ADR (Alternative Dispute Resolution)
What is alternative dispute resolution (ADR)?
How can conflicts and disagreements in businesses be resolved through alternative dispute resolution?
Dispute resolution is the process of resolving disagreements or conflicts between different parties. Such disputes can arise in a variety of situations. For example, in a B2B dispute, a company may have a disagreement with a supplier from which it purchased defective goods. Another common scenario involves dissatisfied shareholders who disagree with the company’s management or business strategy and are prepared to leave the company by selling their shares.
But what is ADR?
ADR refers to methods of resolving disputes without court proceedings. Common forms of ADR include mediation, arbitration, and conciliation. The term Commercial Alternative Dispute Resolution (ADR) is widely used in business to describe various dispute resolution methods. Commercial mediation is the method most commonly used by businesses to resolve commercial and civil disputes.
The key advantages of ADR processes include:
- confidentiality
- cost effectiveness
- faster resolution and thus
- greater efficiency
- less formality
- greater financial predictability
- flexibility
- enforceability!
- Sustainable outcomes that the parties are willing to implement jointly!
What are the fundamentals of ADR?
Alternative Dispute Resolution (ADR) can be defined as:
“Any legally permissible dispute resolution process other than litigation,”
“an umbrella term for alternatives to resolving disputes through the courts, including negotiation, mediation, arbitration, mini-trials, and summary jury trials”,
“appropriate dispute resolution”, or
“consensual dispute resolution”.
As with many concepts, there is no single, universally accepted definition of ADR. However, the definitions cited above share common elements. Since definitions do not generally provide a comprehensive understanding of a subject, it is appropriate to describe the essential elements of ADR.
How can ADR be described?
As a legally recognized “institution”, ADR can (when applied in accordance with good practice!), offer an appropriate means of resolving disputes. In some countries, lawyers are even required to consider ADR. In the United States, for example, “professional responsibility codes require attorneys to inform their clients about available ADR options and advise them accordingly.”
Although ADR is a form of “private” dispute resolution, it must operate within the broader legal framework and remain within the limits of the law. For example, mediation cannot be used to resolve serious criminal cases.
Is alternative dispute resolution mandatory in Austria?
ADR clearly and unequivocally upholds the principle of party autonomy.
Austrian courts may recommend mediation at the outset of proceedings, but they are not required to do so. There is no legal obligation to propose ADR before initiating litigation. However, Austrian courts are increasingly inclined to recommend mediation as an effective means of resolving disputes before trial.
What about arbitration?
Arbitration in Austria is governed by Sections 577–618 of the Austrian Code of Civil Procedure (ZPO).
Under these provisions, courts are empowered to:
- grant interim measures,
- assist in the appointment of arbitrators,
- decide on challenges to arbitrators,
- rule on the early termination of an arbitrator’s mandate,
- enforce interim and protective measures,
- provide judicial assistance for acts that the arbitral tribunal is not authorized to perform,
- rule on applications to set aside arbitral awards,
- determine whether an arbitral award exists, and
- recognize and enforce arbitral awards.
It should be noted that certain Austrian courts, including the Vienna Commercial Court (Handelsgericht Wien), allow parties to pursue commercial mediation as an alternative to court proceedings if the judge considers the case suitable for mediation.
What are the legal effects?
Under Section 607 of the Austrian Code of Civil Procedure (ZPO), arbitral awards issued in Austria have the same effect between the parties as final court judgments. Arbitral awards, including awards made on agreed terms, are enforceable titles!
Under Section 611 ZPO, arbitral awards made on agreed terms may be challenged, whereas arbitration settlements may not. Under Section 433a ZPO, the parties may enter into a court settlement before any Austrian district court based on the terms of a written mediation agreement, making that agreement enforceable.
What about mediation?
Section 1 of the Austrian Civil Law Mediation Act (Zivilrechts-Mediations-Gesetz, ZivMediatG) defines ‘mediation’ as follows:
Section 1, ZivMediatG
(1) Mediation is a voluntary process in which a professionally trained, neutral intermediary (mediator) uses recognized methods to facilitate communication between the parties systematically, with the aim of enabling them to reach a resolution of their conflict for which they themselves take responsibility.
