Recent International Surveys Shed Light on Why We Litigate, Even Though We Say We Prefer Mediation or Arbitration
Many business leaders and in-house counsel say that they strongly prefer alternatives to litigation. So why is litigation still the default process for most commercial disputes?
My previous Slaw column looked at the question of whether lawyers are “hijacking” mediation and arbitration. I speculated that one of the problems may simply be that lawyers are risk-averse. This leads them to follow the well-trodden path of litigation, rather than exploring less well-known alternatives.
Some recent research may shed light on the apparent disconnect between the dispute resolution parties say they want and what they actually do.
Pre-empting and Resolving Technology, Media and Telecom Disputes, an international dispute resolution survey published in 2016 by the School of International Arbitration, Queen Mary University of London, found that mediation is the stated preferred way to resolve disputes in the technology, media and telecom (TMT) fields.
Most companies surveyed said they encourage mediation in their dispute resolution policies, either on its own or as a step before litigation or arbitration. Arbitration is preferred over litigation, especially for international disputes.
Seventy-five percent of the organizations surveyed had a dispute resolution policy. Those companies reported that mediation was the preferred method of dispute resolution, followed closely by arbitration. Even those with no formal policy said they encouraged mediation. Very few of the survey respondents (11%) said they discouraged mediation (vs. 29% that discouraged litigation).
The most common disputes reported in the TMT field related to IT system development and implementation; collaborations, joint ventures or partnerships; intellectual property; and licensing. More than 90% of those surveyed said international arbitration was well-suited for TMT disputes. And more than 80% said they expect the number of arbitrations to increase.
The most attractive features of international arbitration were enforceability, the ability to avoid a foreign jurisdiction, expertise of the decision maker, and confidentiality and privacy. The biggest negatives were cost, unsatisfactory results and limited remedies, difficulty finding qualified arbitrators and delays in getting a final result.
Interestingly, customers favoured arbitration much more strongly than suppliers. The suppliers, especially in the IT sector, preferred litigation or expert determination.
However, the responses were quite different when respondents were asked what they actually did.
Although arbitration was preferred, litigation was the most used form of dispute resolution. While 43% of respondents said they preferred arbitration, only 35% had actually used it in the past five years. Contrast this with litigation, which was preferred by only 15% but actually used by 44% of respondents.
Mediation fell in the middle – preferred by 40% and actually used by 37% – but even there the actual experience was less than the stated preference.
People in the technology sectors like mediation and arbitration in theory, apparently, but when it comes to actual disputes they still fall back on traditional litigation models.
The Global Pound Conference is a series of meetings on commercial dispute resolution organized by the International Mediation Institute (IMI) and being held around the world in 2016 and 2017 (including Toronto in October 2016).
Data is still being collected and those interested in participating can still vote online until July 31, 2017.
The results published to date (May 2017, based in the initial 1500 responses) are particularly interesting, because the responses of parties, advisors, adjudicators, mediators and others are broken out separately, sometimes with very significant differences in their reported interests and preferences.
All participants showed strong agreement that commercial disputes are either financial or result oriented (ie. to obtain or prevent some specific action). No surprises there! And all say efficiency is a top priority.
Things get more interesting when the data looks at attitudes toward different forms of dispute resolution.
For example, mediators and other non-adjudicative service providers think retaining control over the process is the main benefit of mediation or conciliation, but parties and legal advisers think the main benefit is financial, followed by the opportunity to get better knowledge of the case or likelihood of settlement.
Respondents said the most effective commercial dispute resolution process was a combination of adjudicative (arbitration/litigation) and non-adjudicative (mediation) processes. This was followed by mediation alone, pre-dispute escalation or other forms of prevention. Arbitration and litigation were well down the list.
Perhaps it’s not a surprise to learn that both legal advisors and adjudicators ranked adjudication higher than other processes – and that mediators ranked non-adjudicative methods first.
Parties, advisors and adjudicators agreed that time and money are the main obstacles parties face when seeking to resolve commercial disputes, followed by uncertainty about the outcome and lack of knowledge of other options. Mediators were out of step here as well, putting knowledge first and money/time second.
Participants generally liked the idea of legislation or international conventions to promote recognition and enforcement of mediation and other settlements and the use of protocols to promote mediation and other non-adjudicative processes before parties resort to arbitration or court.
Everyone, including lawyers, overwhelmingly agreed that external lawyers are the most resistant to change in commercial dispute resolution practices. Interestingly, in-house lawyers were seen by all to be more open to change. (And I had to laugh when each group identified one of the other groups – not themselves – as being the most change-resistant, after external counsel…)
Participants generally thought governments and adjudicative providers (including judicial and arbitral organizations) are in the best position – and have the greatest responsibility – to take action to promote more effective dispute resolution.
But parties said in-house and external lawyers had the most potential to influence change. Clearly, business people look to their legal advisors for guidance on how to resolve disputes.
There was general consensus that the best way to improve parties’ understanding of the options available to them is through education and awareness of dispute resolution options, in business and law schools, as well as the business community generally.
Business people also liked the idea of creating collaborative dispute resolution centers or hubs. Lawyers and service providers supported procedural rules requiring parties to attempt – or at least consider – mediation or other alternatives before initiating litigation or arbitration.
(It’s interesting, I think, that the question focused on attempting mediation before initiating litigation or arbitration, rather than the common approach of using mediation to try to settle a case after it is underway, when it may already be too late.)
Participants agreed that there was a demand for more efficiency in dispute resolution, but there was little or no consensus on steps governments and others could take that would be most effective to promote better access to commercial dispute resolution.
Participants also identified the demand for certainty and enforceability of outcomes as a significant driver of change.
Changes in corporate attitudes and more emphasis on collaborative instead of adversarial processes were identified as trends that will have the biggest impact on commercial dispute resolution.
I think both of these surveys help illustrate some important realities about commercial disputes.
- Most business people aren’t happy with litigation and seek to avoid it if possible, but they really don’t know what alternatives are available. (With some notable exceptions: USA Today and The New York Times Magazine have reported that Donald Trump and his companies have been involved in more than 4000 lawsuits over the past 30 years.)
- External lawyers aren’t much help – even they acknowledge that they are a significant barrier to change.
- Arbitration are widely seen as a better alternative to litigation, especially for international disputes, but concerns about time and cost, as well as uncertainty over arbitrator qualifications and experience, are significant barriers. (Better the devil you know?)
- There is strong support in the business community for non-adjudicative dispute resolution, including mediation, but we need more awareness and encouragement to mediate (or try other forms of facilitated negotiation) before disputes head down the arbitration or litigation path.
- There is a demand for better mediator and arbitrator qualifications – administered by government or industry groups – to give participants more confidence in the quality and experience of service providers, especially for international disputes.