GE Oil & Gas – Putting the A into ADR

While standard forms of litigation or arbitration may be well suited to resolving complex, high value disputes, they can be too time consuming and expensive for the determination of low value disputes of a more routine nature.

In Italy, GE Oil & Gas has adopted a pioneering form of online dispute resolution (ODR) with its vendors, with the aim of reaching fair and binding decisions in a more timely and cost effective manner.  As Michael McIlwrath, a senior litigation counsel for the unit, is quick to point out, “the system does not take work away from external counsel”.  Rather, these are disputes which otherwise would be dealt with internally or not at all.

The system applies to disputes worth €50,000 or less and has two stages.  To refer a claim, the aggrieved party files its statement of case and supporting documents online, paying a $500 registration fee.  The respondent then files its defence within 12 days.  This is followed by a period of “online negotiation” which lasts for a further 12 days.  This first phase strips mediation down to its bare essentials by requiring each party to file a settlement offer with the online administrator.  The offers are “blind” in the sense that they are never revealed to the other party.  If the offers overlap, a settlement is reached.  If not, there are two further rounds of blind offers.

If the case is not settled in the online negotiation phase, the claimant can then trigger the second and final phase of the process: online arbitration.  To do so it must pay a further $1,000, which it will recover if its claim is ultimately successful.  An arbitrator is then appointed from a pool of qualified engineers, whose fees are paid from the filing fee.  No further pleadings are required (or permitted); the arbitrator simply decides the case, without a hearing, on the basis of the documents already filed by the parties.  Having done so, he or she renders a briefly reasoned award within 30 days of appointment.

McIlwrath reports that the system has been a great success: initially clearing out a backlog of minor disputes and now dealing with cases as they arise both quickly and cheaply.  Interestingly, he believes that the very existence of the scheme has encouraged settlement before cases are even referred, with parties making realistic assessments of their case based on the documents which would be scrutinised by the arbitrator if the claim proceeded.

Moreover, the scheme provides some important lessons which are applicable not only to the resolution of low value technical disputes, but to arbitration more generally.

First, by using engineers rather than lawyers as arbitrators, the system draws upon the experience and expertise of suitably qualified individuals to resolve disputes that are typically technical, not legal, in nature.  While the appointment of non-lawyers as arbitrators is usually possible in all forms of arbitration, arguably it is not used often enough, with parties and their advisors following the more conservative route of appointing lawyers and former judges instead.

Next, by restricting the extent to which parties are allowed to plead their cases, and by doing away with hearings, the system keeps a tight lid on the costs generated by the dispute.  While arbitrators generally have a wide discretion as to how proceedings are conducted, too often they adopt a procedure which mirrors common law court proceedings, with multiple hearings and rounds of submissions.  Although proceedings of this type will inevitably be appropriate in some cases, in many others a more streamlined procedure would still produce a fair, and less costly, result.

Finally, by pre-determining the timetable for the resolution of the dispute, including a deadline by which the award must be rendered, the system ensures that cases are dealt with in a timely fashion.  While the particular deadlines adopted in the GE scheme may well be too short for more complex cases, agreeing on a suitable timetable in the arbitration agreement itself is something which parties might consider doing more frequently in order to avoid delay.

GE is now looking to implement the ODR scheme in its other businesses, outside Italy, and there is no reason why systems like it could not flourish over here too.

Jamie Maples, Senior Associate, Weil, Gotshal & Manges