(2) Mediation in civil matters aims to resolve disputes that would otherwise fall within the jurisdiction of the ordinary civil courts.
Section 2(1) of the EU Mediation Act (EU-MediatG)
defines ‘mediation’ as follows:
(1) This Federal Act applies to mediation in cross-border civil and commercial disputes. It does not apply to disputes concerning rights and obligations that the parties cannot dispose of under the applicable law, or to state liability for acts or omissions in the exercise of sovereign authority (acta iure imperii).
(2) Sections 3 and 4 also apply to court or arbitration proceedings commenced following mediation in a Member State other than the Member State in which the parties had their domicile or habitual residence at the times specified in Section 2(1)(3).
The term ‘ADR’ generally refers to dispute resolution methods other than litigation, encompassing both adjudicative and non-adjudicative processes. The term conciliation is often used to describe a dispute resolution process that shares many characteristics with mediation. The key difference is that a conciliator may propose specific solutions to the parties. Conciliation is also commonly used in arbitration, where arbitrators may be asked to suggest settlement options.
Which mediation models are used in Austria?
Enacted in 2003, the Austrian Mediation Act provides for the resolution of disputes through mediation in all civil matters. In practice, Austrian mediators primarily use facilitative and transformative mediation models.
The evaluative mediation model is often used in hybrid dispute resolution processes (such as med-arb and arb-med-arb), in which the parties often expect mediators to also be qualified attorneys (attorney mediators).
Does Austria have specific laws governing mediation and its practice?
Yes. Austria was among the first European countries to codify mediation law, and its legislation served as a model for other European jurisdictions. The Austrian Mediation Act regulates the profession of so-called ‘registered’ mediators in civil and commercial matters (who are listed in the Ministry of Justice’s (BMJ) official register of mediators). It also provides certain procedural benefits for mediation proceedings (particularly with regard to the suspension of limitation periods). Austria has NOT adopted the UNCITRAL Model Law on International Commercial Mediation, as its approach to mediation is predominantly interest-based, with the mediator’s role focused on facilitating negotiations between the parties. The Model Law, by contrast, promotes a more evaluative approach to mediation. The rules governing mediation in cross-border disputes within the EU are set out in Austria’s EU Mediation Act. The Act defines its scope and legal effects in accordance with EU Mediation Directive 2008/52/EC.
Austria was also the first civil-law jurisdiction in Europe to enact legislation establishing mandatory qualification and training requirements for mediators under the Civil Law Mediation Act. The Austrian Code of Civil Procedure (ZPO) and Code of Criminal Procedure (StPO) also contain provisions relating to mediation, particularly concerning mediators’ right to refuse to testify.
Is Austria a party to the Singapore Convention on Mediation (United Nations Convention on International Settlement Agreements Resulting from Mediation)?
Austria actively participated in the negotiations leading to the adoption of the Singapore Convention on Mediation. However, no decision has yet been made as to whether Austria will sign and ratify the Convention or, if so, when. The Convention would facilitate the cross-border enforcement of mediated settlement agreements among its member states. Nevertheless, settlement agreements reached through mediation in Austria can already be made directly enforceable in Austria and, under applicable international enforcement conventions, may also be enforced abroad.
Is mediation gaining ground in Austria?
Mediation is a voluntary process. Austrian law does not require parties to attempt mediation before bringing a case before a commercial court. The Austrian Mediation Act also provides no specific incentives or disincentives to encourage parties to choose mediation. The growing use of commercial mediation in Austria reflects the increasing openness of Austrian courts and dispute resolution professionals to alternative methods of resolving disputes, with many actively incorporating mediation into their range of services.
Are there any penalties for refusing to mediate in Austria?
No. Austrian law does not impose specific penalties for refusing to mediate. For example, if one party proposes mediation and the other ignores the proposal, declines to participate, or frustrates the process, no specific sanctions apply.
Prevalence of mediation
How common is commercial mediation?
