1. 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 (eric.runesson@sandart.se) Eric M. Runesson

2. 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

3. 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

4. What may cause a negotiation failure? Eric M. Runesson Economic calculations Strategic considerations Psychological traps and cognitive limitations (of agents)

5. What psychological traps do we need to avoid? Reactive devaluation The anchoring trap The framing trap Over-optimism Partisan perception Eric M. Runesson

6. How partisan perceptions work Eric M. Runesson

7. 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

8. 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

9. 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

10. Sandart & Partners Advokatbyrå KB Engelbrektsgatan 7 114 32 Stockholm Tel 08-679 09 00 Fax 08-679 09 10 Sandart&Partners sandart.se Eric Runesson Advokat, jur.dr, doc., partner Direkt 08-679 09 11 Mobil 0708-32 78 24 eric.runesson@sandart.se Eric M. Runesson