Facilitating the Early Resolution of Disputes without Litigation

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Chapter 2Facilitating the Early Resolution ofDisputes without LitigationAn anonymous submission from a law firm expressed the view that at the Magistrates’ Court levelpre-action protocols would add to delay and increase costs. It contended that this would onlyserve the interests of ‘deep pocketed and insured litigants who already have access to the best ofrepresentation’. 390Law firm Battley & Co expressed concern that the proposed pre-action protocols would remove thecurrent commercial realities of pre-action negotiation and that accident victims would incur greaterunrecoverable costs, which would force them to accept unreasonable offers of settlement. The firmsuggested that an item should be introduced into the scale of costs dealing specifically with mattersresolved on a pre-action basis. It also suggested that the recoverable costs where the matter is settledat the pre-action stage should be two-thirds of the scale costs allowable for ‘instructions to sue’ wherelitigation has been commenced. 391The Australian Bankers’ Association questioned whether mandatory ‘strict adherence to pre-actionprotocols might actually foment an atmosphere conducive to litigation’. 392 The submission noted theADR schemes established by private industries in recent years. Banks and other organisations licensedto carry on financial services businesses under Chapter 7 of the Corporations Act 2001 (Cth) are, asa condition of their licence, required to provide clients with access to an independent ADR scheme.This is provided through the Banking and Financial Services Ombudsman. There are similar schemescovering general insurance, life insurance and the financial advisory and planning industry. Other ADRschemes provide both dispute resolution and compensatory relief in parts of the mortgage financeindustry. VCAT also has jurisdiction in disputes concerning consumer credit and the Consumer CreditCode. 393 The commission acknowledges the importance of these schemes, which are discussed inChapter 4 of this report.Law firm Clayton Utz questioned the assumption that parties in dispute needed to be compelled orgiven an incentive to cooperate to resolve matters before resorting to litigation, especially in the areaof commercial disputes. The firm said pre-action protocols were unnecessary, and raised three mainconcerns about them. They added ‘another layer of complexity’ and therefore were likely to increasecost and delay. They were likely to ‘impose further burdens on the courts’, which would be requiredto adjudicate on the conduct of the parties at the pre-trial stage. Where they required an exchangeof information they would be susceptible to abuse by encouraging ‘fishing’. This would subvert the‘well established principles in relation to pre-action discovery’. If such pre-action protocols were to beintroduced, then:(a) compliance with the protocol should not be required in all cases where an interlocutoryinjunction was sought(b) there should be an implied undertaking that any documents produced would not be usedfor any purpose other than in connection with the resolution of the dispute between theparties(c) there was little to commend ‘costs only’ proceedings. 3947.3 Other issues raised in submissionsThe Legal Services Commissioner raised a concern about how the obligations on practitioners inrespect of pre-action protocols would interact with the rules governing the conduct of the legalprofession. 395The Police Association suggested it should be made clear that documents which fall within the ambitof client legal privilege and those classified under ‘public interest immunity’ should be exempt frompre-action disclosure. 396RECOMMENDATIONS1. Pre-action protocols should be introduced for the purpose of setting out codes of ‘sensibleconduct’ which persons in dispute are expected to follow when there is the prospect of litigation.2. The objectives of the protocols would be:• to specify the nature of the information required to be disclosed to enable the persons indispute to consider an appropriate settlement• to provide model precedent letters and forms142Victorian Law Reform Commission - Civil Justice Review: Report
• to provide a time frame for the exchange of information and settlement proposals• to require parties in dispute to endeavour to resolve the dispute without proceeding tolitigation• to limit the issues in dispute if litigation is unavoidable so as to reduce costs and delay.3. Although information and documentation about the merits and quantum of the claim anddefence would be available for use in any subsequent litigation, offers of settlement made atthe pre-action stage would be on a ‘without prejudice’ basis but would be able to be disclosed,following the resolution of the dispute after the commencement of proceedings, and would betaken into account by the court in determining costs.4. The general standards of pre-action conduct expected of persons in a dispute would beincorporated in statutory guidelines. Each person in a dispute and the legal representative of suchperson would be required to bring to the attention of each other or potential party to the disputethe general standards of pre-action conduct and any specific pre-action protocols applicable tothe type of dispute in question (where such other person is not aware of such protocols).5. The statutory guidelines should provide that, where a civil dispute is likely to result in litigation,prior to the commencement of any legal proceedings the parties to the dispute shall takereasonable steps, having regard to their situation and the nature of the dispute, to resolve thematter by agreement without the necessity for litigation or to clarify and narrow the issues indispute in the event that legal proceedings are commenced. Such reasonable steps will normallybe expected to include the following:(a)(b)(c)(d)(e)The claimant shall write to the other party setting out in detail the nature of the claimand what is requested of the other party to resolve the claim, and specifying a reasonabletime period for the other person to respond.The letter from the person with the claim should:(i)(ii)give sufficient details to enable the recipient to consider and investigate the claimwithout extensive further informationenclose a copy of the essential documents in the possession of the claimant whichthe claimant relies upon(iii) state whether court proceedings will be issued if a full response is not receivedwithin a specified reasonable period(iv) identify and ask for a copy of any essential documents, not in the claimant’spossession, which the claimant wishes to see and which are reasonably likely to bein the possession of the recipient(v)state (if this is so) that the claimant is willing to undertake a mediation or anothermethod of alternative dispute resolution if the claim is not resolved(vi) draw attention to the courts’ powers to impose sanctions for failure to complywith the pre-action protocol requirements in the event that the matter proceeds tocourt.The person receiving the written notification of the claim shall acknowledge receipt ofthe claim promptly (normally within 21 days of receiving it), specify a reasonable timewithin which a response will be provided and indicate what additional information, ifany, is reasonably required from the claimant to enable the claim to be considered.The person receiving the written notification of the claim, or that person’s agent, shallrespond to the claim within a reasonable time and provide a detailed written responsespecifying whether the claim is accepted and if not the detailed grounds on which theclaim is rejected.The full written response to the claim should, as appropriate:(i)(ii)indicate whether the claim is accepted and if so the steps to be taken to resolvethe matterif the claim is not accepted in full, give detailed reasons why the claim is not390 Submission ED1 27 (anonymous). Thesubmission also expressed concern thatthe introduction of the small claims ‘[a]rbitration system in the Magistrates’Court, and the consequential cappingof costs, has proved to be a bonusfor insured litigants and a powerfuldisincentive for private uninsuredlitigants to prosecute claims of lessthan $10 000’.391 Submission ED1 13 (Battley & Co).392 Submission ED1 29 (AustralianBankers’ Association). However,as noted above, the commission’sproposed pre-action protocols arenot intended to be mandatory in thesense that they must be complied withbefore legal proceedings can be validlycommenced.393 Submission ED1 29 (AustralianBankers’ Association).394 Submission ED1 18 (Clayton Utz).395 Submission ED1 10 (Legal ServicesCommissioner).396 Submission ED1 2 (Police AssociationVictoria).143
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Facilitating the Early Resolution of Disputes without Litigation

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