Austria was the first civil-law jurisdiction in Europe to introduce legislation establishing mandatory qualification and training requirements for mediators under the Austrian Civil Law Mediation Act (Zivilrechts-Mediations-Gesetz). The Austrian Code of Civil Procedure (ZPO) and Code of Criminal Procedure (Strafprozessordnung StPO) also contain provisions relevant to mediation, particularly regarding mediators’ right to refuse to testify.
Has Austria signed the Singapore Convention on international settlement agreements resulting from mediation?
Austria took an active part in the debates leading to the adoption of the Singapore Convention. Whether and, if so, when the Convention will be signed and ratified has not yet been decided. The advantage would be that settlement agreements resulting from mediation would be readily enforceable in all member states. However, Austrian mediation settlements – which constitute a recognized enforceable title – are already fully and directly enforceable in Austria and, by virtue of international enforcement conventions, in other countries as well.
Is there a trend toward, or an incentive for, commercial mediation?
Mediation is a voluntary process. No statutory provisions make mediation mandatory before a case can be brought before the commercial courts. The Austrian Mediation Act gives the parties no incentives – positive or negative – to opt for mediation. The recent increase in commercial mediation proceedings in Austria reflects the openness of Austrian courts and Austrian dispute resolution professionals, who are actively integrating alternative dispute resolution methods into their range of services.
Do mediators need specialized training or accreditation?
Is there a professional body for mediators, and is formal accreditation required to use the title ‘mediator’? What are the key requirements for registration or accreditation? Is continuing professional development mandatory, and what requirements apply? Finally, what is an attorney mediator?
Mediators who meet the training and qualification requirements set out in the Austrian Civil Law Mediation Act (Zivilrechts-Mediations-Gesetz) may be registered with the Austrian Federal Ministry of Justice (BMJ). Registration is voluntary.
However, mediators who are not registered do not benefit from certain statutory protections and advantages under the Act, including the suspension of limitation periods and specific confidentiality protections that extend beyond the mediation process.
To be entered in the Austrian Ministry of Justice’s register of mediators, applicants must meet the following requirements:
- submit a written application;
- be at least 28 years of age;
- provide evidence of mediator training and qualifications, including documentation of more than 300 hours of training;
- submit a police clearance certificate;
- maintain professional liability insurance (minimum coverage of €400,000); and
- specify the locations in which they intend to offer mediation services.
Applicants must meet the following qualification criteria:
- complete appropriate mediation training;
- demonstrate the knowledge and skills necessary to practice mediation; and
- have a foundational education in both law and psychosocial disciplines.
Qualifying mediation training must be completed at a recognized training institution, including a university. The Austrian Ministry of Justice maintains a list of approved training providers. Training requirements are set out in Section 29 of the Austrian Civil Law Mediation Act (Zivilrechts-Mediations-Gesetz) and the applicable regulations. Registration in the official register of mediators is granted for a five-year period.
Are mediators liable?
What legal protections, if any, do mediators enjoy, and what forms of liability may they face? Is professional liability insurance available or mandatory? Austrian law contains no specific statutory framework governing mediator liability. Mediators may nevertheless be held liable under the general principles of Austrian civil law, including for damages arising from conduct that falls below recognized professional standards or deviates from accepted mediation practices. Professional liability insurance is mandatory for mediators registered with the Austrian Federal Ministry of Justice (BMJ), with minimum coverage of €400,000.
Are mediation agreements common in commercial mediation?
Although Austrian law does not expressly require a written mediation agreement, it is common practice for the parties and the mediator to enter into one. A written mediation agreement typically addresses the following key matters:
- the respective rights and obligations of the mediator and the parties;
- the mediation fees and costs, including the scope of the mediator’s liability;
- procedural and administrative arrangements, including the location, anticipated duration, and language of the mediation; and
- the core principles governing the mediation process, particularly confidentiality, voluntariness, and the mediator’s impartiality.
How are mediators appointed?
Mediators are generally appointed by mutual agreement between the parties. Typically, one party proposes mediation or suggests a particular mediator, who then contacts each party—separately—to hold preliminary discussions.
