This article is about two phenomena which currently impact the business of dispute resolution: The Vanishing Trial and the 30-70 %-Disease. What lies behind those two catch-words and why are both highly relevant for arbitration practitioners? Here is the proposed answer:
The Vanishing Trial has been a long established phenomenon in the United States where the number of actually tried cases has been falling sharply for decades. Now, this trend is spotted in Germany as well where civil law cases have decreased by some 25 % over the past 10 years. The root cause of the present development in Germany is unknown, and little is actually done to investigate the matter. Such protracted ignorance causes a severe problem, namely that wild speculations emerge. Some of these speculations involve arbitration proceedings. “Interested parties” lobby against arbitration arguing that the success of private arbitration proceedings is taking away the cases from the judges. This explanation is, of course, nonsense. The total number of arbitration cases is so low in relation to the number of civil lawsuits that nobody can seriously assume any causal connection. To prove that by some numbers: The total number of newly registered cases at the Germany Arbitration Institution DIS, by far the leading institution in Germany, is below 200 per year while the corresponding number of civil lawsuits currently revolves around 1.4 million per year. So if arbitration is not the culprit, who then?
Here, the 30-70 %-Disease comes into play. What is meant by that? It is a widespread observation that the majority of cases ends up somewhere between 30 % and 70 % of the amount originally claimed. In other words: It is hard to win a case by more than 70 %, for claimant and defendant alike. This development is propelled by the German Code of Civil Procedure requesting a judge to facilitate a settlement wherever possible. Some judges take this too far and virtually press for a settlement by telling the parties that there is “rarely a black-and-white decision“, that a “full fledged litigation will be costly and time consuming” and that it is therefore “better to settle, how about fifty-fifty“. Statistical evidence for this development might be that roughly 25 % of all cases settle in the German courts. And it is a safe assumption that in the remainder of the cases many still end up in the 30-70% range, based on legal principles such as contributory negligence or reductions as to the quantum claimed. What is a possible consequence? The parties to a dispute learn or conclude that it is virtually impossible to “win” a case by more than 70 %. If the potential prize for the winner is thereby reduced by 30 %, the incentive to go to court decreases, especially if the costs for pursing that chance (court fees and attorneys fees) stay stable or even increase. Hence, for the parties the cost/benefit-ratio for lawsuits goes down, fewer lawsuits are the consequence. Could it therefore be that the 30 -70%-Disease is the root cause for the Vanishing Trial in Germany and in other countries? A question certainly worth investigating.
Why does this matter for arbitration proceedings? If we assume for a second, that the 30-70 %-Disease has infected civil lawsuits and has led to their decline, is this disease contagious? Does it pose a danger for arbitral proceedings and the arbitration industry? It is politely submitted that the answer is affirmative. Not only do some arbitral rules contain similar provisions as the German Code of Civil Procedure encouraging arbitrators to act as settlement facilitators instead of deciding the dispute. Additionally, more and more arbitrators convey the impression to the parties that they are personally more interested in facilitating a settlement than in deciding the case. They do so by asking the parties again and again about a possible settlement or by delaying a decision without a reasonable explanation. In internal discussions of an arbitral tribunal it is not rare to hear statements such as “this case virtually screams for a settlement” or questions along the line “how could we incentivize the parties further to agree on a settlement?“. The motives for this behavior vary: Some arbitrators perceive the facilitation of a settlement as a nobile officium, a noble duty, which helps the parties more than a clear cut and sometimes harsh black-and-white decision. Other arbitrators might pursue more mundane objectives, aiming to save time and energy for writing the award. Be that as it may: If parties gain the impression, that most cases settle anyhow, also in arbitration proceedings, the parties might conclude that for merely settling a case the help of arbitrators is no longer needed. The parties might then – disillusioned as with the civil courts – avoid arbitrations, accept the 30-70 %-Disease as a natural given and compromise accordingly in bilateral negotiations.
To be clear: This article is not advocating against settlements. An amicable settlement is often a good resolution of a dispute and then deserves applause. But a settlement is not a means by itself. And a decision within the 30-70 %-range is not by virtue of this number alone fairer or better than a black-and-white verdict, declaring a winner and a loser. The 30-70 %-Disease must not become the reason for a declining number of lawsuits or arbitration cases. If decisions, by a civil court or an arbitral tribunal, become a rarity, the rule of law becomes an endangered species attacked by a shady compromise culture. That is not a trend worth supporting.
The bottom line is: The phenomena of the Vanishing Trial and the spreading 30-70 %-Disease are far too important to be ignored by the arbitration community and by anyone interested in dispute resolution. An open discussion is needed. This article was meant to kick-off the discussion and the authors look forward to receiving any critical feedback.