Rethinking Adversarialism and Embracing Intermediate Systems

Robert Fenwick Elliott

This paper was given as a keynote address at the Society of Construction Law Annual Conference in Brisbane in August 2011.  Other keynote speakers were John Hinchey from the USA, Professor Colin Wall from Hong Kong and Sir Lawrence Street.

 

The paper is as follows:

Rethinking Adversarialism and Embracing Intermediate Systems

Robert Fenwick Elliott[1]

 

It might seem odd to have a Brit making a Keynote Address in a conference on “Rethinking”.  As Lord Hailsham used to gleefully point out, one of his predecessors once rejected a proposed reform with the words “Reform! Reform! Aren’t things bad enough already?”[2] This remark has been dragged out many times in the context of legal reform. It is not so very witty, but its black humour rings a bell: the undeniable truth is that most attempts at legal reform have failed dismally. These remarks will deal with a narrow topic: how to cope with the adversarialism that plagues construction disputes. But before descending to the particular, it is worth pausing to survey the wider field: lawyers do a lousy job.  We are not stupid, but we deliver a stupid process. On the whole, lawyers probably deserve the poor reputation we have in the community. An American lawyer told me of a button badge which read:

But the management of construction disputes has bucked the trend;  I have seen huge change in the 35-years that I have been a specialist practitioner, and those changes have been massively for the better.  Those changes impact not only on the domestic UK market, but also on the world stage, where the Brits continue to have a surprising influence on the way in which large projects are administered.

To some extent, these changes have been market driven, or the result of a stream of incremental improvements in procedures.  In part, they have been the result of significant reforms that that come out the UK, and in particular by Lord Woolf’s Civil Justice Review[3], which overturned a good deal of settled thinking as to how litigation should be handled, and the Latham Reports[4], which brought major change by the introduction of a mandatory adjudication scheme, the UNCITRAL model arbitration law[5], the essential features of which were introduced into the UK by the Arbitration Act 1996, and by the Egan Report[6], which suggested that we tend to a disproportionate and unnecessary reliance on contracts as a means of regulating our deeds.

There is no doubt in my mind that these changes have been hugely beneficial.  Where they have been implemented, much less time and cost is wasted on adversarialism.  It also seems to me that, on the whole, they result not so much from the adoption of new ideas, but rather from the rejection of a number of shibboleths; it has essentially been the debunking of these old principles that has allowed best practice to move forward and so I will spend the next few minutes running through what I think of the big 10 fallacies that modern practice has shown that we are better off without.

1.         Litigants are entitled to a trial

The research by Professor Dame Hazel Genn leading to and quoted in the Woolf Report demonstrated that the legal costs of a trial of a construction issue usually exceed the sum in dispute.  Not “sometimes”. Not “quite often”. “Usually”.  That research was conducted in the UK, but my own international observation is that a similar picture emerges everywhere in the common law world, including Australia.

That is an appalling indictment on the legal profession. Think of it in medical terms. A doctor who prescribes a course of treatment whose side effects are worse than the malady he is treating would be regarded as grossly negligent. And yet we do it in legal profession all the time. Not just “sometimes”. Not just “quite often”. But, in cases which go to trial, “usually”.

Trials are usually a stupid way of resolving disputes.  They are the legal equivalent of a medicine whose side effects are usually worse than the illness itself. To say that everyone is entitled to a trial of their disputes is about as ridiculous as saying that everyone with a broken ankle is entitled to have their leg amputated.

This shibboleth, whilst rife, is by no means universal. In Jersey, for example, a Defendant need to earn the right to a trial – in an application for summary judgment, the onus is on the defendant to prove that he has a real defence, not on the plaintiff to prove that there is no real defence. In Switzerland and France, the courts have, by introducing Juges D’Appui[7], recognised that agreements by parties to avoid court trial should be supported, not challenged.

In England, the Woolf Reforms did much to sweep away the ludicrous notion that litigants are entitled to a trial.  The courts are far more ready than they used to be to strike out both claims and defences that fail to pass muster.  Further, the adjudication reforms have also very largely removed the ability of a recalcitrant party to delay payment by insisting on the right to a trial.  The UK system of adjudication is of course an evaluative one, unlike the essentially default system here on the East Coast of Australia – more of that anon.  These reforms recognise that trial has become far too expensive, such as to be a little more just than trial by ordeal.  We should entirely abandon the notion that trial should be treated as a standard of justice; instead it should be regarded as a measure of last resort.  There are much better ways of doing things.

