How long has the "Center for International Dispute Resolution", or CIDR, been operating?
Prof. Dr. Stefan Kröll: The center was founded in late December and officially opened on February 14, 2018 with an opening lecture by Prof. George Bermann of Columbia Law School. This was followed by comments from Professor Gerhard Wagner of Humboldt University who compared Professor Bermann’s lecture on the restatement of American arbitration with recent developments in German arbitration.
The event is exemplary of the Center’s mission to look beyond our own jurisdiction and actively participate in the development of the law of international dispute resolution . There have already been a number of activities focusing on dispute resolution at Bucerius prior to the opening of the CIDR. Professor Karsten Thorn, the Bucerius Chair of Civil Law, International Private and Commercial Law and Comparative Law, and I direct it. In addition, professors Mehrdad Payandeh and Clifford Larsen are active in the Center as well as Bucerius alumnus Friedrich Rosenfeld.
“At the CIDR, it is our mission to look beyond our own jurisdiction and actively participate in the development of the law of international dispute resolution.”
What does the CIDR do?
It examines how international disputes can be regulated and effectively managed. How can they be implemented with one single procedure? And not that, for example, one party sues in America and the other sues in Germany. Alternative dispute resolution aims to enforce the rights of all parties involved.
“Unfortunately, the courts in many foreign jurisdictions do not meet our expectations of effective and, above all, impartial legal protection. In the case of disputes with parties from these countries, arbitration is the only satisfactory option.”
Why does the Center have an international orientation?
There are different problems here than in domestic law. International disputes could potentially be decided in different jurisdictions with the various parties each preferring their own legal system. Unfortunately, the courts in many foreign jurisdictions do not meet our expectations of effective and, above all, impartial legal protection. In the case of disputes with parties from these countries, arbitration is the only satisfactory option. Additionally, in arbitration, parties usually select their arbitrators. Accordingly then, each party has the feeling that their position has at least been heard. Culturally, a German arbitrator understands a German citizen better than an American arbitrator. He or she knows what the clients expect and can better serve them.
“By creating the arbitration court themselves, the parties involved in an international dispute can prevent one-sided forum shopping.”
Can you please explain how to proceed with an international dispute?
The first question to be resolved in a cross-border dispute on the existence of substantive claims is that of jurisdiction: before which court can the alleged claims be argued? Generally, several courts may potentially declare themselves competent. In such cases, the plaintiff will choose the country most favorable to him or her, in other words, in which country he or she has the greatest chance of winning. This so-called “forum shopping” is very common in the international field. However, this raises the question as to whether the verdict given in one country is also recognized and enforced in another. For example, if an American successfully sues a German party for payment before an American court, but the German party has no assets in the US and refuses to pay, then the American verdict must be enforced in Germany where the party has its assets. The commercial law I deal with often makes use of arbitration. We create the (arbitration) court ourselves thereby preventing one-sided forum shopping.
“By concluding an arbitration agreement, the parties forego the jurisdiction of the state courts for the legal dispute and transfer it to an arbitral tribunal.”
What does that mean?
By concluding an arbitration agreement, the parties forego the jurisdiction of the state courts for the legal dispute and transfer it to an arbitral tribunal. This is applicable only for the specific dispute in question. Ideally three experts are then selected as arbitrators who are familiar with the matter and reflect the different origins of the parties. In the aforementioned example, the arbitrators would come from America and Germany, with an additional neutral arbitrator, perhaps from Great Britain. The parties themselves each appoint an arbitrator. Then they jointly agree on the chairperson. Due to the New York Convention, which has been ratified by 159 states, the arbitration verdict given by the arbitral tribunal is enforceable in almost all the contracting states worldwide. It's different in a court. For example, an American verdict has no legal application in Germany. The German state has to examine it first.
What is the advantage of arbitration?
First of all, it allows the opportunity to arrange the proceedings yourself and to avoid the state court of the opposing party. It also makes the verdict easier to enforce internationally. This is based on the idea that, unlike in legal proceedings, no one is forced to go before a court that they didn’t choose. Instead, the parties have chosen who will have jurisdiction over the case. And having chosen the arbitrators themselves, they are bound to their arbitral verdict. This is why alternative forms of dispute resolution, particularly arbitration, are widely used in commercial law.
“Facts of a dispute are often twisted, in order to discredit arbitration in the eyes of the general public.”
The public discourse, however, is often dominated by the special case of investment arbitrationwhich does not involve a dispute between private parties, but a lawsuit of a foreign investor against a state. The discussion has been less about content and facts, but more about preventing TTIP and CETA with a clever campaign. In order to discredit arbitration, the facts were twisted quite a bit. For example, the lawsuits of Tobacco Corporation Philip Morris against Uruguay and Australia have been presented in a way that the general public felt that the tobacco company would have to be compensated by these countries for their tighter legislation to protect against the dangers of smoking. But that is by no means the case. Rather, both claims for compensation have been dismissed.
Now from theory to practice, your practice: When does a company call you?
When an agreement to go to arbitration has been reached and the parties then look for suitable arbitrators. Such arbitration agreements are particularly common in international matters for the reasons mentioned above. Even though it may be surprising to Germans: many foreign parties do not want to go to a German court because they fear they will not get a fair trial against a German party in Germany.
"Let’s not forget: in terms of the rule of law, people in Germany and some other Western countries are living on a blissful island."
