ODR: The Next Leap Forward

ODR: The Next Leap Forward

John F Kennedy famously stated in 1959: “When written in Chinese, the word ‘crisis’ is composed of two characters – one represents danger and one represents opportunity.” (The quote has been described, more recently, as a linguistic faux pas.) The danger he was referring to became the Cuban Missile Crisis.

Sixty one years later, a very different crisis is changing the world. Social distancing restrictions have catapulted the global legal profession into the 21st century by forcing the universal use of technology. Scottish courts, especially sheriff courts, have been slow to adapt, with only very limited business yet capable of being dealt with remotely. Most Scottish tribunals are closed to existing and new business. Mediators have been quick to move their face-to-face practice to Zoom. Suddenly, online alternative dispute resolution (“ODR”) is in the spotlight.

ODR combines ADR processes, technology and impartial independent experts. It is recognised internationally as a specialised and highly effective form of ADR. Its origins date back to the 1990s when it was created to resolve disputes resulting from online transactions and interactions between parties in different jurisdictions. In 2013, Lord Neuberger, then President of the Supreme Court, said in a speech on Judges and Policy: “We may well have something to learn from online dispute resolution on eBay and elsewhere.” The eBay Resolution Center now handles over 60 million disputes each year, while courts have been slow to adopt online or hearing-free models. 

All methods of exploring the resolution of a dispute with the assistance of technology are ODR. It can involve advanced technologies and processes such as machine learning, artificial intelligence and cognitive computing which are being developed and promoted to resolve specific types of disputes. More importantly for the practice of law, it is the movement online of face-to-face mediation, arbitration and other resolution processes, using videoconferencing combined with secure onboarding, e-signing of agreements, document sharing and online communication, to deliver fair, proportionate and effective redress for commercial and civil disputes.

The momentum of global ODR continues to increase in many jurisdictions in Europe, the US, Canada, Australia and New Zealand, in the public and private sectors. Hong Kong has recently announced a scheme as part of its measures to support individuals and businesses affected by the COVID-19 crisis. The tragic loss of life and collapsed businesses are undoubtedly the “danger”. But there is also an “opportunity” for disputes lawyers in Scotland.

First, ODR (and ADR) gives lawyers an opportunity to better serve their clients and society as a whole. Access to justice is problematic for many businesses and individuals in Scotland. Litigation, even in the commercial courts with judicial case management and specialisation, is disproportionately expensive, slow and uncertain. A dispute which runs to proof is unlikely to cost much less than £100,000. For many disputes, that figure is conservative. Legal costs for commercial disputes will often run to several times that figure, resulting in parties spending as much time arguing about the costs as over the claim.

Secondly, ODR gives lawyers an opportunity to grow their client base and their income. There are a huge number of commercial and civil disputes in Scotland which get nowhere near law firms due to the cost of taking legal advice, commencing and running litigation. Other professionals are assisting clients with all sorts of disputes and attempts to negotiate resolutions. Professional bodies such as the RICS offer well regarded dispute resolution services for a wide range of property disputes. As we enter what is predicted to be the biggest recession in centuries, litigation is going to be a non-starter for an even greater proportion of Scottish businesses. Research from the US reports that by using ODR parties can save as much as 80% of the costs of litigation in as little as 20% of the time. The economics of ODR mean that claims that were previously unaffordable or cost-prohibitive can be progressed or pursued.

Thirdly, ODR gives lawyers an opportunity to make face-to-face dispute resolution more efficient and cost effective. The background to a dispute can be explored in more detail using online processes such as videoconference, secure and confidential discussion “channels”, or parties to the dispute uploading video statements explaining the dispute from their perspectives. This allows the neutral expert to clarify key elements in more detail and to hit the ground running when the face-to-face dispute resolution process starts.

It is difficult to argue that ODR will not be at the core of the future of dispute resolution. The world today is very different to how it was even two months ago. The new normal will see a continued use of remote working with the use of technology, and lawyers will need to embrace ODR. In the long run it will result in more work and happier clients. And for the sceptics, some wise words from a pioneering Scot, Alexander Graham Bell: “When one door closes, another opens; but we often look so long and so regretfully upon the closed door, that we do not see the ones that open up for us.”

This article first appeared in the May 2020 edition of The Journal of the Law Society of Scotland

Beware of dancing bears: do disputes differently

Beware of dancing bears: do disputes differently

Have you heard the one about the dancing bear? “Litigation is like dancing with a bear. You decide when the dance starts. The bear decides when it stops”. The sentiment is not a new one. In the late 19th century an American journalist wrote litigation is a machine which you go into as a pig and come out of as a sausage”.