2.         Discovery is necessary for justice

One of the harder things about international law practice is explaining to foreign corporations that they have to disclose their documents, and that the more confidential the document, the more pressing the obligation of disclosure.

The reality is that general discovery is seriously dumb.  It is extremely expensive, and its effects are random at best.  My own experience around the world suggests that there is very widespread cheating; parties at every level from individuals to major corporations do in fact regularly cull their documents in order to exclude the most incriminating.  In the 19^th Century draconian sanctions were imposed for failure to give proper discovery, including imprisonment.  But now, in practice, it is little more than an honour system which advantages the unscrupulous at the expense of the honest.

A far better system is to allow each party to put forward the documents it wants, with provision for special discovery in exceptional cases.

The Federal Court rules have now made a significant move in this direction. But it is still the norm for parties to be required to give general discovery in construction cases.

General discovery should go.

3.         Pleadings define issues

Prior to the recent reforms in the UK, pleadings in construction cases were often very lengthy, opaque and, in the common law world at large, a number of cases were won or lost on pleadings issues – in particular, following the Privy Council decision in Wharf Properties[8].

The Woolf Reforms introduced a number of important measures to de-ossify the pleading process.  Tenuous alternative pleadings are likely now to be struck out if they enjoy no real prospect of success.  If the pleading exceeds 25 pages, there has to be a summary filed and served, and pleadings need to be supported by Statements of Truth, so that it is no longer possible to plead matters of speculation without running the risk of a perjury prosecution.

The success of the UK evaluative adjudication model shows that a formal pleading process does little to advance a just resolution of disputes.

Cases should not be held up by pleadings.

4.         Judge’s interests are important

To some extent, of course, it is inevitable that judges should come to inhabit ivory towers of a sort.  But there has recently been more of a recognition by the Bench that their own interests should be subservient to the interests of the parties.  As human beings, judges tend to be perfectionists; they do not like loose ends, and they typically dislike being overturned on appeal, particularly on procedural fairness grounds.  This means that they tend to allow trials to go on for far too long, and to admit far too much evidence.

In the UK, it is now happily becoming more common for courts and arbitrators to impose time limits, by means of chess clock arbitrations or guillotines[9].  If possible, these are introduced by agreement, but are sometimes imposed whether counsel agree to them or not.  My own experience is that counsel tend to squeal like stuck pigs when a guillotine is imposed on them, but at the conclusion of such a process the advocates will typically say that they were able to get their key points across within the abridged submission time.  Judges increasingly seem to recognise that a judgment delivered after a rapid and economic process is of much more use to the parties than a more careful judgment at the end of an excessively long and expensive process.

There has also been a recognition abroad that the traditional judicial antipathy to ouster of jurisdiction has no place in modern dispute resolution processes.

5.         Decisions need to be final

A number of things have led to the recent dispelling of the myth that judicial decisions need to be final, including experience from interlocutory injunction processes and procedures for interim payments, introduced into the UK in the 1980’s.  By far the most important penetration of this myth has been the advent of adjudication.

I claim a small part in this history, whilst discussing the proposed UK legislation in the House of Lords tearoom with Lord Howie.  The government had picked up Sir Michael Latham’s suggestion of an interim adjudication system, but Lord Howie, who was steering the draft legislation through, wanted to make the adjudicator’s decision final and binding.  I persuaded him not to go down that track, on the basis that if the adjudicator’s decision was to be final and binding, then it was very likely that the courts would be much more tempted to intervene in the process, and thereby ruin its effectiveness.  I described the better formulation as “pay now, argue later” in the expectation that once the loser had written his cheque, and if the loser felt that he had had a fair crack of the whip, then the loser was unlikely to avail himself of a right to relitigate and so it has proved.

Those who listen to the Society’s podcasts may have noted that Sir Vivian Ramsey, who presides over the Technology & Construction Court in London, identified this acceptance of interim decisions as crucial to the modern approach[10].

Doctrines such as the Anshun principle[11] should have no place in a modern construction dispute regime.

6.         Longer contracts are more certain

During the 20^th Century, construction contracts have got longer and longer, and following the widespread introduction of word-processing capability in offices, bespoke contracts have got even longer still.

