Legal Briefing

Is alternative dispute resolution taking centre stage?

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Dispute resolution | 01 June 2014

In the words of Mark Twain, there are ‘lies, damn lies and statistics’. It does seem, however, that whichever way you look at the latest figures detailed in the Civil Law Statistics for Scotland for the year 2012/13, there is an ongoing trend for individuals and businesses to rely less 
upon the Scottish court system for resolving their disputes.

Over the past four years, civil cases initiated in both the Court of Session and the Sheriff Courts across Scotland have dropped by 41%. The total number of civil claims going through the courts has been decreasing since the early 1990s and fell below 100,000 cases for the first time in 2010. The figure now stands at 77,453 
for the year 2012/13. If the trend over the past four years was to continue, in ten years’ time, there would be fewer than 22,000 court cases initiated in all courts across Scotland.

Why is this happening? The detail of the statistics requires a little more examination. Debt cases have reduced by 45%, damages cases by 29%, and repossession and eviction cases by 47%. There has been less of a drop in family law actions, which have seen a 7% decline since 2008/09. There has been a steady decline of 14% in the number of divorces granted since 2008/09. Personal injury cases, which account for four out of every five cases instituted in the Court of Session, is perhaps the one area where the number of cases has remained fairly constant, although there has been a notable drop of 4% in 2012/13 as compared with 2010/11. Perhaps, the most interesting statistic of all is the significant drop in the number of cases initiated in Scotland’s highest civil court, the Court of Session. Since the early 1980s, when 20,000 actions a year were initiated, the figure has now dropped to somewhere between 4,000 and 6,000.

Given the proposals outlined in Lord Gill’s Scottish Civil Court Review published in September 2009, the recommendations of which are now enshrined in the draft Courts Reform Scotland Bill which is making its way through the Scottish parliament, the number of cases to be dealt with in the Court of Session is set to fall yet further. This is largely due to the report’s key proposal, which is to increase the value limit for a case to be initiated in the Court of Session to £150,000 from the current £5,000. If this proposal becomes law, the vast majority of cases currently initiated in the Court of Session will, in future, need to be raised in the Sheriff Court.

What is causing this general trend away from resolving disputes in court? Do we live in a more harmonious world? Are there fewer of us? Are we doing less business? Has the effect of the recession over the past five years made us more tentative when it comes to resorting to the courts? Or is it the case that parties are dealing with the same number of disputes, or potentially more, but are finding ways other than traditional litigation to resolve them.

The high-level statistics for Scotland suggest that more people are now engaged in business than four years ago. The 
mid-2009 population of Scotland was 5.2m, rising to 5.3m in mid-2013. The number of people in work over the same period fell slightly from 2.5m to 2.47m. The number of businesses operating in Scotland in March 2013 stood at 343,105, up from 295,545 in March 2009. GDP, one way of measuring business activity, increased from £132.9bn in 2009 to £145.2bn in 2012. If we assume that individuals and businesses continue to have disputes at the same rate as we have seen over the last four years, we would have expected civil claims to have increased rather than decrease in the dramatic way they have done. A significant drop in court cases over the past four years, therefore, cannot simply be explained by the effects of the recession or reduced business activity levels.

The most likely explanation would appear to be that individuals and businesses are finding alternative methods of resolving their differences. These methods are collectively known as alternative dispute resolution (ADR). Essentially, ADR is the collective term for those dispute resolution processes and techniques which allow disagreeing parties to come to an agreement short of litigation and resorting to the courts. This process may or may not involve the assistance of a third party.

ADR can generally be classified into four types: negotiation, mediation, collaborative law and arbitration. Some methods, notably adjudication and arbitration, will involve a third party or arbiter/adjudicator who is employed by both parties to provide a decision to resolve the dispute at hand. Adjudication has become common in construction disputes. It is designed to achieve a decision within 28 days and permits disputes in large and complex construction projects to be resolved as the build is progressing, thereby allowing the project to be completed on time. Arbitration is a flexible dispute process, which is becoming increasingly popular in Scotland following the passing of the Arbitration (Scotland) Act 2010. It is particularly suited to resolving complex cross-border international disputes.

Other, more consensual forms of dispute resolution include mediation, conciliation and negotiation. These processes do not necessarily involve a third-party adjudicator. The role of the mediator is not to hand down a judgment enforceable against one of the parties, but rather to work with them to find a resolution to the dispute, which is acceptable and palatable to both parties.

ADR offers many advantages over the court process, one being the speed of resolution. As noted above, the adjudication process can be concluded in as few as 28 days. The same dispute, taking the court action route, would undoubtedly take many more months to resolve. Cost is also a factor. Generally, the cost of a court action is greater than most ADR processes. The court process, by its very nature, can involve lengthy court hearings attended by witness for both parties, which may include examining many documents, not all of which are central to the dispute at hand. ADR, being a more consensual approach, enables parties to cut through the peripheral issues, and hone in on what really matters in the dispute between them.

