How to Advise Clients in International Arbitration and Mediation

Karl Pörnbacher discusses how his firm stays at the forefront of advising clients.

An Interview With Hogan Lovells
Best Lawyers

Best Lawyers

January 27, 2020 08:00 AM

This interview was conducted as part of the 2020 Edition of The Best Lawyers in Germany “Law Firm of the Year” award recognitions. Our partner Handelsblatt, also published these awards on June 27, 2019, online and in print in their June 2019 edition.

From Hogan Lovells—Germany's 2020 “Law Firm of the Year” in Arbitration and Mediation—Karl Pörnbacher joins Phillip Greer, CEO of Best Lawyers, to discuss how his firm stays at the forefront of advising clients.

In your experience, why have you found arbitration and mediation to be preferable, and is that almost always the case?

Karl Pörnbacher: Generally, I see arbitration more as an alternative, as one of the potential possibilities for conflict resolution. But sometimes it is indeed a better alternative compared to litigation because you can easily use it for trans-border, international disputes. You can enforce the resulting awards easier than you could enforce a court judgment. You can use English as the language of the proceeding. And the flexibility of arbitration allows you to find a compromise between different legal systems and rules.

Can you describe what the process is like when advising clients to go down the path of arbitration?

KP: Clients live in an increasingly global environment and even medium-size or small size companies do business not only across Europe but globally. If you're in the car manufacturing industry, if you're an automotive supplier, you may need to produce in China, or you import from China even if you're a middle-sized or small business. Therefore, everybody needs to think about dispute resolution in international business relations. That has changed drastically. Some 10 years ago, we wouldn't have had that discussion. Now, let's say for somebody who isn’t experienced with respect to national arbitration, then international arbitration might be a scary proposition. So clients need to be educated about their options and what would work best in their situation, be it arbitration or litigation. Arbitration, of course, is a matter of agreement, so it needs to be implemented in the contract. Once a dispute has arisen, the parties could still agree on arbitration but less likely.

In any event, before we go down the road of formal proceedings, be it arbitration or litigation, we try to find an alternative way to resolve the dispute, such as negotiations or mediation. Make no mistake—arbitration is no fun for the client. It requires a firm investment, not only in terms of money but more importantly in terms of internal manpower. These internal costs and efforts are often underestimated and rarely compensated. A well-organized mediation can not only help get rid of the dispute and save these costs but also salvage the business relationship. It also allows the parties to focus on business issues without having to take legal positions.

If a quick commercial solution is not possible, then we switch to the arbitration mode. A series of strategic decision needs to be taken. Efficiency is key. To that end, we sit down with the client to understand the strengths and weaknesses of the case. The client and counsel put together a joint team and come up with a budget. Most importantly, the client and counsel together have to determine what the ultimate goals are. Based on that, we devise a game plan and implement it by focusing on the most important issues. That may include identifying appropriate arbitrators, experts, and witnesses. Another issue is whether all documentary evidence is available or if document disclosure from the other side is needed. Interim relief, sometimes sought from the courts, could be another component.

What are your thoughts on the practice of forced arbitration that some employers have instituted? We're seeing this is a hot topic in the U.S. right now. How much is this affecting or prominent in Germany?

KP: I think that is more a U.S. topic. I know that my firm has been successful in a recent case in the United States. In continental Europe, and especially in Germany, we sometimes discuss arbitration clauses for management members, and some of them do have arbitration clauses in their employment contracts, but we rarely see them in contracts with regular employees. Is that good or bad? The European or the German approach to arbitration would be that arbitration is something in the way we do it here in Germany. I know that employment arbitration is done differently. Our arbitration is rather perfect for business—for the B to B disputes and is less adequate for employment arbitration. I think if we were to introduce that on a broader basis, we would have to adapt the process to achieve acceptance.

You have significant experience in the energy industry. What are the most common types of cases that you've been encountering lately in that field?

KP: In the last years we have seen many disputes in the oil and gas industry as well as relating to electricity. Many long-term supply contracts had to be adapted in the aftermath of the financial crisis. Oil and gas prices have changed drastically as did storage costs. So often, the underlying mechanism got out of balance or triggered price-reopener thresholds—at least in the opinion of one of the parties.

We also do quite a lot of work in central Europe where disputes under production-sharing agreements have arisen. This is very exciting work and challenging under every aspect. Given what is at stake, the damages can quickly reach billions of dollars.

Another big area is renewable energy. Germany has seen some huge projects in the North Sea, in particular, wind farms. During the first few projects, many of those involved were lacking the required experience, which led to considerable challenges. Many parties struggled with keeping deadlines and commitments and now face the corresponding damages claims—often hundreds of millions of Euros. Some of these cases are being heard in court since the underlying contracts—for political reasons—have no arbitration clauses.

This brings us back to what we said in the beginning: Ideally, these cases would be dealt with in arbitration by arbitrators who have the required expertise. To have a state court judge—who lacks such experience and who, in addition, has his or her normal caseload—work through briefs that are sometimes hundreds of pages long, is nor fair to him or her or to the parties.

This interview has been edited for length and clarity.

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