Online Dispute Resolution and Business

Graham Ross
Managing Director and Founder of The Claim Room, UK

Abstract

This presentation will demonstrate The MediationRoom online mediation system. This system allows mediators to run individual mediations and pay on a case by case basis or apply for their own personally configured, designed and branded site. Other advantages of this system include the option for mediators to hold private caucus sessions with individual parties, plenary sessions, sessions with other participants (experts, advisers), as well as have the ability to take private notes. Mediators can extend their practice by applying skills to disputes they may not otherwise have been able to assist with, such as disputes between parties in different countries, or disputes in which the value is too low to justify the expense of 'face to face' mediation. Mediators can run cases in real time, or on an asynchronised basis where sensitivities suggest time for reflection may be of benefit (eg matrimonial).

Introduction

ODR systems have been available and discussed in one form or another for a number of years and yet have not, so far, been used by business to any great extent, notwithstanding numerous and significant advantages offered by ODR to business. The reason lies in the challenge to the generating of awareness and detailed knowledge and to the building up of confidence in its use - that is presented by any new technology. Identifying and promoting the advantages of ODR in the  running of business and developing ODR as an integral element in hybrid systems that also incorporate the best of existing traditions of alternative dispute resolution, rather than developing and promoting as an 'alternative' to other 'alternatives' is the way forward likely to lead most quickly to large scale usage.

Whilst the 'whites of the eyes' factor is a compelling and effective element of 'Face to Face' mediation (F2F) that, even with webcam and video conferencing, ODR can never emulate. On- and off-line dispute resolution should not be seen to be as in conflict with each other.  Rather, ODR is a new and more flexible communication medium that widens the scope of disputes that can benefit from ADR generally. ODR systems extend the application of ADR to disputes between parties geographically distant or where the subject value is too low to justify the cost of F2F mediation. 

This paper sets out the benefits of ODR for business, discusses the hurdles in the way of rapid uptake and suggests the way forward. Given that most people in business will have a limited understanding of the advantages of ODR, if of the availability of ODR itself, promoting the benefits is a necessary step in the development of ODR growth and practice.

In any paper seeking to set out advantages, it should be necessary to also seek to identify the disadvantages. Leaving aside the distinction with ‘F2F’ dispute resolution as set out above, and allowing for the fact that there will always be individual disputes where, for specific reasons, such as unavailability of browser access to either party, ODR may be inappropriate, the fact is that there are no general disadvantages to the use of ODR to some extent in resolving disputes in business. The only party who would strenuously seek to deny ODR would be one who wished to use the hurdles of litigation (cost to the opponent, delay etc) as a device to avoid payment.

General Benefits to Business

More Efficient Time Management

Companies often fail to take into account that the cost of dispute handling extends beyond that of the lawyers and embraces the cost lost to the company of the management time of its executives, who are dealing with the dispute. Every attendance at a court or ‘F2F’ mediation, dealing with past events, costs the company the time otherwise available for that executive to advance the forward operation of the company. Since ODR does not require travel and attendance, whether in court or at a ‘F2F’ mediation, ODR can have a significant benefit in reducing overall cost to the business.

Unlike offline dispute handling, which may require meetings and court attendances, ODR systems tend to be asynchronous, thus offering much more efficient time management for all participants. Steps in the dispute, as well as contributions to discussions, can be taken at any time of the day or night convenient for each participant. This can be of great benefit where participants are in widely differing time zones. The asynchronous character will help management better fit their dispute handling work within their normal working day with less disruption than otherwise may be the case. The saving in cost is at its most evident in cases involving international disputes. Since multiple parties can engage in some ODR systems, there is also the possibility, within the online mediation, of cross border departmental virtual meetings together with the legal advisers.

The asynchronous nature also gives the opportunity for participants to check up on background matters, whether facts, opinion or policy, or have time for reflection and/or consultation, before making a contribution to a discussion.

