What are the resolution processes available under the Dairy Code and how do they work?
There are two resolution procedures contained in the Dairy Code (Subdivision F—Complaints and Disputes, sections 43 – 54).
1. COMPLAINT PROCEDURE
This procedure is specified by section 43 of the Code for resolving complaints arising under or in connection with a milk supply agreement. The Code requires that:
- A milk supply agreement must provide for a complaint handling procedure, s 43(1) for dealing with and resolving complaints by a party to the agreement about matters arising under or in connection with the agreement.
- An Internal complaint handling officer, s 43(2) must be employed by a processor to manage complaints in accordance with the complaint handling procedure provided in the agreement.
- A milk supply agreement must provide for mediation, s 43(3) as a means for resolving disputes between parties to the agreement.
- A milk supply agreement may provide for arbitration, s 43(4) as a means for resolving disputes between parties to the agreement.
2. DISPUTE PROCEDURE
This procedure is for resolving disputes, is defined in the definitions section 5 to mean: “a dispute between the parties to a milk supply agreement in relation to a matter arising under or in connection with the agreement.” Disputes can be resolved by the processes of:
- mediation (section 48), if a party to a milk supply agreement wishes to have a dispute resolved by mediation in accordance with this Subdivision.
- arbitration (section 51), if the parties to a milk supply agreement agree, in writing, to have a dispute resolved by arbitration conducted in accordance with this Subdivision.
1. The milk supply agreement Complaint handling procedure – in detail
It is suggested that the “internal dispute resolution procedure” for complaint handling in the milk supply agreement provides the best opportunity for dairy farmers and processors to introduce inexpensive, fast and fair dispute resolution procedures. However, this requires the adoption of a comprehensive and well thought out dispute resolution clause in the milk supply agreement.
This is not a given. The incidence of poorly drafted dispute resolution clauses in international commercial arbitrations, concerning disputes over hundreds of millions of dollars and involving the top legal firms who draft and prepare these documents, is so common that they are labelled by the industry: “pathological clauses“.
Section 47 provides a five-step outline as to how complaints are dealt with in accordance with the resolution procedure in the milk supply agreement for complaint handling. They are described below for your information only as the Dairy Code website fully automates all of the procedural aspects of raising and managing a complaint. Remembering always that this is a complaint handling procedure and the complainant party can at any time choose to withdraw their dispute, by notice in writing to the respondent to the complaint, without penalty, s 47(6).
STEP 1 Notice
The complainant notifies the other party (the respondent), in writing, s 47(2) of:
(a) the nature of the complaint;
(b) that the complaint is to be dealt with in accordance with the complaint handling procedure provided in the milk supply agreement;
(c) the outcome the complainant wants.
STEP 2 Acknowledgement
Within 5 ‘working days’ (not defined in the Code) after receiving notice of the complaint, the respondent must give a written acknowledgement to the complainant, s 47(3) stating:
(a) that notice of the complaint has been received; and
(b) the steps to be taken to deal with the complaint.
STEP 3 Internal Complaint Handling Procedure
The complainant and the respondent must attempt to resolve the complaint in accordance with the complaint handling procedure provided in the milk supply agreement. The internal complaint handling procedure concludes 60 days after the written acknowledgement of the complaint was given by the respondent. A complainant cannot take action to resolve a dispute by mediation or arbitration until after the conclusion of the complaint handling procedure provided in the milk supply agreement, s 47(4).
STEP 4 Mediation
Where the complaint is not resolved in accordance with the complaint handling procedure provided in the milk supply agreement within 60 days after the acknowledgement was given to the complainant, either party may take action to have the complaint resolved by requesting referral to mediation, s 47(5)(a).
STEP 4 Arbitration
Where the complaint is not resolved in accordance with the complaint handling procedure provided in the milk supply agreement within 60 days after the acknowledgement was given to the complainant, the parties may agree that the complaint is to be resolved by arbitration, s 47(5)(b).
It is strongly recommended that a comprehensive arbitration clause, which details the procedure (including Rules for the appointment and conduct of the arbitration process) is included in the milk supply agreement that provides for mandatory arbitration if the parties fail to resolve their disagreement either at Step 3 or Step 4.
