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Wade, John --- "Liability of Mediators for Pressure, Drafting and Advice" [2003] ALRS 7; "Liability of Mediators for Pressure, Drafting and Advice" (2003) 6
Last Updated: 7 October 2011
Liability of Mediators for Pressure, Drafting and
Advice:
Tapoohi v Lewenberg
John Wade
Professor
School of Law
Bond University
Lawyers, mediators, judges and professional peacemakers know that many
complex tensions occur during negotiations and decision-making.
These
complexities have come under a flickering spotlight in the decision of Justice
Habersberger in the Supreme Court of Victoria
in the case of Tapoohi v
Lewenberg [2003] VSC 410 (21 October 2003).
Almost every paragraph of the case raises an important policy and practical
topic. Only some of these topics will be dealt with in
this summary and
commentary.
Alleged Facts
- This
is a brief summary of the summary of the facts alleged in the reported case. No
doubt, multiple other versions and additional
alleged facts will emerge as
“historical research” continues in this dispute. Reported case law
rarely reports what “really”
happened.
- The
case involved a conflict over a deceased estate. The deceased mother left her
assets by the terms of her 1998 will to her two
daughters, Mrs Tapoohi (the
plaintiff) and Mrs Lewenberg (the first defendant). However, by the time of the
mother’s death,
four blocks of land named in her will had either been
sold, or were under contract to sell, and/or were registered in the name of
a
family company.
- The
two sisters, Mrs Tapoohi (Mrs T) and Mrs Lewenberg (Mrs L) began to compete
inter alia over who should receive the blocks of real
estate, and/or the
proceeds of sale. In July, 2001, Mrs T commenced proceedings in the Supreme
Court of Victoria against Mrs L, who
was also the executrix of her
mother’s will, to decide the division of the estate assets.
- In
August 2001, the sisters agreed to go to mediation. The mediation did not
occur pursuant to a court order. (Arguably, a court order to mediate would be
normal practice in Victoria once legal proceedings
have commended.) This is an
important fact, as strong statutory immunity attaches to mediators who mediate
pursuant to court orders
under s.27A of the Supreme Court Act 1986
(Vic).
- The
mediator chosen was a Queen’s Counsel who was a very experienced mediator
and barrister. Present at the mediation was Mrs
L with her two barristers and
two solicitors; and acting for Mrs T, a senior barrister and two solicitors. Mrs
T herself was in Israel
but was accessible by fax and phone during the
mediation.
- The
mediation meeting led to an agreement late at night whereby Mrs T agreed to pay
$1.4 million to Mrs L, and to resign from the
family company, in return for two
of the pieces of real estate being transferred to her. The settlement document
was faxed by Mrs
T’s lawyers to her in Israel. After discussion with her
lawyers over the telephone, Mrs T signed, notarised and faxed back
a copy.
- Ten
months later, in June 2002, Mrs T commended legal proceedings against ten
Lewenberg companies and individuals to set aside the
mediated settlement. It
appears that the net value of the settlement to her had diminished substantially
due to a large capital gains
tax liability on the value of the shares in the
family company transferred away by her.
- Mrs
T used a shotgun full of legal claims in an attempt to set aside the mediated
settlement. Perhaps the most important was that
the settlement was subject to an
unwritten term that it was not binding unless and until taxation advice was
obtained. (These particular
claims to set aside the agreement have since been
withdrawn by Mrs T.)
- Predictably,
in September 2002, Mrs T also claimed damages against her solicitor for
negligently failing to obtain taxation advice
and/or include an express
condition precedent in the written terms of settlement. Also predictably, her
solicitor then sought to
spread his own liability by claiming against his own
barrister. More importantly for the purposes of the mediation industry, Mrs
T’s solicitor also joined as a third party defendant, the senior mediator
in the hope of assigning or spreading any of his
damages for professional
negligence to the mediator. That is, the mediator was blamed by the lawyer for
producing a final settlement
instead of an agreement conditional on further tax
advice.
- The
mediator applied to the Supreme Court of Victoria for a “summary
judgment” against Mrs T’s solicitor’s
claim that he had been
negligent or in breach of the express or implied terms of the mediator’s
contract. A summary judgment
is not a full hearing of all the alleged facts,
evidence and law. Rather it is a preliminary threshold decision about
“whether
the allegations are manifestly without prospect of
success?”
- If
the facts alleged about the mediator’s behaviour by Mrs T’s lawyers
can be proved, is there a chance that the mediator
could be liable to contribute
to Mrs T’s losses? The judge answered affirmatively that there is at least
an arguable case.