Crazy. And despite the fact that Germans are known for our über-bureaucracy?
Yes. Because if I as a plaintiff lived in a corrupt country for 40 years, I would also think that German judges are corrupt. In this case, an arbitration tribunal is often the only acceptable alternative from the point of view of the parties involved. It is just as difficult for us in Germany to imagine that judgments are practically for sale in some countries. We live in a constitutional state and assume that this is the case in other countries as well. Let’s not forget: in terms of the rule of law, people in Germany and some other Western countries are living on a blissful island. All we need to do is look further east. When judges in countries like Kosovo make decisions that powerful people don’t like, a gunman may come along and "tell” them how to decide.
Is there a crisis in the judiciary?
Not in Germany, but in several other countries where the justice system is anything but effective and impartial. Corruption and threats prevent the effectiveness of the system. You don’t need to go to Turkey to see this; you can stay right here in Europe. The Commission is very concerned about Poland, for example, because key principles of the rule of law are being called into question and state authorities lack effective control. The nationalist wave is affecting not only public law, but also the private sector. Germans and other foreigners have more difficulties ensuring their rights in Poland and, accordingly, more people are choosing to settle in arbitration tribunals than in state courts.
“Key principles of the rule of law are being called into question and state authorities lack effective control. The nationalist wave is affecting not only public law, but also the private sector.”
Have you ever witnessed a case of corruption?
Corruption has played a major role in several of my cases. I can talk about one case as it was widely covered in the press. It was about a dispute between the Austrian State Printers and the state of Kosovo. Kosovo appointed me as an arbitrator, most likely because I had worked for USAID several years before to help set up their local arbitration body. The Austrian State Printers had won the tender for the creation of biometric passports for Kosovar nationals.
The Kosovar woman who was selected to carry out the contract, particularly the customs formalities, had fled to Germany during the civil war but had since returned to Kosovo and worked there as a sales representative for the government. Since the Austrian State Printers had also given her its official stamp, she had simply created a new receipt with her personal bank details and had the payment for the passport order paid into her account. As a German, despite my experience abroad, I was surprised that the woman apparently assumed that she would get away with this and not be prosecuted. The Austrian State Printers then sued Kosovo because it had transferred the money incorrectly. From the very beginning, Austria had insisted that the Kosovars only use a specific account for bank transfers – but they didn’t. One third of the passports had already been printed when the incident occurred. As a consequence, Kosovo, which was apparently completely incorrectly advised, withdrew their order. It was given to a German firm that completed the job. But the Austrians had already printed one portion and insisted on being paid for the work they had already done. They were owed a total of about four million Euros.
That’s a lot of money – how did things work out for the Austrians?
There was an arbitration and Kosovo was forced to pay. Another incident from the case is also worth mentioning. As part of the process of assessing the damages, they needed to determine whether additional passports, on top of the ones already delivered, had been created, as the Austrians claimed. The state of Kosovo did not believe the claim. We, the arbitral tribunal, wanted to send an Austrian notary. But still, the Kosovars remained suspicious. The concept of an impartial judge who was paid by one of the parties but remained neutral was simply too foreign to them. At the same time, this shows that international arbitration is often the only way to demand "good governance" at all. Critics of international arbitration should consider this. And while there is legitimate criticism of the conduct of such proceedings, the proverbial baby should not be thrown out with the bathwater.
“International arbitration is often the only way to demand ‘good governance’ at all”.
How do students at Bucerius Law School learn about all this?
Through the relevant lectures focusing on international trade and dispute resolution. International cases are also simulated in the various moot courts. To go deeper academically, students can pursue doctoral research on the topics.
What are you currently working on at the Center?
Dispute resolution and the harmonization of law. We pick out individual issues that are often associated with United Nations initiatives. Prof. Thorn examines what things look like for economically weaker parties. An example: the operators of subway shops run small businesses. If their contract states, "We will only prosecute a case in the US or through arbitration," it can have serious financial consequences. In state courts, the state pays, so everyone shoulders the legal fees. However, the parties to an arbitral tribunal pay for the arbitration themselves, as well as the lawyer's fee. But what happens when one party has no money? Something has to change at that point. Financiers are springing up everywhere, for example. They finance the procedure and then take a share of the settlement. These financiers calculate whether the investment is likely to pan out or not. They are helpful for small businesses. Another example: a medium-sized German company delivers ten million Euros worth of goods to Poland. The customer refuses to pay but the German business, which is out ten million Euros, has no more money and therefore can’t sue. But then a third party offers to pay for the case and the CEO of the German company has a choice: seven million Euros or nothing.
“At the CIDR we pick out individual issues that are often associated with United Nations initiatives, for example how economically weak parties can benefit from arbitration.”
How did you come to this legal discipline yourself?
I’ve been working in this area since law school. In my fifth semester, I went to study abroad in Geneva and encountered the subject there for the first time. I’ve been at it ever since.
„In my opinion, corruption is one of the biggest obstacles to sustainable development in many countries of the world.”
What are your hopes for the future?
Effective anti-corruption. In my opinion, corruption is one of the biggest obstacles to sustainable development in many countries of the world. The more work I do internationally, the more I feel we would be further if we were to fight endemic corruption in these countries - especially in the legal system. After all, people will only invest there when they feel safe there. Fortunately, the UN is working on anti-corruption initiatives. It has to be a united effort. More definitely needs to happen.