Austria: Commercial Mediation: Dispute Resolution 2.0

The essential characteristics of commercial mediation are straightforward: broad scope of application, flexibility, compatibility with other dispute resolution methods, time and cost-efficiency, and confidentiality. These features make mediation a tool that is increasingly employed when it comes to effectively resolving (international) commercial disputes.

Flexibility is Key

Flexibility is the backbone of every successful mediation process. In this sense, there is never a rigid procedural framework that needs to be adhered to. Rather, the ground rules of mediation – whether they are established in the form of institutional rules or determined together with a mediator – are such that they leave considerable space for the parties to shape the process. This approach reflects the fact that in any consensual dispute resolution process, the decision as to whether and how a dispute will be resolved remains exclusively up to the parties involved.

Compatibility is Trump

Another key characteristic of mediation is its compatibility with other dispute resolution methods. Mediation may easily be combined with different, more traditional, forms of dispute resolution. In particular, the combination of mediation and arbitration is growing in relevance. In the case of “Arb-Med-Arb” proceedings, the arbitration procedure is usually stayed in the interest of a process of mediation. If the parties fail to reach a consensual solution, arbitration continues. If there is a settlement, the arbitration proceedings may be continued for the purpose of transforming the parties’ agreement into an award on agreed terms, or to simply record the settlement. Parties frequently choose the former approach to take advantage of the enforcement privileges granted by the United Nations Convention on the Recognition and Enforcement of Arbitral Awards.

Effectiveness vs Efficiency

While the benefits of mediation are evident, it still might not be a suitable method for every dispute. In fact, it would be misleading to call mediation a full substitute for arbitration. Recent statistics issued by the International Chamber of Commerce (“ICC”) reveal that 70 – 80% of mediation proceedings lead to a successful settlement. Thus, commercial mediation is an effective and business-friendly dispute resolution method that enables sustainable solutions that do not sacrifice business relationships.

Furthermore, commercial mediation is an extraordinarily time and cost-efficient approach to resolving disputes. Depending on the particularities at hand, international mediation may take no more than one or two days, and a maximum of six months. If the amount in dispute is EUR 1 million, the costs for mediation conducted under the Mediation Rules of the Vienna International Arbitral Centre (“VIAC”) amount to EUR 12,000 and cover the registration fee, administration and the first advance on the mediator’s fees. In comparison, with the same disputed amount, conducting arbitral proceedings before a sole arbitrator under the VIAC Arbitration Rules would amount to EUR 45,000 on average – not including costs of legal representation.

Institutional Mediation Rules

The leading arbitration institutions administering international arbitration proceedings, such as, probably most prominently, the ICC, offer commercial mediation services. In Austria, the VIAC has promoted conciliation – another consensual method of dispute resolution with the involvement of a neutral third party – since its beginnings 40 years ago. In line with recent developments in the field of Alternative Dispute Resolution (“ADR”), the VIAC recently introduced a new set of ADR Rules. The Vienna Mediation Rules have been in force since 1 January 2016. They provide a modern, user-friendly instrument that codifies best practices of international mediation by establishing a procedural framework for successful commercial mediation.

Outlook

In recent years, ADR in general and commercial mediation in particular have grown in importance, which is not only reflected in the rising number of registered cases, but also in the fact that international contracts now more frequently contain business-friendly multi-tier dispute resolution clauses.

The adoption of a convention on the enforcement of mediated settlement agreements would be another huge milestone on the road to reshaping today’s dispute resolution culture. In this regard, in July 2015, the United Nations Commission on International Trade (“UNCITRAL”) mandated its Working Group II to prepare an instrument for the international enforcement of settlement agreements resulting from commercial mediation. In September 2016, the most recent session of the Working Group resumed in Vienna to continue its deliberations on draft provisions to be included in the enforcement instrument.

Faced with the increasing popularity of mediation, arbitration practitioners face an important challenge: to stay on top as regards the workings and benefits of the various existing ADR methods and, if the option to mediate were pursued by the client, to understand how to best represent their client in the mediation. In the end, the key will lie in counsel correctly identifying whether a commercial dispute should be referred to arbitration or mediation – and to apply the correct set of skills in the chosen procedure.

Commercial mediation enables sustainable solutions that do not sacrifice business relationships.

authors: Sebastian Lukic, Anne-Karin Grill