Dispute Resolution Costs Research Articles

Managing contract violations in construction projects: a moderated mediating model of enforcement decisions

Contracts are frequently violated due to opportunism, misunderstandings, or external factors in construction projects. However, most previous studies focussed on how to prevent contract violations but little research has been conducted on responses to contract violations (i.e. enforcement practices) and the factors affecting these responses. Drawing on Attribution Theory, this study constructs a moderated mediating model of enforcement decisions, including contractual enforcement and relational enforcement, from contract violation, to trust and then to enforcement decisions, with the moderating role of legal enforceability. The findings from questionnaires show that compared with spirit violations, letter violations lead to lower trust and, thus, increase the severity of contractual enforcement and relational enforcement. Furthermore, trust exerts a more negative effect on contractual enforcement when legal enforceability is strong. Theoretically, this study provides a deeper understanding of enforcement decisions by incorporating contractual enforcement and relational enforcement, by differentiating types of contract violations, and by considering legal institutions. Practically, overly severe enforcement may lead to disputes and litigation and even endanger the profitable long-term relationship. This study provides guidelines for managers from the violating party to avert overly severe enforcement, and thus avoid high dispute resolution costs and facilitate long-term partnering.

The Governance of Blockchain Dispute Resolution

Blockchain technology acts as infrastructure for self-executing smart contracts. Because contracts are incomplete and some parties are opportunistic, these new contracting possibilities have created challenges of dispute resolution. For instance, will smart contracts be recognised, and any disputes resolved, within the existing courts of jurisdictions? In this paper we first map some institutional governance possibilities for contracting parties (e.g. mediation, private arbitration, courts) to create a Dispute Resolution Possibility Frontier (DRPF). Second, we provide case studies of emerging blockchain-based mechanisms to solve dispute resolution challenges. Blockchain-based smart contracts might not only create dispute resolution problems, but also act as a technology for entrepreneurs to create new mechanisms to solve dispute problems, including those arising from traditional legal contracts. Contracting parties will subjectively interpret their most effective governance mechanism to resolve disputes, and the costs of dispute resolution will change over time through a process of institutional innovation.

Outsourcing Dispute Resolution Costs: Is the Not-so-New Talk of the Townn in International Finance on the Verge of Establishing Itself?

Outsourcing Dispute Resolution Costs: Is the Not-so-New Talk of the Townn in International Finance on the Verge of Establishing Itself?

Cost and Event in Arbitration (Case Study: Nigeria)

The Federal law governing arbitration in Nigeria is the Arbitration and Conciliation Act 1988. This paper is written on the presumption that the seat of the arbitration is in Nigeria and the Arbitration and Conciliation Act 1988, (ACA) is the governing law. The basic legal requirement of an arbitration agreement under this law is that an arbitration agreement must be in writing or must be contained in a written document signed by the parties, (ACA 1988, Article 1). While the basic requirement for an arbitrator is the arbitrator must be independent and impartial, (ACA 1988, Article 8). The ability to recover costs is often central to financial success in dispute resolutions, since where the costs exceed the value of the claim the victor would enjoy a mere empirical victory. In arbitration steps have been taken to ensure that the claimant’s returns are not unnecessarily impacted upon by the costs of dispute resolution. Do costs follow the event? The general rule is that an award of costs will generally flow with the result of arbitration; the successful party being entitled to an order for costs against the unsuccessful party. However every general rule comes with its exceptions.

Collective Actions and Joinder of Parties in Arbitration: Implications of DR Horton and Concepcion