Confidentiality is another factor to take into account. Litigation is generally a public process with court hearings open to the public. All documents placed and referenced in open court are deemed to be available to the public if a request is made. ADR, on the other hand, is generally confidential to the parties, giving them more control over the process. They are able to agree the rules by which the dispute is decided and to determine the individual who is going to adjudicate the dispute, should one be required.

Many large corporations have taken ADR to a new level. The Corporate ADR Pledge is a commitment initiated as a result of collaboration between the Centre for Effective Dispute Resolution and the International Institute for Conflict Presentation and Resolution. In signing the pledge, the parties commit:

‘… their resources to managing and resolving disputes through negotiation, mediation and other ADR processes with a view to establishing and practising global sustainable dispute management and resolution processes’.

Many corporations have now signed up to this pledge, including household names such as BP, Microsoft, Pfizer, IBM, Shell, and Marks and Spencer. Given the commitment to this pledge by such large corporations, it seems very unlikely that any of those that have signed up, will regard recourse to the court as their first port of call when considering the best way of resolving any dispute.

Adjudication and arbitration are now commonplace in sectors such as construction, shipping, energy and pharmaceuticals. Over the past 15 years or so, it is perhaps surprising that arbitration has not been used more often to resolve disputes, particularly the larger, more complex ones. While many companies with a presence in Scotland will no doubt have been involved in arbitration to resolve their disputes, much of this arbitration will have taken place outwith Scotland, and will not have involved Scottish lawyers. It is anticipated that arbitration will gain greater prominence in Scotland following the passing of the Arbitration (Scotland) Act 2010. The Act brings together the arbitration rules within a framework specifically designed to bring clarity to the arbitration process in Scotland, and thereby give greater certainty as to form and process for parties willing to embark on arbitration. While arbitration has some downsides, including the fact that parties generally have to pay for the judge, the venue, the clerks and the running costs, the up side is that parties can choose their judge, set out and agree on various aspects of form and procedure, and dictate the speed of the process, thereby resolving the dispute more quickly than if the matter had been litigated.

In light of the continued fall in court cases and the rising use of ADR, is there a future for our courts in Scotland? Should the decline we have seen over the past four years continue, then by 2020 the Scottish courts will very much be the minority player in the resolution of disputes in Scotland. There will, of course, always be the need for the courts for certain cases and parties. It does appear however, that their role will become increasingly specialised and that they will only deal with the high end, complex disputes in areas such as intellectual property. Perhaps the courts will find a process that will suit high-volume, low-value debt cases being processed in bulk.

The courts in Scotland are, of course, subject to radical change. Lord Gill in his Civil Justice Review promotes a shake-up of the court system with the underlying objective of improving access to justice at a cost which is proportionate to the value in dispute. As mentioned, the key recommendation of the report is to increase the limit for cases to be raised in the Court of Session from the existing £5,000 to £150,000. At a stroke, if this proposal becomes law, over 80% of the work of the Court of Session will need to be raised in the Sheriff Court. Lord Gill, in his report, fully appreciates that if there is going to be a significant influx of additional cases to the Sheriff Court, then many changes are required to streamline the process and make the disposal of cases more efficient. Time, proportionality of costs, and modernisation are at the heart of these changes.

However, when one reads the statistics, it does seem that the courts are now competing with a number of other ADR processes. Given the confidential nature of many of these, it is simply not possible to get a clear picture of how many disputes are being resolved using ADR. There are currently no published statistics. There 
have been one or two pilot projects promoting mediation, notably in Glasgow and Edinburgh Sheriff Courts, but the number of cases taken to mediation has been modest. If, however, one is prepared to accept that we are not ‘disputing’ fewer cases than we were ten years ago, it does now seem irrefutable that disputes which were previously being resolved through litigation are now being resolved using 
other tactics.

What seems clear is that ADR is not going to go away. Initiatives such as the joint venture to promote arbitration between the Scottish Arbitration Centre in Edinburgh and the Centre for Energy Disputes in Dundee are clearly raising the profile of the use of ADR in Scotland. If Scotland is to be seen as a truly global player on the international arbitration stage, it needs to aggressively promote the benefit of arbitration and ADR generally to businesses and the legal profession. It does seem that lawyers in the past have been reticent to promote the use of ADR, favouring the court as the desired option. That clearly is changing. It is difficult to predict the future accurately, but there is no doubt that individuals and corporations are becoming more demanding of the legal processes available to them. With the recession being as damaging as it has been, they are more mindful of costs, and will wish to have a process which is both efficient and speedy in producing a result. Only time will tell the final outcome and what future lies ahead for Scotland’s court system and our use of ADR.