That is, there is a prospect of success in spreading the legal
blame to the mediator. If the lawyer’s claim against the mediator
is not
settled, this case will go on to a complete hearing where evidence of the
detailed events at the mediation will be presented,
cross-examined, and decided
upon; and then new legal rules and boundaries about acceptable mediator
behaviour will be promulgated.
These “new” rules will be developed
from the vague existing contractual and tortious obligations resting upon
professional
advisers in Australia.
- Familiar
Negotiation and Mediation Dynamics
The facts alleged in the case of
Tapoohi v Lewenberg provide a microcosm of events familiar to evaluative
and other kinds of mediators, and to lawyers negotiating at the door-of-a-court
around the planet. For example:
- Big dollar
disputes attract groups of lawyers to share the work and spread the professional
risks.
- Ironically,
often an essential person (e.g. accountant) or key piece of information (e.g.
potential tax liabilities) is missing at
early mediation meetings.
- Having assembled
so many key people, negotiations tend to go on into the night. Usually, the
costs and emotions of adjourning and
“meeting again” are daunting.
In this case, “night” negotiations had been arranged for the
convenience of
Mrs T who was in Israeli time zone.
- Mediators (and
usually lawyers) make insistent speeches about the necessity of recording any
agreements before “ending”
the meeting.
- Nevertheless,
several participants depart before the final document is signed (in this case,
two people left “early” –
paras 25, 32).
- Drafting and
amending the terms of settlement occurs when people are tired; and in a hurry to
go home (though no “tiredness”
was alleged by anyone in this initial
reported case).
- Inevitably,
every written settlement overlooks certain contingencies.
- Invariably,
those present have different memories of what was said. A memory-battle
lurks.
- Large numbers of
people present mean that there are numerous conversations occurring, especially
during the focussed work of drafting
(e.g. para 34). Potential
“side-bar” or collateral contracts can proliferate.
- All mediated
conflicts require some degree of “pressure” or “risk
analysis” in order to settle. Without the
“pressures” of
escalating legal and investigative costs, late hours, inconvenience of missed
work, peer disapproval,
the fear of post-settlement regrets, the door of the
court, uncertain judicial behaviour, delay, adverse publicity etc., someone
in
the room can procrastinate and plead for “more time to think it
over” indefinitely. That is, the concept of “free”
consent is
illusory. But when does inevitable (and desirable) decision-making pressure
cross the line to become “improper”?
These judgments about what is
“improper” pressure vary between individuals and fact situations.
What useful guidelines
can emerge on what is “appropriate” pressure
from lawyers, judges and mediators in the thousands of different
door-of-the-court
or mediated settlements which take place around the country
each day?
- How much
pressure, advice and risk analysis should a mediator offer? Competing answers to
this question can be based upon habit, personal
ethics, social utility,
organisational ethics, market expectation, market reputation and legal risks for
the
mediator.[1]
There
is no such thing as an “adviceless mediator”.
- For mediators,
organising meetings with multiple people present is often like herding cats. How
far is the mediator (or lawyer at
the door of the court) being hired to drive
the acrimonious, wavering personalities and agendas to an outcome? (e.g. para
27).
- When should the
mediator take the lead and dictate or write the first draft, or assist by
suggesting wording to be first draft, of
any settlement? It is common practice
in many parts of Australia, USA, Asia and New Zealand for mediators to assist
with drafting.
Moreover, in the majority of mediations which take place around
Australia and the world, there are no lawyers or professional wordsmiths
present. The multi-skilled mediator has no realistic choice but to draft or
dictate the first, and often the final draft. To do otherwise
would usually
disenfranchise the poor and middle class from any dispute resolution
services. It is folly to suggest that everyone can choose to dine at the Ritz. A
few mediators in California dictate
settlement terms for unrepresented parties
themselves to write out. This appears to be a vain attempt to transfer liability
for omissions
or commissions from the dictator to the secretary. Nor will
reversing the scribe-dictator roles absolve an experienced secretarial
mediator
from allegations of blame. Nor will exiting the room and leaving
inexperienced parties to draft alone create a bright line of moral or legal
righteousness
for a defensive though experienced mediator.
- When a mediator
makes procedural suggestions, younger lawyers and less-experienced clients are
often reluctant to assertively question
or oppose those suggestions (para 27,
28, 29).
- Mediator
Behaviours Which May Attract Some Legal Liability
For a settlement,
facilitative, therapeutic, or evaluative mediator to be liable in contract or
tort, (s)he must be proven to have:
(a) a duty of care to the client
(b)
breached that duty of care
(c) caused foreseeable losses to the client.