Well over a century ago, legal and policy analysts realized that the days of purely individual action in matters of business and labor were over, and that legal rules must adapt to the social and economic power of large corporations. Among the rules that changed were archaic limitations on joinder of claims and parties in litigation and laissez faire “liberty of contract” doctrines invalidating labor legislation. Recently, lawyers representing large corporate employers have urged a revival of old rules limiting class actions and labor rights. But, as this Article will show, it is not at all clear that their clients will benefit from the legal regime the lawyers have created. As long as employers have large workforces working under uniform policies, they will face dozens or hundreds of similar claims challenging pay practices, discrimination, and harassment. Group adjudication arose to address efficiently the many similar claims that arise when large institutions adopt uniform policies. Individual arbitration of such claims may result in fewer claims being filed, especially if confidentiality provisions keep co-workers from learning from each other about how to assert successful claims. But unless or until employers figure out a way to shift all the costs of dispute resolution onto the claimaints (and thus far courts have resisted such efforts), and to silence all claimants and their lawyers, employers will face many similar claims, will be paying part or all of the costs of lots of identical arbitrations, and will be paying lawyers to handle them separately rather than on a classwide basis.The National Labor Relations Act (NLRA) protects the right of employees to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.” The National Labor Relations Board (“the Board”) has long held that protected activity includes asserting claims in courts, agencies, and in arbitration. In D.R. Horton, the Board found the NLRA to prohibit enforcement of an employer-imposed requirement that employees waive their right to bring a collective action challenging their working conditions. On petition for review, a divided panel of the United States Court of Appeals for the Fifth Circuit rejected the Board’s determination, holding that the Federal Arbitration Act (FAA) requires enforcement of the mandatory arbitration agreement, including its class action waiver.This Article explains why collective action waivers or requirements to arbitrate individually are unenforceable under the National Labor Relations Act and the Norris LaGuardia Act. The Article also explains why arbitration agreements requiring claims to be brought by individuals are not covered by the Supreme Court’s reasoning in Concepcion and Italian Colors to the extent they prohibit joinder of fewer parties than would be required to bring a large class action and, therefore, remain protected by labor law. The Article notes the inconsistency in the FAA cases about whether agreements can waive the right to file charges with some agencies and courts rather than others and therefore critiques the Fifth Circuit’s ruling that the FAA trumps the employees’ rights under NLRA sections 7 and 8(a)(1) to file group actions in court or arbitration but does not trump section 8(a)(4), which protects the right to file unfair labor practice charges. Finally, the Article raises some questions about the practical wisdom of the courts’ willingness to allow employers to require employees to pursue claims only as individuals. State and federal courts universally allow liberal joinder of plaintiffs and defendants because it is more efficient and avoids some truly thorny issues about the preclusive effect of judgments. The Fifth Circuit majority’s assumption, like the Supreme Court majority’s in Concepcion, that individual determination of claims is better suited to arbitration is simply wrong in many cases. Unless employers can opt out of the usual rules for the binding effects of judgments and the usual rules for joinder of claims and parties, the notion that individual arbitration is superior for everyone (including employers) is simply wrong.

Commercial Arbitration : Factors Making it Lose out Against other Processes

Today the problems in litigation processes are well recognized. Arbitration’s place in alternative process is also not free from controversy. Arbitration has become one of the principal means of settlement of commercial disputes especially in international trade; however, it is not unreasonable to predict that its original value against other processes is being lost. The principal objective of this article is to find out the various vehicles that are responsible for losing out against other alternative methods. It also attempts to explore how and why do such factors facilitate it to lose its credit. The parties of disputes especially commercial disputes will increasingly turn to arbitration for resolution, if arbitration can act with positive results including less adversarial relationships, faster decisions and lower dispute resolution costs. The paper is mostly analytical in nature and largely based on secondary materials of law like books, articles, theses, and several online writings. Primary sources of law are also used in this study. The paper mainly focuses on certain issues of arbitration dealing with commercial disputes rather than arbitration conducted in other fields, but electronic commerce issues will not come under ambit of it.

A rationale for mediation and its optimal use

We propose a novel explanation for how pre-trial mediation might increase the likelihood of settlement. The mediator verifies the plaintiff's private information about the court's judgement and communicates this to the defendant, without disclosing confidential details that would disadvantage the plaintiff in court. This increases the plaintiff's incentives to reveal information and increases settlement rates. We then compare total dispute resolution costs without mediation, with compulsory mediation, and with mediation on request by the plaintiff. If the cost of mediation can be allocated optimally among the parties, then compulsory mediation is never optimal, but prohibition may be. However, compulsory mediation can be optimal when the allocation of costs is fixed. A regime of mediation on the request of either party is an equally efficient alternative to compulsory mediation. In contrast, mediation by mutual consent can be less efficient than prohibited mediation.