Improved Customer Relations

A business, particularly one that is consumer focused, which promoted its own ODR system, with convenient access for customers worldwide, can use it to generate greater customer confidence and, therefore, loyalty. Making it easier for a customer to complain is a principal of good business that has stood the test of time in marketing especially as seen in the ‘no questions asked’ goods return policies of  Marks and Spencer in the UK and Lands End in the USA. On the other hand, companies that take a ‘sue us’ attitude to complaints are more likely to lose complainants’ business in the future. For companies that do not wish to provide a total money back guarantee, a simple to access and operate ODR system can at least permit an easy way to pursue a complaint that will still go a long way to preserve customer loyalty than would be the case if all customers had to resort to litigation. 

Within business supply chains that involve a major industry leader and many small supply companies, e.g. the motor industry, a specific system of ODR may help generate greater mutual confidence in the eyes of the smaller companies. They will feel more strongly that their interests are not being overlooked and that they are part of  a ‘community’ that recognises that, whilst disputes will occur from time to time, such need not lead to termination of the chain and that dispute resolution is just another part of ‘doing business’, rather than as a business threatening incident in itself.

Improved Business Continuity

Within large scale projects involving dozens, if not hundreds, of companies, a dispute between any two participants can damage other participants and jeopardise the economics of the whole project. For example, if the electrical fitters are in dispute with their customer, this will delay the plastering company and others who cannot commence until after the electrics are in place. A UK company[1] has developed systems for early neutral assistance within large scale projects to minimise disputes developing to the stage that it affects other project members, with The Mediation Room providing the necessary online dimension.

Training/Mentoring

An added benefit of an ODR system is that all the facilities and tools can be used in role-play to help train management in dispute handling and this, in turn, can help reduce the numbers and extent of disputes. Further, those newly engaged in dispute handling can have the benefit of a mentor online, a senior manager, who can advise his less experienced colleagues in handling a dispute within a confidential area of the same online dispute case file on which advice is sought. The mentor could also be an in-house, or external, legal advisor.  This can help a company benefit from a higher quality of internal dispute handling by less experienced staff  than might otherwise be the case in a more formal litigation based environment.

Improved Knowledge Management in Dispute Handling

Well constructed ODR platforms providing not just negotiating tools but discussions between varying groups of participants within a dispute (see role-play examples in The Mediation Room)[2] give the opportunity to use analysis of the discourse data to improve a company’s management techniques for dispute handling with a view to reducing in future the extent to which grievances escalate into disputes. In The Mediation Room values can be attached to fields of data to generate reports automatically and alert for the presence of  events requiring attention without the cost or time of data input other than such as required to process the dispute.  For example, as the numbers of disputes handled for any one company, or, where companies within a business sector jointly participate within a system of ODR, for any one industry, increase, key data, such as the types of disputes arising (subject matter, identification of disputants etc) can be analysed at low cost to produce guidance to the company. If any element of a service or product provided by a company produces an excessively high proportion of complaints, then management have an early opportunity to assess whether adjustments in the service or product or method of responding to complaints may help reduce disputes arising, or at least reduce the cost of handling them. Such knowledge can be generated, and its management handled, at much lower cost, as well as with more accuracy and speed, than would be the case if forms had to be completed and manual data input required. The added bonus is that the longer a company uses such techniques of resolving disputes, the more data is input leading, in time, to ever increasing accuracy in dispute based knowledge management.

More Flexible Outcomes

A key benefit of any ADR system, but particularly so with ODR, given the time for reflection before commitment on such matters, is the flexibility of solutions that can be reached. A court is usually heavily restricted in outcomes such as that one party pays a sum of money or performs an action agreed under contract prior to the dispute. However, ODR can result in terms such as that one party agrees to preserve the credit rating of a customer in dispute, notwithstanding delayed payment within the dispute, or that the customer agrees to further orders in the future in return for a discounted payment for the matter in dispute.  Such outcomes help to preserve the supply chain of the business for the future benefit of not only both parties to the dispute but of others in the supply chain. This is in contrast with court based resolution under which often, even when a party wins, the company loses the future business on the basis that, once court proceedings are issued, human nature dictates that they will usually never again do business with that company. 

