Media

Ruddock backs calls to force firms to mediate

The Australian 28 July 2007
By Chris Merritt, Susannah Moran

Critics say taxpayers should not have to subsidise cases like the $200m C7 litigation.

THE massive cost to taxpayers of the C7 litigation has triggered moves to force companies to take their mega-disputes out of the courtroom and into private arbitration.

Federal Attorney-General Philip Ruddock, the Labor Party and peak legal bodies all backed calls yesterday for judges to be given greater powers to order big companies out of publicly funded courts and into binding private arbitration.

The $200 million cost of running the C7 case has also triggered calls for a review of the tax deduction available for all legal bills associated with corporate litigation. Both moves follow judge Ronald Sackville's denunciation of the "extraordinarily wasteful" C7 litigation, which "borders on the scandalous".

While Justice Sackville repeatedly urged parties to the case to resolve their dispute outside court, he lacked the power to order binding arbitration unless the parties agreed. The Victorian Law Reform Commission and the Australian Lawyers Alliance called yesterday for this loophole to be closed.

Mr Ruddock said he would "not be averse to examining the issue, particularly if Victoria intended to mandate such requirements". "It would seem pyrrhic to simply leave the alternative jurisdiction of the Federal Court available to parties that may beexcluded from the Victorian jurisdiction. "I have been a long-time supporter of alternative dispute resolution -- this applies to commercial disputes as much as any other."

Opposition legal affairs spokesman Joe Ludwig said federal Labor would be happy to look at any proposal that would divert appropriate matters to alternative dispute resolution.

While Federal Court judges can order big companies to attempt to mediate their differences, they are unable to order them into binding private arbitration without their consent.

Victorian Law Reform Commissioner Peter Cashman said he planned to recommend that judges of the Victorian Supreme Court be given this power.

He said there was no reason in principle why major corporate disputes should not be resolved outside the public courts by alternative dispute resolution at the expense of the parties. The power of courts throughout the nation to force corporate litigants to resolve disputes privately is limited.

Dr Cashman said his proposed changes would only affect corporate disputes, not those involving individuals.

This was because human rights considerations meant it would be offensive in principle to prevent individuals going to court.

"But corporations do not have human rights," Dr Cashman said.

"Where you have commercial leviathans litigating over commercial issues there is no reason in principle why the courts should not say `You can privately resolve that using any one of the different mechanisms'."

Dr Cashman said disputes over questions of law should still go to the courts, but there was no reason why taxpayers should pay to have courts wade through mountains of documents when there were other methods available.

Justice Sackville said yesterday that the rise of mega-litigation could force the courts to appoint more than one judge to hear a case, or to have a "reserve judge" in case a judge fell ill or died, which would add greatly to costs.

During the C7 hearing he repeatedly asked the parties whether they had insured against such an eventuality but, as he put it, "perhaps out of a sense of delicacy, I received no clear answer". He also noted that on Seven's best case, it would only recoup about $212 million for a case that would have been best settled from the outset.

"If there is one lesson to emerge from this case, it is that even the largest and best-resourced corporations owe it to their shareholders, if not to the general public, to think very carefully about committing themselves to mega-litigation," Justice Sackville said.

Australian Lawyers Alliance president Ian Brown said judges in every state should have the authority to prevent companies clogging the court system.

"You could forgive the public for thinking that the C7 case was recreational litigation," Mr Brown said. "The court system is a very, very valuable resource that is over-worked and under-resourced." Mr Brown also called for the Tax Office to reveal how much the corporate tax deduction for legal expenses was costing taxpayers. "The tax deduction means that corporate litigation is effectively subsidised," Mr Brown said. "It is a form of legal aid. It is time that we looked at that closely to see whether it is appropriate," he said.

Alternative dispute resolution is currently under-utilised by big companies, according to barrister Albert Monichino of the Institute of Arbitrators and Mediators Australia.

"We feel completely justified in bringing the action but clearly today's judgment is disappointing Seven chairman and major" shareholder Kerry Stokes

"If there is one lesson to emerge from this case, it is that even the largest and best-resourced corporations owe it to their shareholders, if not to the general public, to think very carefully before committing themselves irrevocably to mega-litigation" Judge Ronald Sackville

"Seven's commercial conduct, its willingness to employ litigation as a commercial strategy and its attempts to manipulate the courts as well as the media covering this case have been a disgrace" News Limited chairman and chief executive John Hartigan

"There is more than a hint of hypocrisy in certain of Seven's contentions. There were occasions on which, in my opinion, he gave evidence that he knew was not true" Judge Ronald Sackville on Stokes

"Telstra is pleased with the outcome but it must be said that we should never have had to fight this futile claim in the first place" Telstra group counsel Will Irving

"So as much as he might like it, the judge does not get the final word" Seven Network commercial director Bruce McWilliam when asked if Seven may appeal

We gratefully acknowledge the permission from Chris Merritt, Susannah Moran and The Australian to reprint this article.