POINTS TO NOTE about the complaint provisions:
1. The term a “complaint handling procedure” is not defined nor is any particular standard imposed for the complaint handling procedure. By comparison, ASIC requires financial organisations to comply with the Australian Standard AS ISO 10002–2006 Customer satisfaction— Guidelines for complaints handling in organisations (ISO 10002:2004 MOD).
2. The matter does not proceed automatically to arbitration on the failure of an earlier process unless the parties have specifically provided for arbitration as part of the dispute resolution procedure in the milk supply agreement beforehand.
Section 46(2) of the Code provides that a dispute must not be resolved by arbitration unless the milk supply agreement provides for arbitration as a means for resolving disputes; or the parties to the milk supply agreement subsequent to a dispute occurring, agree in writing to use arbitration to resolve the dispute. This later course is practically impossible once the parties are engaged in a conflict. So if parties want the opportunity to finally, fairly and inexpensively resolve a conflict that arises under or in connection with a milk supply agreement they you need to include an arbitration clause in the milk supply agreement.
3. The complaint resolution procedure (if arbitration is included) functions as a complete, private (between the parties) resolution process involving negotiation, mediation and arbitration as necessary steps in the resolution scheme. In this way, the milk supply agreement Complaint Handling Procedure provides a complete and fully managed resolution procedure.
4. The function of the complaint handling officer could also be undertaken by an external Dairy Code arbiter that is responsible for independently and fairly managing the process of dispute resolution on behalf of the processor and complying with the reporting requirements (under s 56) of the Dairy Code.
2. Mediation and arbitration processes under the Code provisions
As well as the complaint handling procedures under the milk supply agreement, there are limited mediation and arbitration processes to resolve disputes, provided for by the relevant subdivisions in the Dairy Code:
– section 48 deals with mediation
– section 51 deals with arbitration
and they apply where a party to a milk supply agreement “wishes to have a dispute resolved in accordance with the relevant subdivision”.
Appointment of mediator
In respect to mediation under subdivision 48, a (single) party must request the mediation adviser appoint a mediator for the dispute, s 48(2).
The mediation adviser must appoint a mediator within 14 days after receiving the request (unless the adviser is satisfied that the complaint giving rise to the dispute is frivolous or vexatious; or has previously been the subject of another mediation) and give the parties details of the mediator appointed in writing, s 48(3).
Conduct of mediation
The mediator decides, s 48(4):
(a) how the mediation is to be conducted (for example, by telephone or in meetings); and
(b) the time and place for the mediation, which must be conducted in Australia, and
(c) the day the mediation commences for the purposes of the Subdivision.
Appointment of an arbitrator
In respect to arbitration, both of “the parties” must agree to request the arbitration adviser appoint an arbitrator for the dispute, s 51(2).
[This procedure is overly restrictive, unknown and unnecessary and will likely result in no arbitrations under, the Code, ever being conducted. By comparison with litigation, you do not need the approval of the other party to sue them in court, because no one will ever agree to being sued.]
The arbitration adviser must appoint an arbitrator within 14 days after receiving the request and give the parties in writing, details of the arbitrator appointed, s 51(3). Unless the arbitration adviser is satisfied that the complaint giving rise to the dispute: is frivolous or vexatious; or has previously been the subject of another arbitration.
Conduct of the arbitration
The arbitrator must decide, s 51(4):
(a) how the arbitration is to be conducted (for example, by telephone or in meetings); and
(b) the time and place for the arbitration, which must be conducted in Australia, and
(c) the day the arbitration commences for the purposes of the Subdivision.
POINTS TO NOTE about the dispute provisions:
- The procedures for engaging in mediation s 48, or arbitration s 51, under the Dairy Code (as opposed to in the milk supply agreements for handling complaints) where parties have failed to provide comprehensive processes in the milk supply agreement and should not be used. If the complaint handling procedure in the milk supply agreement is properly drafted by people with dispute resolution expertise, there is no need to use this.
