Media

US courts in quiet revolution

The Australian Financial Review - 17 June 2005
By Marcus Priest

While the United States is sometimes viewed overseas as an example of what happens if lawyers are given free rein and litigation is allowed to run unchecked, the quiet growth there of arbitration and mediation has gone largely unheralded.

Last year, the American Arbitration Association handled total claims exceeding $1 billion in relation to technology arbitrations alone; the average claim was $1.2 million and the average counterclaim was $2.3 million.

And the AAA a private dispute resolution organisation has been written into eight federal statutes, 34 federal regulations and 318 state statutes as the forum for disputes arising under the statutes.

"It has been an absolutely mercurial growth," AAA president William Slate said.

"Ten years ago we were doing 50,000 matters a year, last year we did 240,000 cases. That is more than all the civil cases filed in all the federal courts in America last year."

In Australia, the growth of alternative dispute resolution (ADR) has been similarly large over the last six years, with compulsory mediation now the norm in most courts and becoming a major form of dispute resolution in construction matters in relation to disputes over payments to contractors.

But what makes the US experience more remarkable is that it has occurred in a country where litigation seems to be seen as a first option rather than the last. When Australian governments changed tort law in 2001, the need to avoid the American litigation experience was often cited.

But Mr Slate, who was the keynote speaker at last month's national conference of the Institute of Arbitrators and Mediators Australia, said several states now deemed it poor professional conduct if an attorney did not first try to recommend ADR to a client.

"I think it is having a quietening effect on the litigation expansion," he said. "Business people are becoming more savvy and more informed. Anybody in business knows you work real hard to get a client and once you get them, and you have a conflict, you don't want to have to take them to the mat, you want to have a corrective measure.

"Arbitrators and mediators have an ability to be creative in designing a solution that a judge can never do. You can fashion all sorts of creative business solutions which really aren't in the purview of what a court does in finding right and wrong."

An AAA survey of 254 multinational companies found those deemed "most dispute-wise" had price-earnings ratios 40 to 60 per cent higher than the "least dispute-wise".

"You couldn't say the way they handled disputes was everything," Mr Slate said.

"But what is the P/E ratio other than a statement of confidence in management and the way they manage the companies? And the way they handle disputes is part of that."

We gratefully acknowledge the permission from Marcus Priest and The Australian Financial Review to reprint this article.