Not one type of instrument presented on this website is more or less suitable than another as a means of reaching commercial dispute resolution.
Instead it is dependent on the nature of the dispute as to the type instrument implemented.
It is up to the parties to carefully choose the most suitable instrument to resolve their individual dispute. When doing so, the parties should ask themselves the following question: How can an efficient, fair and sustainable solution be best achieved? For this purpose, the parties will have to identify the cause of their dispute and define their objectives.
In order to assist the parties in this process, we have compared and evaluated different instruments by applying the following criteria: Costs, duration, enforceability, confidentiality and procedural flexibility. In addition, we have summarized some advantages of each instrument in a table-overview.
Finally, we have identified options as to how several instruments can be combined.
What is the cause of your dispute?
A key factor in selecting the most appropriate dispute resolution instrument is to define the true cause of a given conflict.
Legal disputes are rarely the origin of a conflict. Often the cause of the conflict is of a commercial, technical or personal nature.
Possible causes of a conflict are, e.g.:
- Break-down of communication
- Lack of appreciation and respect
- Change of economic and commercial circumstances
- Differing legal concepts / change in law
- Technical problems / defective products
- Differing views of underlying facts
- Impact of third parties / force majeure
For example, if a dispute has been caused by a break-down of communication, mediation or conciliation might offer the best chances for a satisfactory solution. In contrast, if a dispute has been caused by differing legal concepts, litigation or arbitration are usually the better options. If the parties' dispute is focussed around technical problems, expert-determination might be the best choice.
What are your objectives?
When selecting the most appropriate dispute resolution instrument, it is important to define one's own objectives in any given conflict.
For example, possible objectives could be:
- Continuation of an existing relationship (partners, business)
- A customized solution
- A quick solution
- Avoidance of high procedural costs
- Dissolution of an existing partnership
- Clarification of a (legal) question
- Fast protection from competitors (e.g. intellectual property rights)
Costs and duration
Experience shows that when selecting a specific dispute resolution instrument, commercial parties mainly focus on the potential costs incurred by the instrument.
However, in order to compare the potential costs one must also take into account the time required to solve a dispute using the chosen instrument. The less time it takes to solve a dispute, the lower the costs will be.
ADR vs. Litigation / Arbitration
While so-called "ADR tools", such as expert determination, mediation and conciliation, on average require less than 6 months (sometimes as little as days or weeks) to solve a dispute, other dispute resolution instruments, such as litigation and arbitration often require one or several years.
Thus, expert determination, mediation and conciliation are, if successful, often significantly more time and cost-efficient than litigation and arbitration.
Litigation vs. Arbitration
The duration and costs of arbitration and litigation cannot be quantified in general terms.
As arbitration proceedings are confidential, very few statistics exist to indicate the average duration and costs of the proceedings. The average commercial dispute which is submitted to arbitration is often more complex and fact intensive than the average commercial dispute submitted to state court proceedings. While litigation proceedings are often prolonged by appellate and review proceedings, arbitration proceedings can be prolonged by annulment and non-enforcement proceedings as well. Finally, one has to distinguish between various costs, including those of: (i) the parties; (ii) their representatives; and (iii) the decision maker(s) (state court or arbitral tribunal consisting of one or more arbitrators plus the institution).
The following indications may assist parties in comparing the costs typically incurred by litigation and arbitration proceedings. These indications are based on the assumptions that the same dispute is submitted to arbitration and litigation, and that the dispute will be solved in one sitting with no need for; additional review, appellate, annulment and / or enforcement proceedings:
The parties' own costs will approximately be the same in litigation or arbitration proceedings.
The same is true for the costs of the parties' legal representatives. In either type of proceedings, the parties may agree with their legal representatives on ad valorem or hourly-rate based fees. The difference is that in arbitration the winning party is usually able to recover both ad valorem and hourly-rate based legal fees. However, in litigation the winning party is only able to recover legal fees up to the amounts set forth by the ad valorem schedule of the German Lawyers' Fees Act (RVG). Thus, as far as the costs of the parties' legal representatives are concerned, arbitration may be cheaper than litigation for the winning party, but more expensive for the loosing party.
When comparing the costs of the decision makers, i.e., those of a state court vs. those of arbitral tribunals and institutions, the cost difference can be substantial. The costs of German state courts are determined on the basis of the ad valorem schedule set forth by the German Courts' Fees Act (GVG). The costs of arbitral institutions and the costs of the arbitral tribunal are also often based on ad valorem schedules, but these schedules differ widely.
The table below compares the costs of German state courts with the costs of the arbitral tribunal. It also compares the cost of institution proceedings administered by the Hamburg Chamber of Commerce (HKHH), the German Institution for Arbitration (DIS), the International Chamber of Commerce (ICC) and the Swiss Arbitration Association (ASA). All figures are taken from the institutions' internet cost calculators and are based on a panel of three arbitrators, not including VAT. The ICC, the USD to EUR exchange rate has been fixed at the interbank rate, dated 1st May 2011. The amounts do not include the costs of the parties and / or their legal representatives.
|50.000 €||500.000 €||5.000.000 €|
|HH State Court 1st Instance||1.368 €||8.868 €||49.368 €|
|HH State Court 1st + 2nd Instance||3.192 €||20.692 €||115.192 €|
|HH-Chamber||4.945 €||29.268 €||92.518 €|
|DIS||12.385 €||46.585 €||171.685 €||Cost calculator minus VAT|
|ICC||18.898 €||78.655 €||236.567 €||Average fee of arbitrators|
|ASA||13.462 €||82.067 €||240.192 €||Average fee of arbitrators|
Judgments administered by German State Courts, unless successfully appealed or reviewed, are final and binding. They can be enforced in Germany as well as in any EU and / or EFTA country in accordance to the applicable laws. They are also enforceable in other countries where Germany has established bilateral enforcement agreements. Outside the scope of such agreements, enforcement is difficult, and in practice sometimes impossible.