Benefits to Particular Business Sectors

Disputes Relating to Consumer Products

Being outside of the court system, which has a public face, ODR can help minimise the ‘me too’ factor that raises its head once consumer product claims reach the courts, thus helping manufacturers to better manage the publicity risk that can encourage other claims in relation to the same product. Clearly this is a controversial issue in that consumer advocates would argue that any claim in relation to a consumer product should be ‘out in the open’ in order that, if physical risk is involved, the public are warned and also because the strength of the claim may lie in the very prevalence of the defect in the marketplace as a whole. However, that is not an issue for this paper which seeks simply to identify the advantages presented by ODR in the eyes of the business concerned.

In Europe, the Brussels Regulation on Jurisdiction[3] invalidates the jurisdiction clauses in most terms and conditions of consumer sales, conducted other than in person.  The result is that, although the seller may require the buyer in a distant sale (such as via the Internet) to raise proceedings for any claim in the seller’s country, in fact the buyer can sue in his local country. In many cases, where the value of the product or the claim is low, it will not be economic for the seller to appoint a lawyer in the buyer’s country to defend in that country’s court and, thus, they may prefer to simply accept the claim leading, in turn, to the risk of growth in non-meritorious claims. Whilst ODR will not be mandatory, so that a wise buyer may prefer to rest on his Brussels Regulation rights, the availability of ODR as a solution facility declared on the same website on which the purchase was made will lead not only to a less costly solution for the seller, as well as the buyer, for many of the claims but, moreover, will lead to a greater opportunity for the seller to argue its position in the case of an unworthy claim by the consumer.

Whilst there has been rapid growth in online consumer purchases, it is likely that most of that growth is taken up with purchases from vendors known to the consumer, i.e. the ’High Street’ retailer with whose physical shops consumers are familiar. This is an issue of confidence, both in the delivery of goods, but, moreover, in the satisfactory handling of after sales complaints. The availability of a convenient, low cost and transparent  ODR solution can only increase customer confidence in the online vendor, notwithstanding that the name may be an unfamiliar one, and thus help the growth generally in the opportunities presented by the Internet for the development of smaller companies. The boost to consumer confidence will be of most help in the businesses from the newer emerging economies such as for many of the ten new states that have recently joined the European Union.[4]

Employment Disputes

Companies engage in disputes with their workforce both in relation to the terms of employment (such as dismissal, redundancy etc) and also in relation to injury and illness caused by working conditions. Such disputes can have an impact beyond that which applies traditionally to parties in dispute and that can adversely affect the special relationship (trust and confidence) existing between an employer and an employee. An ODR system can provide an atmosphere of dispute resolution that involve less conflict, particularly given the time for reflection before a response is posted inherent in a system, such as The Mediation Room,[5] that involves asynchronous discussions  between different groupings involving the parties, their representatives and the neutral. An ODR system can thus more likely lead, not only to the resolution of disputes, but resolution accompanied, where appropriate, by a continuity of the employer/employee relationship.

Given that ODR systems, other than procedures that use only email, operate under database applications, the opportunity arises to attach values to data created in the use of such systems, as is the case with all the file fields created in The Mediation Room, so as to enable employers to generate exception reports leading to better knowledge management of how disputes arise in the first place. Further, the causative agents of new developing workplace illnesses can be identified at an earlier stage. For example, a new chemical introduced into an industry may increase the risk of the triggering, or exacerbation of, asthma. Without ODR, it may take a significant number of such cases to be processed through traditional dispute resolution methods before  the problems with the chemical become understood across the industry as a whole. An industry wide ODR system could flag up the risk at a much earlier stage thus helping to control both the health and financial impacts.

Disputes by Clients of Professionals

As with employment disputes, there is a special relationship underpinning the client-professional adviser link that can be damaged forever once the client raises a complaint. Resolving disputes when they arise, often created from lack of knowledge by the client of how the professional adviser operates, is important to ensure the future continuity of that relationship is maintained. If the dispute advances to regulatory involvement or the courts, it is likely that whatever the outcome, the ongoing relationship will have been lost forever. Thus, it is in the interest of the professional adviser to seek to resolve in a manner that, whilst it does not compromise the defence to the allegations, does not prejudice any future work. F2F mediation may not be appropriate since it will incur much additional ‘cost of time’ to the professional. An ODR system, integrated possibly within the professional practice and seen as part of the service, can have a less adversarial character and thus can provide a better opportunity to resolve at an early stage, whilst maintaining the special relationship.