In Search of the Most Adequate Forum: Personal Jurisdiction

To what extent do the rules on state court personal jurisdiction distribute litigation to the forum that can resolve the dispute at the lowest social cost? It turns out that current rules do select the least-cost forum in many cases. However, three problems interfere with the goal of minimizing the costs of dispute resolution: (a) analysis under the Due Process Clause does not account for the full social costs of litigation; (b) federalism-based concerns sometimes allow state courts to adjudicate cases when they are not the most adequate forums; (c) institutional factors constrain the Supreme Court’s ability to prevent excessive exercises of state court jurisdiction. The dilemma of achieving forum efficiency within the existing legal and institutional framework helps to explain the confusion that pervades the Supreme Court’s state court personal jurisdiction cases.

Regulating Mandatory Arbitration

Over the last twenty-five years, the Supreme Court has relied on party autonomy and the national policy favoring arbitration to expand the Federal Arbitration Act’s scope beyond Congress’s original intent. Choosing these loaded premises has allowed the Court to reach the outcomes it desires while denying that it is making any political or moral judgments in its decisions – a type of bureaucratic formalism. One controversial outcome of the Court’s formalism, overall, has been the increased prevalence of mandatory arbitration. Although it reduces judicial caseloads and lowers companies’ dispute-resolution costs, it also restricts or eliminates individual rights and reduces public regulation of the companies that require it. The Court has supported the spread of mandatory arbitration despite these negative effects. Because of the Court’s support, the parties being subjected to mandatory arbitration began asking lower courts for relief through the unconscionability doctrine in the early 1990s. And because the unconscionability doctrine could not provide the wide-scale relief they wanted, they also turned to Congress, convincing its members to introduce 139 anti-arbitration bills since 1995 – the majority of which proposed eliminating mandatory arbitration. A review of these efforts, including an original survey of these bills, reveals that these parties have been disregarding mandatory arbitration’s public benefits in favor of a rights-oriented, liberal approach that rejects regulation as a possible way to improve mandatory arbitration’s overall fairness. This Article shows that both the Supreme Court’s and the reform advocates’ approaches to mandatory arbitration are flawed. It makes more sense, at least for now, to continue mandatory arbitration’s use while improving its overall fairness through legislative or agency regulation. Regulating mandatory arbitration with the goal of improving its fairness is consistent with pragmatic principles and is superior to the Supreme Court’s formalism and the reform advocates’ liberalism in the current mandatory-arbitration context. Taking this approach will allow us to study mandatory arbitration over time before deciding whether to eliminate it – a fair way to proceed given the importance of the rights at stake and the positive effects that mandatory arbitration can (possibly) have on the public good.

Objective Criteria: Facilitating Dispute Resolution by Information About Going Rates of Justice

Rules are often seen as commands that have to be observed. From the perspective of disputants, however, rules may also be tools for settling disputes. Fisher, Ury, and Patton famously recommend that negotiators look for objective criteria instead of dividing the pie by a contest of willpower. We investigate the role that objective criteria may have in dispute resolution. In particular, we study how objective criteria help parties to determine shares in liability, damages, profits, efforts, risks, timing, or other benefits and losses that have to be distributed among the parties.We reviewed the literature on negotiation, compliance, descriptive social norms, conflict resolution, fairness, and distributive justice. We found nine suggestions for properties of objective criteria, which make them more suitable as guidelines to settle distributive issues. For each property, we also investigated which mechanism may contribute to lowering the costs of dispute resolution and to increasing the acceptance of the outcomes. On this basis, we suggest that legislators, drafters of contracts, courts, designers of dispute systems, and others wanting to contribute to conflict resolution consider investing more effort in creating and supplying objective criteria that possess the following qualities: 1. independent of willpower and allow for being applied objectively; 2. perceived as legitimate; 3. lead to outcomes that are continuous in character, not binary;4. weigh similar elements of the situation on both sides;5. belong to parties, reflecting their ideas about legitimacy and appropriate neutral evaluation criteria;6. do not claim exclusivity over other objective criteria; 7. allow decision makers to tailor the outcome to the specific situation;8. practical, in particular, requiring low-cost fact-finding; and9. provide social information about actual application by others.

Cooperation in Transactions and Disputes: A Problem-Solving Legal System?

