News: General Electric Turns to Computer Arbitration to Cut Legal Fees

By Argyle Staff

General Electric’s Italian oil & gas unit plans to use computers to settle disputes with suppliers up to €50,000, or about $65,000. While some suppliers are reluctant to agree the new automated dispute resolution feature, which GE is requiring be written into contracts is intended to save both sides a lot of time and money over hiring attorneys and paying court fees.

"There's a concern that commercial arbitration is costing too much," David W. Rivkin, a partner at Debevoise & Plimpton LLP, which specializes in large international commercial arbitrations, told the Wall Street Journal.

Indeed, settling a dispute over €10,000 often ends up costing each side more than that amount, GE said.

"We get a large number of claims that are simply about money and they can take up a lot of attorney time and costs," said Kenneth S. Resnick, general counsel of GE Oil & Gas, according to the Wall Street Journal. "This allows a cheap—and, most important, fast—way of solving them."

Within the new system, arbitration begins with the claimant paying a $500 filing fee, after which the supplier and GE upload supporting documents both sides may view. The claimant then enters offer amounts, in ascending and descending order that are not disclosed to the other side. If any of the offers overlap, the computer settles and each party splits the $500 fee. About 65 percent of cases have been successfully resolved this way.

If no settlement is reached, the claimant can pay another $1,000 to have the dispute arbitrated online by an engineer. The engineer will review the evidence and render a verdict online, without any in-person hearings or contact.

Some suppliers, however, believe the removal of the traditional legal process undermines the arbitration’s credibility. "I can't get my arms around the lack of a human element," said Sanford Ring, general counsel of Hino Motors Manufacturing, a Toyota truck subsidiary, in the Wall Street Journal. "The credibility aspect is very important."

GE has not said how much money, if any, online arbitration has saved or if it will implement the system outside Italy.