1 May 2017
Perspectives on dispute resolution
Recent findings show a significant gap between the expectations of clients and their external lawyers when it comes to the role of lawyers in dispute resolution proceedings. One recurring theme is that users of dispute resolution services typically want their legal teams to work collaboratively with them, whereas the lawyers believe that their clients want them, first and foremost, to be advocates. (See the Global Pound Conference Blog for a fuller discussion.)
For any in-house lawyer who has had to manage a commercial dispute, this is probably no surprise. Many people working in business have little or no practical experience of commercial litigation or arbitration and equally limited experience of working with external lawyers. For those people who have had the misfortune to be caught up in a formal dispute resolution process, it is a bruising experience.
Everyone, however, has experience of disputes; nearly every commercial relationship includes disagreement at some stage. Business leaders need to be adept at managing and resolving disputes if they want to maintain the loyalty and trust of co-workers and business partners. If every dispute were litigated, courts and external lawyers would be overwhelmed — not to mention that business would grind to a halt.
External lawyers only see snapshots of the decision processes that lead their clients to litigation or arbitration. In larger organisations, their main contact is with the client’s in-house lawyers, rather than the business leaders. They see nothing of the day-to-day workings of the business, and only a tiny proportion of the disputes that their clients are dealing with on a daily basis.
During my time as an in-house lawyer, not a week went by without someone asking me how to deal with a brewing dispute. More often than not, there was actually no dispute at all — one or both parties had misunderstood a contract that was written in arcane language, and they just needed to have someone “break the code” for them. It was common to discover that neither side was following the contract properly, and equally common for them to have no desire to re-write it to better reflect what they wanted. Legal documentation would be far down their list of priorities; they just wanted to get on with their project. As a junior lawyer keen to show my value, I would re-draft the agreement and anxiously chase my colleagues for their comments, concerned that everything would fall apart if the contract wasn’t corrected and then strictly followed. It almost never did.
Of the small number of misunderstandings that did escalate into full blown disputes, an even smaller proportion made it as far as a formal dispute resolution process. There was always a thrill of excitement in advising that we could take someone to court, but experienced business leaders rarely considered litigation as a serious option; they knew that it is a blunt tool, to be used sparingly and only when all else has failed. 95% of disputes would settle via negotiation between senior managers — without a lawyer in sight — and usually without any formal settlement documentation being drawn up (another fact that perplexed the keen junior lawyer — how could they say they had resolved the dispute when there was no written settlement agreement?).
With the wisdom of experience, it dawned on me that it was a good thing that most disputes settled without the involvement of lawyers. On the rare occasions when lawyers — internal or external — needed to play an active role in negotiations, their very presence tended to emphasise the seriousness of the matter, entrench the parties in their positions, and decrease the likelihood of settlement. From time to time, on being formally introduced to “our lawyer”, the person to whom I was being introduced would involuntarily take a step backwards or even try to escape — even if they had been happily chatting to me moments before. On one occasion, a person who had just learnt that I was the lawyer said, “But you seem so nice!”
Experience — and basic maths — also taught me that most disputes cost more to litigate than can ever be recuperated in monetary damages. By the time the cost of external lawyers had been factored in, and considered along with the management time, the stress, the distraction, the potential effect on reputation and the probably catastrophic effect on relations with the opposing party, settlement was almost always the pragmatic solution. If the other party refused to come to the table, the preferred course of action was sometimes dropping the matter altogether. Even if the perceived injustice rankled, accepting it and moving on was usually a lesser evil than going through a formal dispute resolution process. The exception to this rule was litigation on a point of principle — and, even there, settlement could occasionally be reached.
Once a decision to litigate had been made, the dispute would be stripped down to its legal arguments and then dressed up as pleadings, the language of which was so alien to the parties that they now needed lawyers to explain to them what their own dispute was about. Points that were important to the clients (for example, “they should be made to apologise!”) would often be irrelevant to the legal position. Control over the dispute had passed to the lawyers from the business leaders, who had to accept that they could not expect a fixed timetable for resolution, an accurate projection of how much resolution would cost, or any certainty as to what it would look like. The in-house lawyer’s role became that of an interpreter between the business teams and the external counsel, who spoke different languages and had different priorities.
Making business decisions against the backdrop of major litigation is always a headache. The business leaders’ overriding interest will be to have the dispute resolved as efficiently as possible, usually meaning cheaply (universally acknowledged as unrealistic but no less desirable for that), quickly (the meaning of this is a frequent point of misunderstanding between business people and lawyers) and without conceding important points of principle. Traditional dispute resolution procedures such as litigation and arbitration rarely satisfy any of these requirements.
Having seen a most unlikely dispute settled by mediation early in my career, the mediation clause became my dispute resolution proposal of choice in all the contracts I wrote. Often I would have to explain what mediation was, but when I did so, it would more often than not be accepted — sometimes with a degree of wonder, because the business leaders had no idea that such a mechanism existed — their lawyers had never told them about it.
An argument that is regularly made against mediation is that a court judgment or an arbitrator’s award is enforceable, but a settlement agreement may not be. Mediated settlements do not have the same status as arbitral awards, giving rise to a concern that they may not be effective to preclude further litigation. This argument reflects the lawyers’ view that enforceability must be of paramount importance for the client. In fact, enforceability may matter less to clients than lawyers expect, for two reasons.
First, bear in mind the many agreements reached by business people without any lawyers in sight. If they are written down at all — and plenty are not — enforceability is a minor consideration, because each party trusts that the other will keep its commitments. It is the business leaders who have to put into practice what a settlement agreement says; they are also best placed, in most circumstances, to judge the likelihood of it being respected. Of course they need to be advised on enforceability, but it is equally important for the agreement to properly reflect the deal and to be written in language they can readily understand.
Secondly, enforceability only becomes an issue if a party fails to respect the settlement. The key concern for the business is the likelihood and consequences of that happening. After all, if a party fails to respect a negotiated settlement, how likely is it to respect a court judgment or arbitral award? Nobody wants to have to go back to court for enforcement, which costs more time and more money, and — depending on the jurisdiction and circumstances — may be ineffective anyway.
From the client’s perspective, formal dispute resolution processes can be expensive barriers to effective dispute resolution. Clients need their lawyers — internal and external — to take their concerns into account, to hold their hands throughout the process, and to be ready to explain to them what all the options are.