Prevention of harm, distribution (compensation, risk allocation, or redistribution of income) and controlling administrative costs are the generally accepted goals of the civil justice system. Is optimal cooperation, defined in this paper as using the problem-solving method of negotiation, a valuable fourth goal? If the legal system can successfully support problem-solving negotiations, without endangering other objectives, this is likely to lead to creation of value in terms of the preferences of the parties, to reductions in the costs of dispute resolution, and probably also to lower costs of transacting. Thus, optimal cooperation in the problem-solving manner seems to be a goal that is consistent with the perspective of welfare economics, in which the well-being of individuals is the criterion for normative evaluation. The net benefits of accepting this objective will depend on how the legal system can actually support problem-solving. This article discusses seven possible areas of implementation. A legal system attuned to problem-solving will be more open towards different types of interests and will stimulate the parties to find creative value-maximizing solutions. The perspective of problem-solving underlines the need to improve access to court, and more in general to reduce bargaining ranges by enhancing the way the legal system provides 'batnas'. If this is done, distribution of value will become easier and the effects of bargaining power can be diminished. Stressing the use of objective criteria, the perspective contains an invitation to redesign the rules of substantive private law so that they give better help to the negotiating parties when they deal with distributive issues. Useful objective criteria for distributive issues may be continuous instead of binary. Multiple objective criteria can exist next to each other. They do not have to be binding, but can be adjustable to individual differences in valuation of interests, different ways of creating value, and dissimilar external circumstances. The perspective of problem-solving also invites us to rethink the processes of contracting and dispute resolution, the role of blaming, and the principle of autonomy. Although many of the proposals suggested by this perspective are not new, it may help to develop a more coherent vision on reform of the civil justice system.

The Economics of Litigation and Arbitration: An Application to Franchise Contracts

If we define the deterrence benefits from contract enforcement to be avoided harms net of avoidance costs, we should expect contracting parties to choose the dispute resolution forum that provides the greatest difference between deterrence benefits and dispute resolution costs. We apply this framework to franchise contracts and conduct an empirical analysis of the determinants of arbitration agreements among franchising parties. Although it is obvious that contracting parties have an incentive to choose arbitration to reduce dispute resolution costs, there have been no studies of the importance of deterrence concerns. We examine the deterrence hypothesis and find a great deal of support for it. Our results suggest that deterrence factors outweigh litigation costs in the design of dispute resolution agreements. We find that the probability of arbitration is significantly higher when the parties rely on implicit contract terms for governance and compliance with those terms is difficult to ensure.

The Economics of Litigation and Arbitration: An Application to Franchise Contracts

If we define the deterrence benefits from contract enforcement as avoided harms net of avoidance costs, we should expect contracting parties to choose the dispute resolution forum that provides the greatest difference between deterrence benefits and dispute resolution costs for every type of dispute. We apply this general framework to franchise contracts and conduct an empirical analysis of the determinants of arbitration agreements among franchising parties. Although it is obvious that contracting parties have an incentive to choose arbitration in order to reduce dispute-resolution costs, there have been no studies of the importance of deterrence concerns. We examine the deterrence hypothesis here and find a great deal of support for it. Indeed, our results suggest that deterrence factors generally outweigh litigation costs in the design of dispute resolution agreements. We find that the probability of arbitration is significantly higher when the parties are likely to rely on implicit contract terms for governance and compliance with those terms is difficult to ensure.

The Law and Economics of Agreements to Arbitrate Employment Claims

This paper presents an economic analysis of arbitration agreements in the employment context. The goal of this analysis is first to set out, clarify, and illuminate the economics of waiver and arbitration agreements in the employment context. The fundamental economic benefits from employment arbitration can be placed in either of two categories: deterrence benefits and dispute-resolution cost savings. Arbitration enhances the deterrence benefit to the extent that it encourages greater compliance with legal and contractual employment norms. Arbitration obviously has the potential to reduce dispute resolution costs by adopting less formal mechanisms. The second goal of this analysis is to answer the normative question, should predispute arbitration agreements be enforced? I conclude they should be enforced, provided the employee has knowingly and voluntarily waived his rights.