- The Code processes in these subdivisions offend the basic principle of party autonomy that allows the parties to select their own mediator or arbitrator, which is a fundamental component of every private dispute resolution process in Australia. They are in effect, the fall-back position where the parties have been unable to agree on how the mediator or arbitrator of the dispute should be selected.
- A party to a milk supply agreement in choosing these procedures is relying on the Agriculture Minister’s power to appoint a ‘mediation adviser’ (s 44) or ‘arbitration adviser’ (s 45).
- In respect to mediation under subdivision 48, a (single) party must request the mediation adviser appoint a mediator for the dispute.
- In respect to arbitration, subdivision 51 requires that both of the parties must request the arbitration adviser appoint an arbitrator for the dispute. In practice this will be virtually impossible to achieve when the parties have no choice in who will be appointed nor how much they will charge.
- A party to a milk supply agreement in choosing these procedures is relying on the Agriculture Minister’s power to appoint a ‘mediation adviser’ (s 44) or ‘arbitration adviser’ (s 45). Once engaged those advisers are empowered to appoint a mediator or arbitrator without any party choice or involvement, which is the opposite of what most code processes involve and never done in private dispute resolution schemes, where party autonomy is paramount.
- There is no “Notice procedure” under these sections so the adviser who selects and makes the appointment of the mediator or arbitrator is not provided with the nature of the dispute or the requisite skills of the dispute resolver needed.
- Parties will want to select their own mediator or arbitrator as it will ensure they use an independent dispute resolver with the requisite skills and knowledge of the industry and for a known fee. The Code process for appointing a mediator or arbitrator is conducted by the adviser without any knowledge of the ‘complaint’ giving rise to the dispute as there is no basis for the procedure initiated under the internal procedures to be part of the Code process.
- The imposition of a non-party selected neutral contemplated by the Code procedure, is especially problematic with respect to arbitration. An arbitrator’s award is the ultimate product of the parties’ consensual agreement to submit their differences or dispute to arbitration and cannot be challenged on the basis of error. Arbitrators are engaged as “experts”. So holding that the parties are bound by an arbitrator’s error of fact or law is fundamental to the right of the parties to select an arbitrator of their choosing, or choose the manner in which the arbitrator may be selected. As the High Court quoted with approval (TCL Air Conditioner (Zhongshan) Co Ltd v The Judges of the Federal Court of Australia  HCA 5): “It is the consensual foundation of arbitration which underpins the general rule, settled since the middle of the nineteenth century, that an award is final and conclusive and cannot be challenged either at law or in equity on the ground that the arbitrator has committed an error of fact or of law”.
- The arbitration procedure provided in the Code is also deficient in that it does not provide for any opportunity to agree the procedural Rules to govern the conduct of the arbitration. Just as litigation in Australian courts is not conducted in a vacuum, but in relation to the rules of the relevant court, as the Federal court rules are different from the State Supreme Court rules, so arbitrations are universally conducted according to institutional rules and procedures that allow for the control of the time (and therefore cost) of the arbitration. For example: (1) The arbitrator has no power to require that a party attends the arbitration hearing, so it must be specifically provided that the arbitrator can proceed to deliver an award ex parte without being in breach of procedural fairness, if a party fails or refuses to attend. (2) An arbitrator should have the freedom to act according to equity, good conscience and the substantial merits of the case without regard to technicalities or legal forms. (3) The rules should also specify the arbitrator’s ability as an expert to conduct an investigation and call for information.
- Unless an arbitration process can be employed, where negotiation and mediation have failed to produce a binding agreement, there can be no finality to the dispute as there can be no binding arbitration award. This was the basis of the Senate Inquiry into the Franchising Code of Conduct recommending that the Franchising Code be amended to include binding arbitration.
- The absence of any ‘multi-party’ or ‘group’ dispute resolution processes under the Dairy Code, as the ACCC has recommended be provided under a revised Franchising Code, makes it even more difficult for dairy farmers with the same complaint against a single processor to engage in a dispute resolution procedure which provides a quick, inexpensive and fair process to achieve a final resolution.