When a court recommends mediation or facilitates the process, the judge may refer the parties directly to experienced mediation professionals.
How should conflicts of interest be addressed?
Are mediators required to disclose potential conflicts of interest? What circumstances constitute a conflict of interest, and what are the consequences of failing to disclose one? Austrian law contains no mediation-specific provision expressly requiring mediators to disclose potential conflicts of interest. However, disclosure is generally necessary to safeguard the mediator’s independence and ensure that the parties can have confidence in the mediator’s neutrality. For lawyer-mediators, additional disclosure obligations may arise under the professional rules governing the legal profession.
Mediators registered with the BMJ are subject to strict conflict-of-interest rules. Under Section 16 of the Austrian Civil Law Mediation Act, they may not act as mediators in any dispute in which they are or have previously been involved as a party, a party’s representative, an advisor, or a decision-maker.
Are mediator fees regulated or freely negotiated?
In Austria, fees for commercial mediation are not regulated by law and are freely negotiable. Some mediators charge by the hour, while others use daily rates or agree on a fixed fee. As a result, there is no generally accepted fee range for the Austrian commercial mediation market.
In practice, attorney mediators typically charge between €200 and €400 per hour, depending on their qualifications, specialized training, and professional experience. Fees for international and cross-border commercial mediation can be considerably higher, with hourly rates in the UK and the U.S. often reaching approximately twice the Austrian level.
How does commercial mediation work, and what roles do attorneys, experts, and witnesses play?
Are parties in commercial mediation typically represented by attorneys? How often are expert witnesses or other specialists involved, and under what circumstances might witnesses participate?
In commercial mediation, particularly in complex, high-value, or cross-border disputes, including shareholder disputes and disputes between businesses, parties commonly attend with legal counsel. Where a dispute involves substantial technical or specialized issues, the mediator may also consult subject-matter experts to help clarify the relevant matters. Witnesses, however, are rarely involved in commercial mediation.
Is the mediation process governed by specific rules? If not, what does a typical mediation session involve?
For mediations falling within the scope of the Austrian Civil Law Mediation Act or the Austrian EU Mediation Act, statutory procedural requirements are minimal. This gives the parties considerable flexibility to shape the process to suit the nature of their dispute and their individual needs.
These requirements include:
- the mediator’s obligation to inform the parties about the mediation process and its potential legal implications;
- the mediator’s obligation to explain the form of the final mediation agreement and the means by which it may be enforced;
- the duty to document the commencement and conclusion of the mediation; and
- confidentiality obligations.
In international commercial mediation, mediators commonly ask the parties to provide a brief overview of the dispute or submit position papers in advance. The mediator manages the process and should tailor it to the parties’ respective needs and preferences.
How does commercial mediation affect limitation periods?
Does commencing mediation suspend the limitation period for bringing a claim before a court or arbitral tribunal?
Yes. Under Section 22 of the Austrian Civil Law Mediation Act (Zivilrechts-Mediations-Gesetz), the commencement and continuation of mediation conducted by a mediator registered with the Austrian Federal Ministry of Justice (BMJ) suspend the running of the limitation period. The period resumes from where it left off once the mediation concludes.
For mediations falling within the scope of the Austrian EU Mediation Act (EU-MediatG), the mediation process suspends the running of limitation periods for the rights and obligations that are the subject of the mediation (Section 4). Where the mediator is not registered in the Austrian Ministry of Justice’s official register of mediators, settlement negotiations may still suspend the running of a limitation period under Section 1497 of the Austrian General Civil Code (Allgemeines Bürgerliches Gesetzbuch, ABGB).
Are mediation clauses enforceable in Austria?
Can a contractual dispute resolution clause requiring mediation be enforced, and what is the legal basis for its enforceability?
In Austria, mediation clauses are not directly enforceable in themselves. In practice, however, our experience is that parties generally honor these commitments. Multi-tier dispute resolution clauses, which require the parties to attempt mediation before initiating court proceedings, have proved particularly effective in contractual practice. They encourage parties to explore an amicable resolution before resorting to litigation. We would be pleased to provide tailored mediation clauses for your contracts upon request.