Agreements to Waive or to Arbitrate Legal Claims: An Economic Analysis

As arbitration agreements have grown in use, they have become controversial, with many critics describing them as a disguised form of waiver. This paper presents an economic analysis of waiver and arbitration agreements and applies this analysis to the evolving arbitration case law in the Supreme Court and elsewhere. The paper examines the conditions under which parties have an incentive to enter into these types of agreement, and their welfare implications. It shows that, if parties are well informed, they will enter into waiver agreements when and only when litigation is socially undesirable, in the sense that the deterrence benefits provided by the threat of litigation fall short of litigation costs. Under similar conditions, they will enter into arbitration agreements when and only when the margin between deterrence benefits and dispute resolution costs is larger under the arbitral regime. These results suggest a presumption in favor of enforcing these agreements, especially where parties are informed. Exceptions to this presumption largely should be based on informational disparities. The theory developed in the paper is used to critically examine arguments against arbitration contracts, such as the claim that these agreements inhibit the development of new law, and to suggest a positive theory of the case law. Although the focus here is on waiver and arbitration agreements, the analysis has broader implications for the literature on the social desirability of litigation. The key implication is that the answer to socially undesirable litigation is not a wholesale reduction in the amount of litigation or the number of lawyers, but an expansion of markets in waiver and arbitration agreements.

State Decisions to Limit Tort Liability: An Empirical Analysis of No-Fault Automobile Insurance Laws

Introduction Sixteen states enacted auto insurance no-fault laws from 1971 through 1976 that generally contained two key features: (1) the purchase of first-party coverage for medical expenses and loss of income for drivers and passengers, known as personal injury protection (PIP), was made compulsory; and (2) tort liability of negligent drivers was limited.(1) The purchase of liability insurance for actions not affected by tort limitations also was made compulsory. Three other states enacted laws during this period that made PIP and liability coverage compulsory without limiting tort liability.(2) No state has adopted no-fault since 1976. The District of Columbia adopted a no-fault law in 1983, but it was repealed in 1986. Nevada repealed its no-fault law in 1979. Pennsylvania repealed its limitation on tort liability in 1984 but maintained compulsory PIP coverage. A subsequent change in Pennsylvania law allowed consumers to choose tort limitations in exchange for a premium discount on liability coverage. New Jersey also modified its original mandatory tort restrictions to allow consumer choice. Despite the failure of no-fault auto insurance to spread to additional states since 1976, the subject remains of considerable interest, especially the concept of allowing consumers to choose no-fault. No-fault is often viewed as a means of reducing the cost of auto insurance. The policy debate parallels discussion in the early 1970s, when no-fault was commonly advertised as a desirable means of reducing costs. Several states included mandatory premium cuts in their no-fault laws. In addition to reducing costs and helping to make coverage more affordable, proponents of no-fault argue that the substitution of first-party medical coverage for third-party liability coverage is advantageous because it reduces dispute resolution costs and payments for general damages (pain and suffering). No-fault also leads to faster payment for losses. Opponents of no-fault argue that limitations on tort liability lead to more accidents and unfairly benefit negligent drivers. They also question whether no-fault is capable of significantly reducing premiums. The literature on no-fault is massive and goes back at least 60 years. The modern economic literature generally has focused on two issues: whether tort limitations have affected the frequency and severity of accidents and/or claims (e.g., Landes, 1982; Zador and Lund, 1986; and Cummins and Weiss, 1989, 1992) and whether no-fault laws have led to significantly lower premiums (e.g., Smith, 1989; Cummins and Weiss, 1991; Johnson, Flanigan, and Winkler, 1992; also see Carroll et al., 1991).(3) Analyses of the former issue provide only weak evidence that limitations on tort liability have affected accident frequency and severity. Analyses of the effect of no-fault on premiums provide mixed results. Consistent with intuition, the overall results suggest that no-fault laws with weak tort limitations combined with large PIP coverage limits increase costs, but that strong tort limitations can reduce total costs, especially if PIP coverage limits are modest. Thus, no-fault laws have the potential to help control auto insurance costs if strong tort limitations are politically feasible (e.g., Cummins and Tennyson, 1992; Harrington, 1991). This article focuses on a different issue: the decision by state legislatures to enact no-fault laws. The article considers the possible influences of levels and growth rates in insurance costs and the effects of no-fault laws on low-income households, medical care providers, insurers, and attorneys. A probit model of the decision to adopt no-fault from 1971 through 1976 is developed and estimated using cross-state data from 1970.(4) Separate equations are estimated for restrictions on tort liability and the enactment of compulsory PIP coverage. Holding other variables constant, the estimation results suggest: (1) the probability of adopting no-fault was higher in states with more rapid growth in auto liability insurance costs; (2) states with greater numbers of physicians per capita, a measure of the strength of the medical care community, were more likely to adopt no-fault; and (3) states with greater numbers of attorneys per capita were less likely to adopt no-fault laws with restrictions on tort liability. …