Third Party Insurance Claims

In the UK, as no doubt elsewhere, it is often said in the media that compensation claims are rising at a high pace. A 2004 study by the Department of Work and Pensions showed this not to be the case. However, what is a problem is the massive rise in the claimants’ legal costs, in some cases a much as 50% of the damages paid out, payable by the third party insurers. ODR can reduce the cost to the insurer not only of the amount of the claimant’s costs payable by them but also their internal claims handling cost.  A large element of an insurer’s overall costs lies in the salaries paid to its claims handling staff. A system that speeds up the time to settlement enables staff to handle more casework and thus there is a reduction in the demand for increased staffing if not a factor leading to reliance on a smaller claims handling department.

As stated with employment disputes, the data handling opportunities provided by some systems of ODR for increasing knowledge management can lead to the better identification of the claims risk generally for the insurer. Whilst insurers maintain their own databases, such will not have the benefit of the additional external data, available in anonymised format, through an ODR application. The better identification of such risk can lead to improved claims handling and reduced cost outcomes to the claims.

Rehabilitation solutions, under which the insurer may pay for speedier treatment on a private basis to reduce the extent of the injury and unemployment costs and, thus, the amount of compensation ultimately payable, are much preferred by insurers. Given that an ODR system can involve the claimant together with his or her lawyer in a more transparent way than is occasionally achieved where reporting of insurer proposals/discussions is left to the lawyer. ODR may help increase the potential for rehabilitation as an element of settlement.

Blind bidding is a settlement tool pioneered in the US insurance claims field by Cybersettle[6] and included within the ‘soft’ toolbox of The Claim Room for use in The Mediation Room. A movie demonstration of its use in a road traffic accident claim is available from the header menu at http://www.TheClaimRoom.com. Under blind bidding each side enters bids which are not notified to the other party. However, should at any stage the two latest bids come within a pre-agreed proximity, the system announces a settlement at the mid-point. Such systems can significantly reduce the elapsed time to settlement by reducing the standing time in between offers and counter-offers that result, in open bidding, from parties not wanting to display perceived weakness through speedy re-bidding.  A blind bidding system can also improve the negotiation tactic. In countries such as the UK and Australia where the loser pays the winners’ costs in court outcomes, there is a benefit for an insurer to try to settle early with an offer of a higher figure at the outset of the claim when costs are low, than to let the case advance until it settles at a lower figure but with, by then, the addition of such higher claimant legal costs, that the overall payment is higher. Whilst in open negotiations such a tactic would be inadvisable since, if the high early offer was rejected, it would be difficult for the insurer to persuade the claimant that such is not its ‘bottom line’, with blind bidding, however, the claimant will not be aware of the amount of a non-settling high offer. In jurisdictions under which the claimant’s costs are payable by the insurer, blind bidding thus increases the opportunity for an insurer to settle claims at lower overall cost.

Complex Technology Disputes

One of the problems for businesses involved in disputes involving complex technical evidence, such as with IT disputes, is that often the capacity of the court to assimilate the issues on the basis of the evidence made available to it can be less than with more standard cases.  This is not a criticism of the quality of the judiciary but a recognition of the reality of the economics of litigation.  With high value disputes, the court will have the benefit of significant expert evidence and material as well as the luxury of time to fully understand the technical issues before applying the law. However, such is the accessibility to complex IT at low product value within the ubiquitous PC environment that disputes will arise which involve the combination of high technical complexity with low value subject matter. The latter factor will, under principles of proportionality, both court imposed and imposed by the parties themselves to control costs, lead to such limitation on expert evidence and analysis as to leave the court often severely prejudiced in its ability to fully understand the technical background sufficient to deliver the highest level of justice.

Such limitations on judicial outcomes can hurt business in two ways. Pro consumer decisions related to after-sales PC problems may be commercially unfair on an IT retailer, but also pro-retailer decisions can generate adverse ‘you never can win’ image issues for a major retailer. In addition, smaller business customers may suffer considerable damage on IT failure with its recovery dependent on the funding of expert evidence.

