Guest blogger Tom Derrett, of adrsolution.co.uk looks at the development of low cost ADR and its implications.
Alternative Dispute Resolution (ADR)
There is a general trend in government and in society to give statutory authority to forms of alternative dispute resolution as a way of easing the burden on the court system, and on the small claims track in particular.
Leaving aside the inflammatory issue of sharia tribunals administering the authority of the High Court under the provisions of the Arbitration Act 1996, examples of low value disputes being outsourced to statutory adjudication services abound and systems are in place to resolve disputes over everything from telephone billing and school admissions to contested parking tickets and bus lane infringements.
ADR in deposit protection claims
In the field of housing law, landlord and tenant disputes are regularly determined by the deposit protection schemes’ in house alternative dispute resolution departments and the high number of cases decided by the schemes means that the deposit protection ADR services provide a statistically useful example of the outsourced dispute resolution model.
Deposit protection was introduced in England and Wales by the Housing Act 2004 as a measure to protect tenants from unscrupulous landlords, and as part of an drive to promote professionalism across the letting industry. Since September 2007, when the Act came into force, landlords of assured shorthold tenancies with an annual rental yield of up to £25,000 have been required to protect the tenant’s security deposit for the duration of the tenancy. Deposit protection is shortly to be extended to tenancies with a rental yield of up to £100,000 per year.
The government currently licenses three deposit protection schemes. Each scheme is required to operate an alternative dispute resolution department in order to determine rights pertaining to the deposit where the parties cannot independently reach an agreement.
In practice, all three schemes choose to use adjudication to determine claims as it is a quick and cost effective method of resolution, suited to processing a large volume of low value claims. The schemes are estimated to process around 20,000 disputes per year between them, and more disputes are raised year on year as tenants become aware of their rights.
The schemes’ ADR services have been the subject of much criticism amongst the lettings industry for a perceived prejudice against landlords and, at first glance, the available figures appear to support this position.
The most recent statistics, released by My Deposits, show that, whereas the landlord is awarded the entire disputed amount in 8% of cases, the tenant is awarded the full value of the claim in 49% of cases. In the remaining cases the disputed amount is divided between the parties. Faced with a 92% chance of losing money, the disquiet amongst landlords at the introduction of the new system is understandable.
The deposit protection dispute resolution process is, quite properly, administered to a legal standard. To operate otherwise would be to invite public outcry. The schemes are responsible for the distribution of millions of pounds, in contested deposits annually, and need to must act in a fair and impartial way.
The services adopt a basic legal procedure, employ proper rules of evidence and utilise the concepts of burden and standard of proof, in an effort to conform to accepted standards of justice. The schemes take the view that for the duration of the tenancy, the deposit belongs to the tenant, and is held in escrow pending future obligations under the tenancy agreement. The burden of proof in a dispute is, therefore, placed squarely on the landlord, who must prove, in the balance of probabilities, that any claims on the deposit are justified by the evidence.
In my experience, a significant proportion of landlords’ claims fail because landlords do not sufficiently engage with the process of dispute resolution.
- Arguments are regularly submitted out of time,
- statements of case show a disregard of the burden of proof, and
- supporting documents often muster little evidential value.
A large number of landlords’ claims are unsuccessful, not because they are unjustified, but because the amateur approach taken by the landlords does not satisfy the stringent, quasi-legal, tests posed by the dispute resolution system.
The dangers of the development of dispute resolution systems
A statutory dispute resolution system, dealing with low value disputes, such as those administered by the deposit protection schemes, encourages the direct participation of the parties, and discourages the use of legal representation.
The system of adjudication dispenses with any kind of tribunal or hearings in person and the paper based nature of proceedings may partially account for landlord claimants submitting evidence without obtaining advice.
The overriding factor, however, is almost certainly the value of the disputes. With an average of only £601 in contention, according to figures released by the Tenancy Deposit Scheme earlier this year, it is barely worth the parties obtaining the services of a solicitor, whose bill would be liable to engulf the majority of any potential award.
Free legal advice services are often unavailable to business customers, and even a single buy to let investment is regarded as a business. If landlords can obtain advice from a law clinic or similar, the strict deadlines imposed by the schemes, which are necessary for operational efficiency, are often incompatible with voluntary legal advice services, which operate at a slow pace.
It is arguable, then, that by adopting a policy that relieves the court system of high volume, low value, industry specific disputes, which do not warrant expensive legal advice or resolution by tribunal, the government is removing the safeguards that the justice system has built up to protect the litigant in person.
The County Courts are indulgent of the litigant in person, and the small claims track, in particular, has evolved to permit district judges the opportunity to examine claims in less formal surroundings and without the strict adherence to procedure of the court room.
The bare decision making of adjudication, on the other hand, offers no opportunity for participants to rephrase submissions that may not be clear to the decision maker, or to explain the relevance of an incongruous piece of evidence.
Looking to the future
As long as society remains relatively litigious and government lacks the funds and the impetus for a considerable expansion of the central justice system, it is difficult to see the current trend towards outsourced dispute resolution abating.
Faced with losing money unnecessarily, those members of the public participating in the ADR processes will inevitably demand low cost legal advice services to maximise their prospects of success.
To cope with the consumer demand, I foresee the emergence of highly specialised services, delivered primarily online and targeted specifically at the various alternative dispute resolution services. With the Legal Services Act introducing alternative business structures to the law marketplace next year, early adopters are already actively looking for new markets that suit the commodification of legal services.
Legal products aimed at participants in ADR processes, where consumers demand a low cost product, and where the highly specialised nature of the dispute lends itself to automated delivery, may prove very attractive to firms looking for profitable business areas that are beyond the remit of traditional legal services.
Forward thinking lawyers are already preparing themselves for a seismic shift in the way legal businesses interact with consumers, and this area is certainly one to watch for clues as to the future delivery of legal services.
Tom Derrett
About Tom Derrett: Tom has a wealth of experience in housing, having spent many years working with disadvantaged tenants on social housing projects and, after training in law, working as an adjudicator for a deposit protection scheme. Tom now runs ADR Solution, providing much needed assistance to landlords who are using the deposit protection schemes’ ADR services.