In
this case, the four behaviours of the mediator which individually or
cumulatively allegedly breached his duty of care were as follows.
(Again it is
essential to emphasise that these mediator behaviours were only alleged
in the summary hearing. No doubt, all will be denied vigorously in a full
hearing):
(i) He dictated the first draft of the settlement to one
of the lawyers in the presence of all parties. This first draft omitted
any
reference to the agreement being conditional or unenforceable unless and until
taxation advice was obtained (para 36).
(ii) All parties allegedly had
stated in written “position papers” (para 21) and orally (para 18,
24, 35) during the
mediation that tax advice was essential before the agreement
could be concluded. Therefore, if such allegations could be proved,
the mediator
arguably should not have “missed” this key clause in his first
dictated draft.
(iii) The mediator insisted firmly that some written document
must be signed before the meeting ended (paras 25-29).
(iv) The
mediator “suggested” that a nominal figure of $1 could be inserted
in the settlement document as nominal consideration
for the transfer of shares
in the family company.
- Mediator
Defences?
Do these behaviours in Tapoohi v Lewenberg breach the
mediator’s duty of care? Obviously a mediator could argue in any full
hearing that they do not because:
(i) Every lawyer knows that it is
normal for a first draft, or an agreement in principle, especially if dictated
orally late at
night, while supervising a room full of people, will have various
loopholes and omissions.
(ii) It is normal and good practice for mediators
(and lawyers) to insist on a written record before a negotiation meeting ends.
This often requires firmness and cajoling. Such “pressure” is
entirely proper, and arguably in some cases it is negligence
to allow disputants
to go home without copies of the same signed document in their hands, especially
when post-agreement regrets
are predictable.
(iii) A more important line of
mediator defence is foreshadowed in the reported case at paras 82, 85. While the
mediator dictated
the first draft of the settlement, the gaggle of senior and
junior lawyers sitting in the same room had ample opportunity to amend
(para
30), actually did recommend some alterations which were incorporated (para 32),
and had further opportunity to amend when reading
one of the photocopies of the
draft together in private (para 32); likewise when both were discussing the
draft over the phone with
Mrs T in Israel before she signed the settlement (para
33); and the client Mrs T was herself a trained lawyer. Moreover, Mrs T’s
lawyers withdrew her court action ten days after the mediation; and only cried
“wolf” to the mediator fifteen months
after the mediation. That is,
arguably the mediator did not cause the client’s loss. The
client’s expert lawyers (and client) had sufficient time and opportunity
to insert a condition
precedent clause, and to clarify the conditional nature of
the agreement. That is, one reason why opposing experts are hired to be
present
at mediations and negotiations – namely to stay clear-headed at the end of
the confusing to-and-fro of negotiations;
and to ensure that their own
client’s key interests are recorded in any signed settlement. Moreover,
Mrs T’s lawyers
seem to be caught in a dilemma – if the tax advice
clause was as vital as they allege (paras 18, 21, 24, 35), why did they
overlook
it completely when reading and re-reading the first draft?
(iv) It is common
in negotiations for one party to begin with several proposals in an
offer. However, hours later, parts of that opening proposal are often dropped
during the give-and-take
of bargaining. It is unlikely that a mediator has a
positive “legal” obligation to verify personally whether every
opening
proposal has been dropped accidentally or intentionally, especially when
expert representatives are present.
- Possible
Consequences of the Decision
Around the world, there have been
surprisingly few attempts to attach legal liability to mediators, of whatever
variety or school.
Nevertheless, some lawyers have been able to intimidate
particularly non-lawyer mediators with dire threats of “legal
liability”
for giving erroneous advice, drafting incompletely or breaching
confidentiality. These threats ring hollow, based both on statistics
and on
lawyers usually being unwilling to fill the mediation gaps in conflicts
involving the poor or middle class or violence. Nevertheless,
the publicity
accorded to this single case and its occasional successors, could have some of
the following consequences:
(i) Some mediators will more carefully include
standard exclusion clauses both in their mediation contracts and in every
settlement agreement (para 46). For example – “The clients agree
that they will not rely upon any advice from
the mediator; that they will not
rely upon any draft documents produced by the mediator, but will always obtain
their own legal advice
etc etc”. Apart from exemption clauses in his
engagement contract, one Texas mediator includes the following clauses in
every settlement agreement:
“1. All parties and their attorneys
have read and signed this Agreement.
2. Each signatory to this settlement
has entered into this Agreement freely and without duress, having first
consulted with professionals
of his or her choice. The parties affirm that they
have read the entire Agreement and understand its content. The parties further
affirm that any questions that they may have had concerning the
Agreement’s content were explained to them by their counsel
prior to
signing below.