ODR has the dual benefit for business, whether the retailer or the customer, of reducing cost but, moreover, allowing a more appropriate medium for the delivery of expert evidence. Although expert evidence will still have to be funded, that cost will be lower than when court presented evidence and attendance is required. Analysis of complex documentation can benefit from sophisticated, but low cost, document management, but, more importantly, software at the centre of the dispute can be operated/tested from within the case file and hyperlinks to online information/evidence navigated and interwoven within expert evidence. Such facilities can significantly reduce the time and, therefore, cost of ensuring complex evidence can be accessed and understood, thus reducing overall cost and improving the outcome.

Disputes In Public Services

Many public service provision functions of government , as opposed to their political and governmental activities such as budget setting, program planning and  statutory development, come within the definition of ‘business’.  The evidence of this lies in the fact that many such services, such as transport, housing etc, are often, at some stage, transferred to the private sector.  The problem with disputes in this area is that their cost directly reduce the availability of public funds to maintain the very services the subject of the dispute, thus resulting in a ‘loss’ to the public at large.

A UK Member of Parliament of a Liverpool UK constituency raised this problem in Parliament seeking new regulations to restrict the ability of solicitors to promote claims for adverse housing conditions on the basis that the cost of defending such claims reduced the ability to bring the housing stock into good condition. This was an absurd suggestion given that the Council had been at fault in the first place resulting in illness to some of its tenants and their children and would amount to a reward for inefficiency. One can see that in disputes relating to public services, which often involve many similar parallel disputes, the ability of ODR to significantly reduce the cost of handling, and in this case defending  such disputes can have a direct benefit in ensuring more funds are available to improve the very services the subject of the dispute. This reinforces the need for public bodies to step forward as major early users of ODR.

The Hybrid Approach

The greatest benefit of ODR for business over and above traditional methods of dispute handling lies in the fact that it need not be used as a total alternative to such traditional methods.  ODR can be used as an ‘add on’ to create a hybrid solution that benefits from the best of both worlds. For example, if F2F mediation is felt the best solution, a period of pre-mediation using an ODR discussion system can help significantly narrow the issues and reduce any unwanted emotional element beforehand, so that the time spent on the mediation itself can be more productive and have more chance of success.   Further, when an F2F mediation fails, if the key discussions are entered onto an ODR system, it will be possible to pick up the mediation once again in the future should the matter remain unresolved.

In F2F mediation, an ODR element will give the company all the benefits as set out earlier of improved knowledge management and role-play training available from a full ODR. It would also give the opportunity for a break in those F2F mediations in which emotions may run high so that the mediator could use online discussions to try to help participants moderate their approach before recommencing the F2F mediation.

If F2F does not take place, hybrid use can nevertheless include telephone discussions, to enable the mediator to have a better ‘feel’ for the participants.  The Mediation Room now has a voice conferencing facility integrated within it, enabling the mediator to select participants for a conference. The mediator could post key statements/agreements etc onto the online file so as to minimise argument as to what may have been said. The whole conversation can also be recorded and retained within the secure online file. 

Barriers to ODR

There are a number of barriers that go some way to slow down the uptake of ODR. Many of them are barriers to Alternative Dispute Resolution itself, but become higher when the dispute resolution system is provided through new technology. Understanding these barriers can help develop approaches for the way forward.

Fee Earning Conflicts

Any form of mediation requires consent from all parties. This includes lawyers and other representatives.  It is understandable that advisors, whether lawyers or not, trained and experienced in techniques operating in the physical world will have a reluctance to engage in a procedure in which the parties are largely engaged in a virtual world. The fear will be that they will not be able to provide within the new environment, the best quality of their professional service.

A more difficult barrier is that which involves a potential conflict with the fee earning of lawyers. Any system which speeds up the time to resolution and reduces the time spent by lawyers may find it harder to attract early support in countries in which the lawyers are paid according to the time spent. This is not a criticism but a recognition that, as the working life of a lawyer involves not only acting as a professional, but ensuring the practice operates as a profitable business, arguments against using ODR may be perceived the greater when the result of using ODR may mean lower fees being earned. Whilst good practice management suggests handling more cases at lower ‘per case’ cost is more efficient and leads to greater client satisfaction and loyalty, that message may be slow to be realised by less experienced lawyers pressured by partners, or percentage based salary arrangements, to deliver fee earning targets.  In the USA, lawyers are often paid by way of a share of the monies recovered. Under such an arrangement, the less time spent on the case, the more profitable is the fee. This barrier, therefore, does not exist in the USA. In the UK, Australia and elsewhere, however, fees are usually charged according, in part, to time spent. A company can, of course, offer a fixed fee to its lawyers which would thus reduce the fee earning barrier and, in fact, encourage use of ODR that might then speed up resolution of the dispute.

