Encouraging settlement in court proceedings through mediation

Section 26 of the Civil Procedure Act 2005 (NSW) plays a critical role in shaping how civil litigation is conducted in New South Wales. By promoting the use of alternative dispute resolution (ADR) mechanisms such as mediation, this provision supports the overriding purpose of the Act, ensuring the just, quick, and cost-effective resolution of disputes.

In this blog post, we examine the scope and application of Section 26, how NSW courts have applied it, what it means for litigants and legal practitioners, and why it matters in the broader context of civil litigation. We’ll also explore recent case law and practical takeaways for parties involved in civil disputes.

What Is Section 26 of the Civil Procedure Act?

Section 26 empowers courts to refer parties in civil proceedings to mediation, with or without the parties’ consent. The relevant provision reads:

“If it considers the circumstances appropriate, the court may refer any civil proceedings, or part of any civil proceedings, for mediation by a mediator agreed to by the parties or appointed by the court.”

This broad authority is intended to encourage dispute resolution outside the formal court process, and to reduce delays and costs associated with litigation.

Why Is Mediation Important in Civil Proceedings?

Mediation is a confidential, voluntary (unless court-ordered) and non-binding process where an impartial third party - the mediator - facilitates negotiation between disputing parties to help them reach a mutually acceptable resolution.

By encouraging or ordering mediation, courts aim to:

• Reduce court congestion and free up judicial resources for matters that truly require adjudication.
• Limit legal costs for parties, especially in cases where ongoing litigation may exceed the value of the claim.
• Preserve relationships, particularly in family, commercial or neighbourhood disputes.
• Promote early settlement, allowing parties to control the outcome, rather than having a decision imposed by the Court.

How Do Courts Apply Section 26?

Section 26 provides that mediation can occur:

• With or without the consent of the parties;
• At any stage of the proceedings;
• Either for the entire proceedings or for discrete parts of it (for example, mediation of a particular issue, such as liability, while damages are left to the court).

Importantly, when referring parties to mediation, courts consider whether it is “appropriate in the circumstances”.

 When Is It “Appropriate” to Refer a Matter to Mediation?

There is no exhaustive list, but factors often considered by courts include:

• The nature and complexity of the issues in dispute;
• The cost-benefit analysis of continuing litigation;
• Whether the parties have a history of negotiation or attempted settlement;
• The potential for a preservation of relationships (for example, in partnership or family disputes);
• Whether factual issues are clear enough to enable productive settlement discussions.

Does Section 26 Violate a Party’s Right to Litigate?

This is a common concern among litigants. However, courts have consistently held that ordering mediation does not infringe a party’s legal rights, as mediation does not impose a binding decision. The process still respects the adversarial system but encourages alternative avenues to resolution.

The Court has previously noted that mediation is a tool to facilitate, not frustrate, the administration of justice. As long as mediation does not result in undue delay or prejudice, its use is seen as complementary to the litigation process.

The Role of Legal Practitioners Under Section 26

Legal practitioners play a vital role in preparing their clients for mediation. This includes:

• Advising clients on the advantages and limitations of mediation;
• Ensuring clients attend in good faith, with the intention of resolving or narrowing issues;
• Helping to draft terms of settlement if agreement is reached;
• Preserving privilege and confidentiality, as mediation discussions are not admissible in court if mediation fails.

Failure to adequately prepare or advise a client can have professional consequences, especially where the mediation was court-ordered.

Benefits of Court-Ordered Mediation for Litigants

Court-ordered mediation under Section 26 offers multiple benefits:

• Cost-effectiveness: Avoiding a full hearing can significantly reduce legal expenses.
• Timeliness: Mediation can occur much faster than waiting for a trial date.
• Control over outcome: Parties decide the terms of any agreement, rather than a judge.
• Preservation of reputation: Mediation is private and confidential, unlike public court proceedings.
• Flexibility: Parties can explore creative solutions not available through court orders.

Potential Pitfalls and Considerations

While mediation is generally positive, parties should be aware of some pitfalls:

• Power imbalances: In cases involving vulnerable parties, care must be taken to ensure fairness.
• Lack of enforcement: Unless a deed of settlement or court orders are made, agreements may not be binding.
• Delays: Where mediation is poorly timed, it can delay proceedings unnecessarily.
• Costs: While cheaper than litigation, mediation still involves mediator fees and preparation time.

Practical Tips for Navigating Section 26

1. Be proactive: Consider mediation early and signal willingness to the court.
2. Prepare thoroughly: Know your position, the other party’s position, and your settlement parameters.
3. Choose the right mediator: Where possible, select a mediator with experience in the subject matter.
4. Use mediation constructively: Even if full resolution isn't achieved, narrowing issues can reduce hearing time.
5. Document outcomes clearly: Ensure any agreement reached is formalised in writing.

Conclusion: A Vital Tool in NSW Civil Procedure

Section 26 of the Civil Procedure Act 2005 is more than just a procedural tool - it reflects a judicial philosophy that values resolution over litigation wherever possible. For parties engaged in disputes in NSW, understanding this section is crucial for navigating civil proceedings effectively and cost-efficiently.

As litigation costs rise and court delays persist, mediation under Section 26 offers a pragmatic and often preferable path toward resolution. Whether you are a litigant, solicitor, or in-house counsel, appreciating the significance of Section 26 can be the key to unlocking a better outcome – without the stress and expense of a courtroom battle.