Before his report, Sir John Egan had much experience of the automotive industry, and he usefully pointed out that the reliance by the construction industry on these very long contracts is a pointless anomaly.  Certainly, we have seen a considerable rise in two parallel and mutually cancelling processes

• Contract draftsmen have added more and more length to the contracts whilst:
• the dispute process has facilitated more and more incursions into the contractual territory.

Partly, these incursions have been the result of statutory intervention, in terms of banning pay when pay clauses, introducing statutory rights to patent and so forth, and partly by increasingly sophisticated use of doctrines such as that of breakdown in contractual machinery as means to circumvent onerous provisions in construction contracts.

Certainly, in the UK, there is much less extremism in this area than there is in Australia.  By “extremism” I mean the situation where, at the one extreme, we see objectionably one-sided contract drafting, such as provisions to the effect that certifiers are simply agents of the owner with no obligations of fairness, and at the other extreme, we see here[12] a very crude security of payment system where substantial sums are awarded by adjudicators who often have somewhat scant understanding of legal principle, and even less connection with principles of justice.

7.         Hourly rates underpin professionalism

There has been a significant retreat from the old principle that the tradition for lawyers to be reimbursed by hourly rate is satisfactory, or even necessary.  It is obviously a system which rewards delay and inefficiency, and is scarcely more enlightened than the older habit of lawyers to charge by the folio.

“No win no fee” arrangements are still regarded as somewhat tacky in some quarters, but I think less and less so as time goes by.  A key feature of these schemes if they are to be effective is that a successful party is, in the UK, entitled to recover the enhanced fee that inevitably accompanies the scheme from the losing party.  A more sophisticated approach involves target costing.  Thus, in the last major case I did in the UK before leaving for Australia, I acted for an Argentinean contractor in an ICC arbitration concerning a project in Africa for an international consortium.  The client did not want simple hourly rates, because he thought that would provide no incentive for early settlement.  He did not want a simple budget cap, because his experience is that lawyers always spend any budget that is agreed.  So instead we had a target arrangement; we agreed an overall budget cap for the whole case, such that we would not be entitled to any overspend over and above that budget, but if we were able to obtain a result without spending the whole of the budget, we got to keep one-third of the saving.

That, it seems to me, is a modern, sensible formulation which encourages efficiency in the legal process by rewarding a good result instead of rewarding a bad result.  But it is not encouraged in Australia[13].

In the USA, construction lawyers and their client are free to agree any charging system that meets their needs. So it should be here.

8.         Lawyers should not cut corners

This is perhaps the dumbest shibboleth of them all.

In the real world, parties cannot afford either the time or the money that would be involved in their lawyers putting every aspect of their dealings under the legal microscope.  Thank heavens.

Experience also shows that in almost every legal endeavour, there is a law of diminishing return.  The first buck buys more bang than the second buck.  Unhappily, in a climate of unbridled adversarialism, martyrs are all too often led into the belief that spending more money with lawyers provides some sort of potency.

The UK experience of adjudication is very different from the Australian experience.  Hearings are common, particularly in large cases, and they are usually very heavily guillotined, such that they are something in the nature of binding mini-trials.  Parties who prepare prolix submissions, running to say 30 or 40 lever arch files, could be told to go away and précis their submission into a single document.  The very rigid time constraints mean that the lawyers have to cut corners.  The result has been notably successful, and my own experience has been that parties to such a process have found the results are no more anomalous than those of a traditional full-length arbitration.

There is no less skill in presenting a case in this very short form than in running a 20-week trial, but it is a different skill.  It is a skill of micro-surgery as compared to the skill of open surgery.

9.         Neutrals should not judge

It seems to me that it has always been something of a schism in ADR philosophy.  On the one hand, the facilitative people say that mediators should never express their own opinions about the merits of the party’s case, but simply help the parties come to their own conclusions.  On the other hand, the evaluative school will have no difficulty in the concept of mediators telling the parties in caucus that this or that aspect of their case is entirely hopeless.  My own experience in Australia since I have arrived is that the field is largely dominated by the facilitative school.

Elsewhere in the world, a rather broader spectrum of experience such that it is possible on an empirical basis to say what system works best.  The answer to that now seem to be clear: what works best is a flexible approach[14].  For a mediator to go charging in at the outset with bombastic opinions is a disaster.  But by the same token, mediations fail when they could otherwise succeed if only the mediator had taken the trouble to understand the issues, and to persuade the parties off ground that is in reality untenable.

