstay of arbitration practice in this country. As such it also provides a good case example of its decline and perhaps further illustrates the points above.     Construction disputes are often complex and time-consuming and are therefore ideal contexts for the use of arbitration. However, the industry seems to have moved from an outcome-centric, usually arbitration-based response to such disputes in the 1970s towards management and prevention focused approaches through the late 1980s and into the 1990s. This parallels trends in society alluded to above, although it is probably true to say that these attempts, most of which were adopted from overseas experience, have met with only mixed success. These attempts have included partnering, expert determination, alliancing, adjudication and dispute review.     Partnering is an attempt to bring together the contract administrators to enable them to better communicate and understand each other and compromise (often around issues of rights and liabilities) where necessary. Many partnering provisions ran into difficulties because the operational procedures were not incorporated into the contract and therefore left them open to challenge. This type of procedure requires commitment and skills on behalf of the parties that are not always going to be there.     Expert determination was introduced in the 1980s as a contractually based antidote to arbitration that was increasingly seen as becoming bogged down in procedure and formality. Although not so suited to complex disputes it enjoyed a period of some popularity which, however, waned in the mid-1990s. It operates in much the same way as a simplified arbitration procedure operating under a relatively strict set of rules. The expert determination process was particularly suitable for single issues or disputes of a limited size or scope.     Another more recent development has been alliance contracting. In this process the parties come together to share the burden of risk under a contract. The challenge in these sorts of arrangements is to ensure the parties coordinate their respective activities. There is obviously a cost in doing this. As with partnering, the principle is to recognise that conflict will occur and that early prevention and management is preferable.     Another emerging managed dispute resolution process is through the Dispute Review Board (DRB). It is a procedure, developed in the US, which has proved successful on major projects. Recently its peak body, the Dispute Review Board Foundation, established a branch in Australia.     The process involves a panel of three, appointed at the commencement of the project. The three comprise in effect a nominee of each party and an appointed or neutral chairman. The DRB meets regularly during the course of the contract and deals with disputes as and when they arise in accordance with a prescribed procedure.     The introduction of statutory adjudication under the security of payments legislation in New South Wales and Victoria over the past two years to deal with many payments disputes in the industry also points the way to more speedy administratively-driven processes. This process with limited jurisdiction and strict time lines within which to make final determinations may be extended. If such processes can be used in relation to payments, why not extend the process to such matters as extensions and variations?     The development and exploration of these dispute management processes in the construction industry over the past 20 years underscores the willingness of parties, the consumers of dispute services, to experiment and move beyond traditional ways and particularly arbitration. The fact that most of the alternatives tried have not become firmly established as yet points to the difficulties.     Conclusion     In my view arbitration is still greatly under-used in this country, especially in cases that are technically complex. Lawyers often construct dispute resolution clauses without necessarily knowing of the possibilities that arbitration offers as one of a range of alternatives that may be advantageous to the parties.     Arbitration is sometimes viewed as a "quasi hearing or trial" and there is often reluctance to see the flexibility and other advantages that may be built into the process. Parties often remain in blissful ignorance. l         PETER CONDLIFFE is a Victorian barrister and former CEO of the Institute of Arbitrators and Mediators, Director of Dispute Resolution Centres (Qld) and Chief of Information, Education and Training at the UN Centre for Human Rights, Cambodia.         1. [1981] AC 909 at 921.     2. [2002] VCAT 1489.     3. See Age Old Builders Pty Ltd v Swintons Pty Ltd [2003] VSC 307 (21 August 2003).     4. See ICT Pty Ltd v Sea Containers Ltd [2002] NSWSC 77.     5. See Sea Containers Ltd v ICT Pty Ltd [2002] NSWCA 84.     6. See Seal Rocks Victoria (Australia) Pty Ltd v State of Victoria and Anor [2003] VSC 85 (24 April 2003).

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