What are the Limits of ADR?
- And what are the limits of judicial dispute
resolution?
IFC
Mediating Corporate Governance Disputes
Paris, 12 Februari 2007
Eric M. Runesson
([email protected])
Eric M. Runesson
What are the limits of judicial dispute
resolution?
One-dimensional perspective
Exorbitant information costs
Decisionmakers have less information than dispute
owners
Cannot deal adequately with multi-issue disputes
Eric M. Runesson
Legal persons as parties to a dispute
Legal persons cannot have feelings
Legal persons must act through agents
Agents have feelings
Agents may have other interests than the principal
Eric M. Runesson
What may cause a negotiation failure?
Economic calculations
Strategic considerations
Psychological traps and cognitive limitations (of agents)
Eric M. Runesson
What psychological traps do we need
to avoid?
Reactive devaluation
The anchoring trap
The framing trap
Over-optimism
Partisan perception
Eric M. Runesson
How partisan perceptions work
Eric M. Runesson
The economic dimension
revarding low-probability of success plaintiffs
Plaintiff has a 10% chance of vinning 80 and a 90% risk
of being liable for dispute resolution costs of 10;
Expected monetary value = -2
Defendant 10% of loosing 90 (English rule);
Expected risk = -9
Plaintiff can gain up to 9 by risking 2.
Eric M. Runesson
Adding the risk aversion of the
defendant agents
Risk neutral principal
Personal liability
Lack of transparency
Investors may punish ADR-friendliness in corporate
governance disputes
Eric M. Runesson
A proposed ADR agenda
Help disputants eliminate psychological traps
Help eliminate the agency problem
Help disputants make rational economic calculations
Help disputants make rational strategic decisions
Help disputants think about fairness
Make the market believe that
Eric M. Runesson
Eric Runesson
Advokat, jur.dr, doc., partner
Direkt 08-679 09 11
Mobil 0708-32 78 24
[email protected]
Eric M. Runesson
Sandart & Partners Advokatbyrå KB
Engelbrektsgatan 7
114 32 Stockholm
Tel 08-679 09 00
Fax 08-679 09 10
Sandart&Partners
sandart.se