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