The Mediation Act exists for nearly eight years now. For the mediation scene it has brought a lot of navel-gazing. It has brought little for the business community.
As long as the user perspective of companies does not become the focus of attention, commercial mediation will continue not to take place. This article shows how this could change.
Dispute resolution in business: a world turned upside-down
In 2018, more than 338,000 civil actions were brought before the regional courts. The German Institution of Arbitration (DIS) recorded 116 DIS arbitration proceedings and two mediation proceedings in the same year. This is the reality of the disputes culture in German business. There are thousands of trained mediators in Germany. But hardly any company uses mediation
Theses and proposals for the promotion of commercial mediation
The Mediation Act has so far barely promoted the standing of commercial mediation. There has been no lack of critical opinions among lawyers, in-house counsel and associations. The criticism will not be repeated in detail here. Instead, the following is an argument from the point of view of a company (as a user) on the case for the promotion and – more importantly – the practical application of commercial mediation. This is done based on the following theses and concrete proposals for action.
Commercial disputes are not objects of decision-making, but rather of shaping
Disputes between companies seldom require court decisions. They need solutions. Solutions can be shaped in different ways. Companies can and should therefore consider and treat legal disputes as objects of shaping.
Arbitration and court proceedings are often not economical
Companies regularly make decisions using cost-benefit analysis: Which costs are incurred respectively which resources the company must invest in order to achieve specific business objectives? For companies locked in commercial disputes, the costs of legal action in and out-of-court are often disproportionate and commercially unjustifiable when compared to the reasonable expected returns. Every year, companies in Germany invest enormous sums of money for their authorized attorneys, private expert opinions and arbitration or court proceedings (court fees, fees of arbitration institutions and/or arbitrator fees) to litigate disputes before State courts and private arbitral tribunals.
Commercial mediation must benefit companies – not the judiciary, the lawyers or mediation associations
The compass of the Mediation Act was misaligned from the outset. The objective of relieving the burden of the judiciary is wrong. Mediation is not in place for the judicial system. Companies do not use mediation to spare the judge a civil suit. After all, people do not live healthy lives because they want their family doctor to have fewer patients. The compass of the Mediation Act has also been misaligned because the lawyers and mediation associations were heard in the legislative process more than companies and consumers. The user perspective of the parties has been neglected although this issue was there for everyone to see. For the users, the sole yardstick is whether mediation is a practical instrument to solve problems of consumers and businesses.
If there is serious and genuine political interest in changing the disputes culture of companies, two things should happen: First, legal policy must evaluate the legislative and other policies of other countries that have demonstrably created incentives to settle legal disputes out of court first, so that arbitration and court decisions are not only theoretically, but also practically the Ultima Ratio.
Second, the results of this comparative evaluation must be assessed from the perspective of the users of the procedure. The users are the parties to the dispute. The focus should be on the practical adoption rate among small and medium-sized enterprises rather than among large companies and corporations.
The political decision-makers promote commercial mediation with action instead of words
In recent years, the Mediation Act has failed to achieve the political objective of promoting mediation and encouraging out-of-court dispute resolution procedures. The Federal Government’s response to a Minor Inquiry by the FDP reveals that the Federal Government has itself hardly used mediation in recent years. If the sentence “Say what you do. And do what you say.” also applies to politics, then political measures must be taken that promote the practical application of mediation in business life.
Legal policy must show its colours: Either it reforms the disputes culture of consumers and companies through its own actions behaviour and by creating behavioural incentives for third parties, because this benefits the disputing parties; or it preserves the existing disputes culture because it benefits the lawyers. Legal policy action undoubtedly requires courage and foresight in order to identify and resolve the economic conflicts of interest between the disputing parties (out-of-court procedures benefit consumers and companies) and the lawyers (arbitration and court proceedings benefit lawyers).
Business associations will support the political sphere because of their members’ own economic interests. Mediation associations should participate, but not dominate. Mediation is only one of many out-of-court procedures. The rights-based ADR procedures, such as expert determination, adjudication, and mini-trial, play an equal role and are equally relevant and useful for companies. Mediation is not a panacea and does not have an exclusive position in the spectrum of out-of-court dispute settlement mechanisms.
Business associations take the lead
The most effective lever for the establishment and promotion of commercial mediation lies in the hands of business associations. The Federal Association of German Industry alone represents the interests of more than 100,000 companies. Certain industry-specific associations are virtually predestined, in the interests of their member companies, to consensually shape the way in which disputes between companies on the end customer, manufacturer, supplier and service provider side are resolved and to rely on commercial mediation in this process, but not only. Just think of the Association of the German Automotive Industry, the Association of the German Railway Industry or Bitkom, the Digital Association of Germany.
Lawyers must educate companies about mediation and ADR procedures
Legislatively, there is another powerful lever to actively support, in particular, small and medium-sized enterprises to better understand the suitability and benefits of mediation and other out-of-court dispute resolution procedures. Lawyers should be obliged statutorily to inform their clients comprehensively about mediation and other out-of-court dispute resolution procedures, to inform them about the respective advantages and disadvantages in a specific case and to advise and represent them with procedural competence in the selection and implementation of these out-of-court procedures. A statutory rule in this regard would also eliminate the dispute as to whether a lawyer’s duty to advise on procedural alternatives already exists based on sec. 1 para. 3 BORA or not. In any case, sec. 253 para. 3 No. 1 ZPO is a “toothless tiger”, which only contains a sanction-less declaration requirement of the lawyer.
Many thanks go out to Jonathan Wu for helping with the English adaptation of the German article.