3. This Agreement is signed voluntarily and with the advice
and consent of counsel on the dates set forth below....
4. Although the
Mediator has provided the basic terms of this Settlement Agreement to the
parties’ counsel as a courtesy
to facilitate the final resolution of this
dispute, the parties and their counsel have thoroughly reviewed such terms and
have, where
necessary, modified it to conform to the requirements of their
agreement. All signatories to this Settlement Agreement hereby release
the
mediator from any and all responsibility arising from the drafting of this
Settlement
Agreement.”[2]
(ii)
In the Tapoohi case, the formal claim against the mediator included in
startling fashion an allegation that the mediator had not only been hired
in the
limited role specified in his written mediation contract, (para 16) but also
based on an alleged implied term that he would
“advise both parties at the
mediation” as an expert barrister. Two roles for the price of one (para
72-77), one express,
one presumably implied by custom. This is common worldwide
practice amongst some evaluative mediators and provides some extra comfort
level
for clients and lawyers. Evaluative mediation has become the “new
arbitration”[3]
and is a global workhorse for settling construction and personal injury
disputes. Given the widespread use of this double mediator-advisory
role[4], mediators who
want to preclude any implied or customary terms are advised to exclude, in
writing, both in the mediation and settlement contracts, any liability
for accidental or intentional advisory roles undertaken.
(iii) Mediators in
big money or high conflict cases may insist upon the disputants both filing a
claim in court, and obtaining a court
order referring the parties to mediation.
These prerequisites will usually give those mediators statutory immunity in the
shadowlands
of common settlement behaviours. However, if this becomes common
practice, court lists may become clogged with tactical filings.
(iv) Some
evaluative mediators may change their behaviour by reducing advice, late night
meetings, or willingness to mediate without
the presence of, and initial
drafting by, two sets of lawyers.
(v) The cost of mediation for the poor
and middle class may increase as nervous mediators take out insurance, or drop
out of the
industry, or wait for widened statutory immunity.
(vi) Gradually,
the currently diverse mediation industry may become dominated by a fraternal
club of lawyers (rather than engineers,
architects or builders) if “file
first, mediate second” becomes a preferred self-defensive option for
mediators.
(vii) Differentiated ethical codes and legal standards of care
will gradually emerge for different schools of mediators – such
as
settlement, facilitative, therapeutic and evaluative mediators.
Conclusion
Many different practices, processes and skills exist under the simplistic
term
“mediation”.[5]
Allowing this diversity to blossom gradually without top-down regulation by
legislators has been the preferred option in Australia,
New Zealand and USA.
However, judges do not have the luxury of deferring difficult policy decisions.
Occasional cases like Tapoohi v Lewenberg (if they proceed to final
hearing) place judges in the unenviable position of making decisions about
“proper mediator behaviour”
(and indirectly about proper judicial
and lawyer settlement practices), and of making major policy decisions about
professional diversity
and standards on-the-run. The Tapoohi case settled
confidentially after more than two years of negotiation and thus no judicial
policy on-the-run was forthcoming.
Hopefully mediators can add some defensive practices (mentioned in this
commentary) to their tool-boxes to minimise legal risks attached
particularly to
big money evaluative, or high conflict, mediation. In these kinds of disputes,
parties and their constituents with
post-settlement blues will occasionally
search for professional helpers to blame.
Professor John Wade is a mediator and author. He is current Director of the
Dispute Resolution Centre at Bond University, Gold Coast,
Queensland, Australia.
john_wade@bond.edu.au
[1] See J.H. Wade,
“My Mediator Must be a QC” (1994) Aust Disp Res J 161;
“Forever Bargaining in the Shadow of the Law – Who Sells Solid
Shadows?” (1998) 12 Aust J of Family Law
256.
[2] Personal
correspondence with Reed Leverton, mediator and former judge,
Texas.
[3] R.A.
Baruch Bush, “Substituting Mediation for Arbitration: The Growing Market
for Evaluative Mediation, and What It Means for
the ADR Field” (2002) 3
Pepperdine D R L J 111; M. Levin, “The Propriety of Evaluative
Mediation: Concerns About the Nature and Quality of an Evaluative Opinion”
(2000) 16 Ohio St J D R 267; M. Moffitt, “Ten Ways to Get Sued: A
Guide for Mediators” (2003) 8 Harvard Negot L Rev
81.
[4] See
references in notes 1 and
3.
[5] eg NADRAC A
Framework for ADR Standards 2001.
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