Competition between State Courts and Private Tribunals

Abstract

In this essay, I investigate the competition between state courts and private tribunals for dispute resolution. I distinguish between different market segments: B2B and B2C transactions and, in each case, small-, medium- and high-stakes disputes. The analysis is informed by a survey of the dispute resolution preferences of “case placers” carried out in 2015. I find that competition between state courts and arbitral tribunals is currently most intense with respect to high-stakes B2B disputes. A significant portion of the total dispute resolution volume in this market segment goes to arbitration. If parties decide to arbitrate, they do so primarily because of the effective international enforceability of an award, the autonomy to choose competent and neutral arbitrators and the confidentiality of the proceedings. Speed and costs of the proceedings are much less relevant. Commercial arbitrations are usually administered by an arbitral institution. The choice of institution is primarily influenced by its reputation as a professional case manager and by prior positive experiences of the parties. I argue that access to arbitration should be made easier with respect to B2C small- and medium-stakes disputes. The trend in the European Union of promoting conciliation/mediation for the resolution of these disputes should be reversed. Arbitration is less “dangerous” for consumers because it is a legal process governed by fundamental due process guarantees. By contrast, conciliations/mediations are not subject to these guarantees, and they are not well suited for the enforcement of mandatory consumer rights. No compelling case can be made to increase access of businesses to arbitration in medium-stakes B2B disputes. Arbitral institutions have high-powered incentives to design new and efficient procedures for these types of disputes. Technological innovations will reinforce the trend towards privatizing dispute resolution. This poses unique regulatory challenges for the protection of weaker parties, especially consumers.