In the UK (pre-COVID-19) disputes cost business £33 billion a year, taking up 20% of leadership time and potentially losing up to 370 million working days. In 2018 the estimated value of commercial claims mediated was £11.5 billion, saving businesses around £3 billion a year in wasted management time, damaged relationships, lost productivity and legal fees. In the US, perhaps surprisingly, it is standard practice to mediate as soon as court proceedings are raised. Similarly, in England, disputes are mediated at a far earlier stage in the lifecycle of a court action than they are here. Now, more than ever, businesses are going to need fast, efficient and cost effective disputes services.

The last 18 months has seen the Scottish Parliament Justice Committee report “I won’t see you in court”; the Scottish Mediation Network report “Bringing Mediation into the Mainstream in Civil Justice in Scotland” and a proposed Mediation Scotland Bill from Margaret Mitchell MSP, all recognising the need for a culture change to normalise the use of alternative (appropriate?) dispute resolution in Scotland. The benefits of negotiation, mediation and ADR are well known, so why are so many disputes litigated either before collaborative attempts to negotiate (in the true sense of the word) or by engaging in alternative or online DR processes? And how should businesses manage differences and disputes?

First, it is important to develop (or improve) and implement systems to identify where your business is at risk of conflict (both internally and externally) and to better manage conflict. This would include better use of dispute resolution or dispute escalation clauses in contracts; conflict policies and procedures, risk assessment tools and delivering appropriate training to those managing conflict within your organisation.

Secondly, adopt a robust risk assessment as part of an overall negotiation strategy when a disagreement or dispute arises. Parties to a dispute are susceptible to confirmation bias where they focus on the facts and evidence which support only their version of events, in turn feeding over-confidence bias. Research shows that lawyers are more susceptible to over-confidence bias than under-confidence bias when predicting the likely outcome of litigated cases. Cognitive biases can be better managed if a more systematic approach is taken to assessing prospects of success and alternatives to litigation.   

As a very basic example; you have a claim for breach of contract or negligence. If you go to court, you need to prove, first, that there was a contract between you and your opponent; secondly, that your opponent breached the contract; and thirdly, that you suffered a loss as a result of your opponent’s breach. What do the prospects of success look like on a statistical analysis? Even if your lawyer is 95% sure of proving there was a contract, if the prospects of proving that the party you are suing breached the contract are only 70%, and 60% that that party caused the loss you claim to have suffered, you actually have less than a 40% chance of winning the case overall. If your chance of proving that the party you are suing breached the contract and caused your loss both drop to 50%, you have less than a 25% chance of winning, meaning a £100,000 claim is really worth £25,000, and your legal costs to run it in court will far exceed that.

Thirdly, as part of the robust risk assessment conduct an objective analysis of each party’s best (or worst) alternatives to court. Without such an analysis, it is impossible to develop an effective strategy to determine whether you are better to negotiate and what a good result looks like. For example, you have a £2 million claim. It has cost you £100,000 on legal fees and £50,000 on expert reports to investigate. You are told court action is likely to cost £400,000 in legal fees, and you have a 60% chance of success. You anticipate your opponent’s legal costs will also be £400,000. The true value of your claim is therefore £940,000 (60% x 2,000,000 – £160,000 (40% of your irrecoverable judicial expenses) – £100,000 pre-action costs, assuming you will get full recovery of your experts’ fees). Or put another way, your best alternative to negotiating an agreement is £940,000. On this scenario it would be unwise to decline a settlement offer of £1 million, which is more than your best alternative in court. If no such offer was on the table, it would be wise to consider mediation or arbitration as an alternative. If parties were to agree to arbitration, particularly fixed fee or online models which simplify the procedure, keep costs to a minimum and cap the sums that the successful party can recover in costs, the best alternative would look quite different. If parties were to mediate “the pie” would be instantly bigger because significant legal costs would not yet have been incurred. The robust risk assessment is the only way to inform the decision on how best to proceed to resolve the dispute.

Finally, instead of raising court proceedings “to protect positions” (unless of course there are concerns a claim may time-bar and parties cannot agree to arbitrate to stop the clock) consider whether the better use of your resources is to de-escalate the conflict and explore workable solutions through negotiation, or mediation (or med-arb). The threat of court is always there whether court proceedings are raised or not.

Squaring Circles is the trading name of Squaring Circles Dispute Management Limited, registered in Scotland. Registration number SC641319. Registered office at Caledonian Exchange, 19A Canning Street, Edinburgh EH3 8HE.