Co-Authors:
Conor McLaughlin, Barrister at Erskine Chambers
Horst Eidenmüller, Statutory Professor of Commercial Law
This post introduces the findings of an empirical study, conducted in 2022/2023, on the design of efficient judicial dispute resolution systems for business-to-business (B2B) commercial disputes in a digital world. The post is based on a research paper which discusses the research project and our findings in detail.
To be sure, we are not the first to undertake an empirical investigation of stakeholder preferences for the resolution of B2B disputes. But, to the best of our knowledge, we are the first to do this after the pandemic, post-Brexit, and in the face of an AI wave which has gained momentum on an unprecedented scale in the last three years, reaching and passing an inflection point.
Various factors are currently disrupting the landscape of commercial dispute resolution worldwide. Human decision-making in conflict is increasingly assisted or even replaced by innovative technological tools and systems. Digitization, blockchain technology and artificial intelligence (AI) are fundamentally changing business transactions and the resolution of conflicts resulting from these transactions. The COVID-19 pandemic accelerated and amplified this development. The pandemic brought lockdowns and forced dispute resolution providers to offer their services online. “Virtual hearings” became the modus operandi for courts, arbitral tribunals and mediators across the globe for extended periods from 2020 to 2022.
At the same time, courts face increasing challenges. Alternative Dispute Resolution (ADR) procedures are on the rise, in part because they are sponsored or even mandated by the law in many jurisdictions. For example, arbitrations administered by the London Court of International Arbitration (LCIA) have increased by more than 70 percent from 2013 to 2020. eBay and PayPal’s dispute resolution system handles around sixty million disagreements a year, three times as many as the entire United States legal system. Ninety percent of these disputes are settled using technology alone.
As a consequence, courts are facing increasing competitive pressure from private dispute resolution providers. The commercial case load of courts in many jurisdiction is declining steadily. The English courts must confront a further challenge post-Brexit: with the exit of the United Kingdom (UK) from the European Union, English court judgments need no longer be automatically recognised in continental Europe, threatening London’s position as a leading dispute resolution venue. Data from 2018 to 2023 confirm a significant decline of international cases around the time when Brexit became effective (1 February 2020).
Faced with competitive pressure from ADR providers and the judicial dispute resolution systems in other countries, jurisdictions worldwide are attempting to reform their court systems and civil procedure rules in order to make them more competitive—nationally and internationally. One noteworthy innovation is the introduction of specialized “International Commercial Courts”. Such courts seek to offer speedy, cost-efficient and expert judicial services in the English language for international litigants involved in high-stakes commercial disputes. “International Commercial Courts” have been introduced in the Netherlands, France, and Singapore, for example.
Another interesting innovation is the use of AI tools to streamline court proceedings. In Brazil, for example, a dataset was created from Brazil’s Supreme Court digitalized legal documents, composed of more than 45,000 appeals. It is used for document type classification, lawsuit theme assignment and the triage of appeals. In Germany, the Universities of Cologne and Munich (TUM) were recently commissioned to develop a “legal” generative language model designed to speed up court proceedings.
Technological innovation is also happening with respect to lower-stakes disputes. In England and Wales, for example, a pilot scheme allows certain lower-value claims to be brought online, and a new Online Procedural Rule Committee has been established to create an “end-to-end digital journey allowing people to resolve their disputes more quickly and efficiently”.
Various factual and normative issues are relevant to legal experimentation and legal innovation with respect to judicial dispute resolution systems. Why are caseloads declining? Which dispute resolution preferences of stakeholders, especially users, are (not) met by current systems? What broader normative functions must civil justice systems fulfil? Law reform without a prior consideration of these questions and issues amounts to flying blind in stormy weather.
To be sure, jurisdictions differ in their legal traditions and their general economic and political orientation. What works in one country does not necessarily work in another, given different traditions, framework conditions, path dependencies and (economic) policies. At the same time, the challenges for civil justice systems worldwide posed by new technologies and the rise of private ADR procedures are global. Civil justice systems must respond to these global challenges against the background of changing user preferences and within local framework conditions and constraints.
An important distinction to be made in this context is between business-to-business (B2B) and business-to-consumer (B2C) disputes. The focus of our work in this project is on B2B disputes. B2B disputes and B2C disputes differ significantly. Private autonomy is central to the former. Unequal bargaining power and mandatory laws protecting consumers are key features of the latter. As a consequence, the regulatory challenges of modernising civil justice systems differ. Access to justice and guaranteeing fair outcomes are important goals of civil procedure reforms with respect to B2C disputes. Efficient service delivery is central to resolving B2B disputes. International regulatory competition between different civil justice systems can be observed primarily with respect to B2B disputes.
To assess the reform potential and needs for B2B civil justice systems, we engaged in a three-part empirical strategy. First, we collected data on the development of caseloads in B2B disputes in select jurisdictions, especially in the US and in Europe, and with respect to leading arbitral institutions. We also identified major current civil procedure reforms in these jurisdictions. Second, we undertook an assessment of the dispute resolution preferences of key stakeholders. We did so (i) with 24 structured interviews with senior judges, academics, solicitors, barristers and business representatives / leaders and (ii) an online survey. The interviewees included senior in-house counsel at multi-national companies such as semiconductor manufacturer Infineon, technology company Siemens, Unicredit bank, car-maker BMW and international discount retailer Lidl. The online survey generated 275 responses from dispute resolution professionals worldwide.
We argue that the courts are, and will continue to be, a cornerstone of the civil justice architecture, including in B2B disputes. States must not “outsource” the provision of dispute resolution services to private providers, at least not in toto. Courts are needed to generate precedents which provide guidance for structuring and negotiating private transactions. Arbitration is expensive. Powerful and sophisticated private parties can manipulate arbitral processes. Small and medium-sized enterprises (SMEs) need an affordable and truly neutral judicial system to resolve their disputes.
As far as stakeholder preferences are concerned, we find that the push for digitization and for using AI tools to improve the efficiency of judicial processes is strong. AI tools have become a cornerstone of dispute resolution practice. “Online courts” should be “on offer” in commercial disputes. Providing user-friendly and reliable digital / AI tools for information management and analysis, communication and decision-making is key, as are clear protocols for online hearings.
But disputing parties do not want to be judged by machines. Rather, they request competent and specialized human decision-makers. Courts need to be “on top of the game” with respect to the subject matter of the dispute. Parties also request planning and efficient case management. A case management conference and a process plan are essential. Finally, courts should offer an “early neutral evaluation”—a non-binding preliminary evaluation by a third party, with or without (mediated) settlement discussions—if the parties agree to this in the case management conference.
Kathrin Eidenmüller, Judge, Munich Court of Appeals, and former Academic Visitor to the Institute of European and Comparative Law (IECL) at the University of Oxford
Conor McLaughlin, Barrister, Erskine Chambers, London
Horst Eidenmüller, Statutory Professor for Commercial Law, University of Oxford, and Professorial Fellow of St. Hugh’s College, Oxford
This post was first published on Oxford Business Law Blog.