Lack of Public Awareness

Lord Woolf, The Lord Chief Justice in England and Wales, has said in respect of mediation generally:

“What is going to happen is that the clients are going to lead the profession into mediation more and more and we, in the courts, are going to help and facilitate that to happen. The courts are now proactive”[7]

Clients traditionally view lawyers as facilitators in the court process and so, understandably tend to instruct them to ‘sue’, ’take them to court’, or ‘take them to the cleaners’.  The public is largely unaware of developments in ODR, indeed of the very existence of ODR. When, however, clients start to ask their lawyers to ‘mediate’ or indeed ‘use ODR’, at least in the first instance, then clearly greater uptake will take place, For this to happen the public need to be aware of the existence of ODR systems and their benefits.

Lack of Confidence in IT

With the ever growing number of stories about internet security breaches, it is understandable that the public, including lawyers and, mediators, will have a certain lack of confidence in any solution that relies heavily on online IT. This will vary according to the experience of the person concerned, but given the fact that all parties need to consent before making use of ODR, it is a significant barrier.  This concern extends beyond IT security but covers lack of confidence that the other party who may be inviting them in to use of the system may be able to manipulate the system, in some way, to obtain an advantage in the process.

System Ownership

Who ‘owns’ an ODR system may create a barrier to usage. If an insurance company wishes to invite claimants and their lawyers into use of an ODR system, particularly one branded to themselves, there may be a natural reluctance from the claimants and their lawyers to engage in a system that may appear less than neutral. The fact that the system is indeed neutral and operated/hosted independently from the insurance company may not help if the perception is sufficiently strong.  Even if the claimants and their lawyers accept the neutrality of the operation and host, they may understandably fear that the insurance company will have an advantage by virtue of their better experience in the use of the system. 

The Way Forward

Consideration of the above barriers leads to the following suggestions for a way forward to help speed up implementation and usage of ODR:

• Introduce costs incentives to lawyers operating under a time based method of charging. Fixed fees, or fees based on a percentage of the amount recovered, have an automatic incentive to the extent that less time means lower overheads.
• ODR system providers should co-ordinate the promotion generally of ODR so as to more quickly break down the barriers of ignorance and misunderstanding. In particular, F2F practitioners should be given the information to help them understand that ODR is not a threat to traditional methods of dispute resolution, but rather, an additional and powerful tool that will not only help them deliver better service jointly with F2F, but will widen their market to include disputes between parties at a geographical distance or where the amount in dispute is too low to justify F2F.
• To further help avoid misunderstandings and generate greater awareness, there should be a clearer definition of the generic elements to ODR. For some, ODR is just blind bidding, for others it is discussion by email. However, both of these facilities fall far short of true ODR. 
• To help overcome understandable fears of security and confidentiality challenges, standards should be agreed and promoted from within the developing ODR industry.

Given the significant benefits to public bodies who are involved, both as claimants and respondents, in complaints and claims on a large scale, such bodies, including national and local government, should be encouraged to utilise systems of ODR for their own dispute handling. In this way they would be able to promote and introduce funding to the ODR system providers in a way that, as a result of the financial benefits of ODR itself,  becomes self-funding to the public body. The ‘me too’ effect on private sector, once the public sector begins to use ODR in earnest, will be significant.

Conclusion

ODR is beginning to mature into a viable and efficient option for the handling of grievances, complaints and claims. The pace of its use will depend on addressing the natural barriers to speedy uptake and, importantly, for it not to be promoted as a competitor to traditional methods bur rather as a powerful new device best seen when integrated into exiting practices. Greater awareness of its benefits, which are significant to all sectors of business, particularly in the saving of costs, the building of trading confidence and the better preservation of business supply chains, will ultimately lead to ODR becoming far more prevalent in its application to disputes in business.