10.       Dispute resolution is a zero-sum game

One of the difficulties with excessive adversarialism is that it encourages the flawed notion that dispute resolution is a zero-sum game[15], in the sense that, “what is bad for him must be good for me”.

A more sensible analysis is that all disputes are the result of misjudgement, first by the clients and then by the lawyers.  Where both parties have a realistic and accurate notion of the real merit of their case, the parties have the same understanding of their risk profiles, and settle their disputes accordingly.  Unhappily, all too often there is all too little dialogue on any meaningful level between the  parties as to what the relative strengths and weaknesses of their positions are, and the current rules with regard to filed offers more often than not entrenches that adversarialism as the parties size each other up from their respective trenches.  A more modern, and it seems to me, better approach is that adopted by the UK Pre-action Protocol, which requires the parties to exchange letters, in which each party should try to identify why it thinks the other party has misjudged the case, followed by a pre-action meeting, at which the parties and their lawyers should discuss how their differences should be resolved, and the respective costs of those options (mediation, expert determination, litigation, etc).  The purpose of this exercise is to encourage the parties to work together to find a sensible and cost effective way of resolving their differences.

Conclusion

What is the conclusion to be drawn from all of this?

We should not be guided too much by either the bar or the bench. All too often, their focus is on the use of trial as a means of resolving disputes. In part, this is because the bar has traditionally earned its serious money out of trials, and not its other functions, such that there has been a financial incentive to see trial as the centrepiece of the dispute resolution process, and in part because the business of resolving civil disputes has too often been tainted by the thinking that applies to criminal cases.

The common law system is, unlike civil law systems, one based on incremental development based on empirical experience, not radical reform based on theoretical models. The best empirical evidence in our field of construction law is now to be found overseas in other common law jurisdictions

That evidence suggests that intermediate dispute resolution systems offer much better outcomes than either trials or mediations. Systems like adjudication UK-style (a far cry from the default systems that operate here on the East Coast of Australia)[16], or expert determination[17], or the Dispute Review Boards that operate in the United States[18], or the ICC Dispute Adjudication Boards that are used under FIDIC contracts[19]. The essential feature of these systems is that that they force a result – based on the merits of the parties’ positions – early, and at a fraction of the cost of trial.  Unlike litigation or arbitration, they jettison many of the shibboleths I have just been describing. Where there are hearings, they are heavily guillotined, so that a case that might traditionally take many days or even weeks to run has to be completed within a day.

Such an approach does not merely mean that Courts should encourage or even order the parties to mediate[20]. We are talking here about processes that lead to enforceable results. Unlike mediation, they prevent a party from saying, “Accept my terms in this mediation or you will be put to the huge cost of a full-scale fight”.

This does not mean that courts become redundant. But it does mean that the courts role should change – just as it has changed in other parts of the world. Instead of the courts taking centre stage as the primary arena for the resolution of disputes, the courts take a step back, and wherever possible are used instead as a means of merely policing the intermediate systems[21].

It does mean that the Courts must swallow their pride, and accept that these processes do indeed not merely challenge but in many cases eclipse (if not oust) the jurisdiction of the courts.  To some extent, this necessarily recognises that it is far harder for the courts to abandon the shibboleths that I have been discussing than it is for the more modern intermediate processes. Where there are court proceedings, the courts should not be jealous of these new processes, but should try to learn from them.

Do they spell the end of adversarialism? Not really.  I am not suggesting an approach which requires a shift in approach whereby lawyers become much less adversarial, instead paying much more attention to their duties to the court[22].  We might as well acknowledge that litigation lawyers are inherently rather aggressive; by asking them to tone it down, all that happens is that their tactics become more subversive. Rather, these new techniques spell the end of the notion that the generals can bring huge numbers of troops onto the field of conflict. In a sense, they represent an abandonment of trench warfare involving huge cost and pain, and a return to something more like trial by champion – hardly a perfect system but at least one that had the merit of obtaining a result with admirable economy.

My own experience is that these highly-guillotined processes are even more adversarial on the day that long drawn-out trials before the courts or in arbitration.

Less glamorous? Not the “real thing”? Well, that depends on your point of view. Would you rather be an old-fashioned surgeon, scalpel in hand and splattered in blood, or one of the new specialists in micro-surgery, who gets his result far more quickly and with much less pain?