Arbitral awards issued by an arbitral tribunal in Germany, unless successfully set aside by a German state court, are also final and binding. They can be enforced in Germany as well as in more than 145 other countries signed to the 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention"). Arbitration's most significant advantage is most probably its power of enforcement globally, making it an important instrument in the resolution of international disputes.
Expert determinations and / or amicable agreements reached by the parties in out-of-court mediation or conciliation proceedings are not enforceable. However, they can be made enforceable in Germany as well as in other countries. In order to render them enforceable in Germany they must be notarized by a Germany notary. To enforce them outside Germany it is possible to order an arbitrator to issue an award on agreed terms. Amicable agreements reached by the parties in court-annexed mediations are enforceable in Germany.
Litigation proceedings in Germany are public. The exclusion of public can only take place in very exceptional cases.
Arbitration, mediation, conciliation and expert determination proceedings are non-public. The parties can agree on specific confidentiality clauses preventing any participant involved in the proceedings from disclosing information to third parties.
Litigation proceedings in Germany are mainly governed by the rules set out in the German Civil Procedure Code ("ZPO") and the German Act on the Constitution of the Courts ("GVG"). These rules are comprehensive and leave very few discretionary rights to the parties.
Arbitration proceedings in Germany are also governed by rules set forth in Sections 1025 et seq. of the ZPO, and / or by the applicable institutional or ad-hoc rules. However, arbitration proceedings are flexible. This is because most institutional and / or ad-hoc rules are; not comprehensive, they are not mandatory, entitling the parties to define and structure their proceedings. For example, the parties may choose their arbitrators, the place and the language for arbitration, the content and structure of the evidence taking. The only mandatory rules from which the parties cannot derogate are those which ensure fair and equal treatment, the right to be heard and the right to be represented by an attorney, Section 1042 ZPO.
Mediation, conciliation and expert determination proceedings offer the highest degree of procedural flexibility. It is entirely up to the parties to agree on the content and structure of the proceedings. This also applies to cases when the proceedings are administered by an institution. The rules provided by these institutions are neither comprehensive nor mandatory, allowing the parties and the mediator / conciliator / expert to structure and conduct the proceedings.
The table below identifies the four main advantages commonly associated with each of the dispute resolution instruments discussed on this website.
These advantages do not necessarily materialize in each case. However, the indications may provide an initial overview and help in the selection of an appropriate dispute resolution instrument for a given case.
Mediation / Conciliation
- Time and cost efficiency
- Tailor-made solutions ("win-win" effects)
- Procedural flexibility
- Enforceability (almost worldwide)
- Free choice of arbitrators
- Procedural flexibility
- Enforceability (mainly Germany and EU)
- Legal certainty (creation of precedents)
- Legal expertise of judges
- Predictable procedure
- Time and cost efficiency
- Technical Expertise
- Procedural flexibility
Multi-tiered and hybrid dispute resolution instruments
As shown on this website, each dispute resolution instrument has distinct characteristics and benefits. In some cases, the most suitable solution is not to apply a single instrument, but to apply several instruments (multi-tiered). Another option is to combine different instruments or specific features from the various instruments (hybrid).
The individual facts and circumstances of a dispute will guide the application of appropriate dispute resolution instruments, whether they be single, multi-tiered or hybrid applications.
Example 1: Mediation plus Arbitration
Probably the most common form for multi-tiered dispute resolution applications is the jointing of mediation and arbitration.
In most cases, the mechanism will provide the first step, where the parties will try to reach an amicable agreement through mediation. If an agreement cannot be reached they will submit their dispute to arbitration. The reason for this approach is so the parties will firstly attempt to reach an amicable solution themselves before a third person is introduced.
However, the parties are free to adapt their approach. For example, the parties may find it more suitable to first initially undergo arbitration proceedings and then interrupt the arbitration in order to try to mediate the dispute. If the parties reach an agreement during the mediation, the parties may ask the arbitral tribunal to resume the proceedings and to issue an arbitral award which simply incorporates the amicable agreement, a so-called "award on agreed terms". This means the amicable agreement becomes final, binding and, most importantly, enforceable.
Example 2: Litigation plus Mediation
Further examples of how the different dispute resolution instruments can be combined are offered by the Hamburg state courts. They offer parties the possibility to suspend litigation proceedings and resolve their dispute with the help of a mediator.
One option for the parties, is to mediate their dispute with the help of a "court mediator" in a so-called "court-annexed" mediation. In this case, the mediator will be a judge who is a specially trained and qualified "mediator". The judge acting as a mediator cannot be the same person who will be called upon to decide the dispute in case mediation fails. The advantage of this approach is that the amicable agreement will be recorded in a court-settlement which can be enforced. Alternatively, the parties may also seek the assistance of an external mediator.
Example 3: Cooperative or collaborative practice
Cooperative or collaborative practice (CP) is an example of a hybrid dispute resolution instrument. It is hybrid because it has similar, but not identical features to that of mediation proceedings. In both cases facilitative principles are applied and the parties will try to successfully negotiate a settlement. In CP proceedings the parties' legal representatives are actively and directly involved in providing immediate advice. Whereas, in mediation, the mediator has the lead and the legal representatives will play a minor role, if any at all. Should the CP proceedings fail, the legal representatives are precluded from appearing in subsequent litigation proceedings. Thus, a real incentive is set for lawyers to assist the parties in reaching a settlement.