Use of ADR in Commercial Disuptes

Most of the cost and delay seem to be caused by discovery, motions and large panels of experts.  Parties  have started looking  for  alternative means of dispute resolution and are turning to mediation; the ADR vehicle which has taken a reluctant root in Germany and other European countries.   Recent  European  surveys indicate that between 1997 and 2011, Fortune 1000 companies increased their participation in mediation and mediation-arbitration.  

Status  of ADR and Mediation in Europe

There  is still a vast difference between  the US, UK, and Europe when it comes to ADR and mediation. At the annual ICC Mediation Conference in 2012, one contribution was entitled, "The insidetrack -how blue chips areusing ADR". GCs and Heads of Litigation complained about having to overcome hurdles before European parties would agree to mediation. Some of the quotes from this panel included ““……mediation was considered  not  acceptable; not  part  of the culture””; "they would run into a European  view that any process that may have had its genesis in the United States isprobably  not very good"   (Head of Worldwide Litigation, Multinational); ““it   was sad that  some lawyers appeared more interested in fees than settling cases" (Head of UK Litigation, Financial Services). Interestingly, the same litigator stated they "always involve external lawyers.... in mediation and they are heavily involved in the  strategy, the  tactics and the actual delivery of what happens at the mediation".

Dr. Alexander Steinbrecher, the in-house counsel for Bombardier stated at the ICC Conference, "the only people who benefit from litigation are outside counsel"; and, "external counsel never recommends mediation".  Dr. Steinbrecher made a case for  businesses  resolving  business  problems  as business  problems:  a  commercial  mindset  to avoid escalation of the conflict, realistic cooperation with external counsel, and a clear provisioning for risks and opportunities.     Dr. Steinbrecher  conceded  that  mediation  is  not magic and does not work for all disputes, but that it may bridge the gap between negotiation and litigation - possibly more  effectively than arbitration.

The ICC reports  a mediation settlement rate of 80 % when a first meeting of the parties with a mediator took place prior to the mediation conference.  Average cost is quoted as $20,000.00 with an average duration  of four (4) months.  Multi-party mediations are common.   The challenges to mediation were described by the ICC representative as follows:

1. mediation is considered exotic outside the US/UK;  
2. geographic distance;
3. cultural and legal differences;  
4. selection  of  independent and competent mediator;
5. risk of manipulation of the mediator/mediation, and;
6. combination of mediation with arbitration.

There is no question that arbitration  is expensive and requires significant amounts of work by the participants.    In a 200+ million Euro arbitration case, the  defendants  had  spent millions of Euros  in attorney fees, expert fees, and ancillary expenses before  the  hearing had even begun.   There were several rounds of pleadings, multiple experts and thousands of document pages.

In  a  recent  US-German   case,  the  claimant wished    arbitration    regarding    an    amount of  $130,000.  The claimant had to pay $30,000 in initial filing and attorney fees before the respondent  even  received  the complaint. The other  party refused  to  pay their  share  of  the fees,  and  the  arbitrator  demanded  that  the claimant  make  a payment  of  ca.  $15,000 before  he  would  even  start  considering  the matter.  Not surprisingly, the claimant decided to settle for $5,000. Like litigation, arbitration requires  payment  of  proceeding  filing costs.  Additionally, arbitration proceeding filing costs are usually much higher than intiating a court proceeding, and usually  include a significant deposit towards the  arbitrator  and arbitration panel fees.  If one party fails to pay its share, usually the respondent,  the claimant is often forced to advance  all arbitration  costs  and deposits  if  the  claimant  wishes  to proceed.  These  factors  can clearly make arbitration  a much  more expensive proposition than traditional litigation.

Improvements of Arbitration procedures

The longer arbitration takes, the more it cost.  However, some improvements have been implemented. Recent practice developments have allowed for optional expedited procedures (JAMS, 2010) and increased arbitration management by agreement of the parties. Revisions to the ICC and Swiss rules on arbitration took effect in 2012; each with the primary goal of improving the efficiency of arbitration proceedings in terms of time and cost.

Parties can agree on limiting discovery (as to how much and what kinds), how many depositions should be allowed, how long the hearing should last, how much time should be spent on witness testimony (direct and cross), whether a court  reporter  should  be  retained  (useful for post-hearing briefs), and how many experts will be allowed. For example, the parties could agree to jointly retain an expert for a particular technical issue, or to utilize an "expert witness panel" (simultaneous testimony of experts who can comment on each other's opinion).

It seems that the most important step towards limiting arbitration cost exposure is cooperation between the parties and the arbitrators and an early and comprehensive preliminary conference to establish an overall time schedule with specific provisions for discovery and an early exchange of witness lists and exhibits.  Arbitration is not litigation. Unnecessarily disputing facts and documents, throwing reams of paper at the other side, insinuating low-brow motives and   false  accusations,  making  un-reasonable demands and utilizing other litigation tactics have no place in arbitration or mediation - the alternative dispute resolution vehicles.